Air Canada is reporting a second-quarter profit of $410 million, down 51% from $838 million a year ago.
Canada’s largest airline issued its Q2 financial report on 07AUG. Operating revenues were $5.5 billion for the quarter, up 2% from 2023. But operating income was $466 million, down $336 million year over year.
“Our second quarter results were solid, although they did not meet our internal expectations,” President and CEO Michael Rousseau said.
Operating expenses rose 9% during the quarter, officials said, partly due to the cost of labour and high jet fuel prices.
Air Canada said capacity was up 6.5% in Q2, compared to last year.
The airline said it has adjusted its ASM for 2024 to reflect a 5.5 to 6.5% increase versus 2023. Earlier projections had suggested a 6% to 8% increase in ASM.
“We further diversified our network, including with services to Singapore, Stockholm and India, and enhanced our operational flexibility by securing an additional eight Boeing 737-8 aircraft, set to enter service next year,” Rousseau said in a statement. “We saw healthy demand, with load factors remaining above historical averages. We remained sharply focused on our customers and operations throughout the quarter and experienced a 10-percentage point year-over-year improvement in our on-time performance, even with the increased flying.”
In a call with analysts after the numbers were released, AC executives touched on everything from increased European competition, Air Canada Vacations growth and the company’s stock price. They also talked about ongoing negotiations with AC pilots and the cost of travel in Canada.
“As 2024 progresses, we can see that 2023 was truly a unique year,” Rousseau said. “The rapid post pandemic surge in demand, combined with constrained capacity, resulted in very strong yields and load factors. We recently revised our full year guidance to reflect the impact of the changes in market conditions.”
“Some have criticized the cost of travel in Canada,” he said. “To do so selectively, without comparing the different and unique user pay model in Canada, as compared to other jurisdictions, is not only completely misleading and simplistic but, frankly, disconcerting. “In addition, our Q2 unit costs, excluding fuel, have increased by over 22% from the second quarter of 2019, in part due to new government policies.”
Rousseau also touched on Air Canada’s stock price, which was around $15 on the morning of 07AUG.
“Like our shareholders, we’re disappointed with our stock price performance, especially coming off a record 2023 and having completely repaired the balance sheet,” he said on the conference call. “We also know that most global airline stocks are having similar challenges.”
Mark Galardo, EVP of Network and Planning, said AC’s system load factor was down 2% to 85.7%, “which remains higher than historical averages.”
“Demand continues to be resilient,” he said. “International markets continued to be the driving force behind our overall earnings. The new routes we added … are in most cases above the profitability of our current network.”
“However, we did observe some weakness in international markets compared to Q2 2023, which was above historic levels. Atlantic performance was particularly impacted by a weak point of sale in Europe and the competitive pressures on the Canadian point of sale. We are keeping a measured approach to capacity. We continue to see strong demand for leisure travel to Europe, in particular the Mediterranean markets,” Galardo said.
“Overall, we believe our Q2 performance in Europe is less about consumer weakness and more about competitive supply growth above what the market can sustain in the short term.”
Galardo said that AC has reduced its Atlantic capacity and increased flights to the Pacific region, while other airlines have increased trans-Atlantic seat capacity by almost 20% for the full year.
“Diverting capacity away from Europe and into Asia was the right call for us. New routes to Seoul from Montreal and to Osaka from Toronto all performed exceedingly well.”
Rousseau suggested there are potential challenges for Air Canada, including “entering new stages of certain labour agreements, which have to be cost competitive in the Canadian market for us to be successful.”
He said negotiations with AC pilots are going on with the help of a federal conciliator.
“We have reached agreement on several items. There’s more obviously to agree on and we’re hoping we can do that over the next several weeks.”
Galardo noted that corporate travel is growing but is still well below pre-pandemic levels.
“Our corporate overall for the quarter basically grew about 4%, and most of that came on the Canada-US sector. Summer … is normally not an important period for corporate travel, so really what we’re looking at is September and October, and we continue to see momentum in terms of the corporate recovery, particularly in the Canada-US sector. That being said, we’re still about 25% to 30% below where we were in 2019.”
The airline, he said, is doing an internal review to see how it could stimulate corporate recovery.
Galardo said sales on Mediterranean and European flights are pretty strong from Canada and the U.S.
“We’re looking at demand of 5-6% better year over year. We’re seeing a lot of strength for Italy, Greece, Portugal, the south of France.”
However, point of sale sales in France and Germany were “quite weak,” perhaps due to a slow European economy, the Paris Olympics, and the Euro Cup soccer tournament in Germany.
“That being said, what we’re seeing in September and October is definitely a rebound in France. November and December are a little too early to call. In general, demand to the Mediterranean really really held up and we’ll be looking to do a little more of that in 2025.”
Galardo said Canada-US business is solid while noting increased competition in the sector.
“We’re relatively shielded in the sense that we don’t have ultra low-cost carriers operating between Canada and the U.S. So the environment is still pretty healthy. The distinction I’d make on the Canada US sector is that some of our investments are longer term in nature. We’re trying to build a sizable and scaled sixth freedom network. In the short term there might be some yield pressure but in the long term it will deliver significant value to our international network.”
Rousseau also touched on Air Canada's sixth freedom plan.
“Our business model, which places an emphasis on building our major hubs to capture international and sixth freedom traffic, is ideal for our company and our geography. It creates value for all stakeholders. For example, it allows us to support more regional routes which normally don’t provide an adequate financial return, connecting communities to the rest of Canada,” he said.
Air Canada made headlines recently when it said it was involved in a plan to boost high-frequency rail service in the Toronto-Quebec City corridor.
“It’s a very interesting project,” Rousseau said on the call.
AC EVP and Chief Legal Officer Marc Barbeau called it “a very important project for Canada.”
Barbeau confirmed that Air Canada is part of a consortium that’s bidding on the project but said he is “unable to comment in any way, shape or form.”
Air Canada executives made observations about a number of other topics during the conference call, including
- Growth in premium cabin revenues is outpacing overall revenue growth
- Air Canada Vacations is growing its winter sun network and consistently delivering for the company
- Membership in Aeroplan is at an all-time high
