Air Canada to raise fares due to rising fuel costs and weak business travel


MONTREAL — Air Canada is poised to raise fares to offset the effects of rising fuel prices, declining business travel and soaring inflation.

The nation’s largest carrier more than tripled revenue in the last quarter as travel demand surged, although a net loss of nearly $1 billion signaled that recovery from the pandemic is far from over. be completed.

After the Omicron variant of COVID-19 slowed bookings in January, Air Canada’s sales soared in March as travel restrictions eased, pushing bookings to 90% of 2019 levels.

“We are very positive about the rest of the year and continued growth over the next few years,” CEO Michael Rousseau told analysts on a conference call Tuesday.

Despite this optimism, shares of Air Canada fell $1.76 or 7.3% on Tuesday to settle at $22.46 at the end of the day on the Toronto Stock Exchange.

The airline maintained its full-year forecast that available seat capacity will average around three-quarters of what it was in 2019. A similar figure is expected for the current quarter, which would be five times the capacity of the previous year.

However, Air Canada’s capacity continues to lag behind that of its U.S. counterparts and business travel remains at half the volume reached three years ago, chief commercial officer Lucie Guillemette said.

“International might take a little longer,” she said, referring to business bookings overseas, even as domestic and leisure travel increases.

Air Canada hopes to benefit from a renewed appetite for U.S. business travel as the carrier bolsters its U.S. flight schedule, she added.

The prolonged slump in business travel remains a “key risk” for Air Canada, while fuel costs have “eroded the otherwise positive upside of higher fares,” said RBC analyst Walter Spracklin.

Jet fuel prices were up nearly 119% year-over-year to April 22, according to the International Air Transport Association. Soaring in March amid Russia’s invasion of Ukraine, jet fuel prices have fallen 5.5% over the past month.

“The ability to pass on rate increases and manage through optimization and cost discipline is really key to how we’re trying to manage this dislocation in market pricing,” Chief Financial Officer Amos said Tuesday. Kazzaz to analysts on a conference call.

Higher fuel surcharges and so-called ancillary charges – for services such as baggage and meals and for commission-based offerings such as car rental and travel insurance – remain another route to profitability. , added Guillemette.

A hiring drive over the past year has swelled Air Canada’s ranks to more than 27,000 from 16,000 a year ago, even as a labor shortage – particularly for ground staff and pilots – affects some airlines.

“There are positions under the wing, potentially, that are a little harder to recruit at the moment,” Rousseau said, adding that hiring isn’t a major hurdle as passengers flock to the terminal. .

“Travellers came back strong starting around March,” said Helane Becker, aviation analyst for financial services firm Cowen, in a note to investors.

“Even with the disappointing first quarter results, we believe they will be on track as the recovery continues.”

Air Canada aims to restore 41 North American routes discontinued during the pandemic and relaunch nine domestic and transborder routes this summer, in addition to 34 international routes. It plans to serve 51 Canadian airports and 46 US airports.

To offset ticket sales that remain below pre-pandemic levels, the Montreal-based airline has continued to expand cargo services, seeking to capture demand caused by congested supply chains and a stabilizing surge. but persistent e-commerce.

Cargo revenue rose 42% year-over-year to $398 million in the first quarter, or 15% of total revenue, with two new Boeing 767-300 freighters expected to be delivered this year.

“Going forward, we expect this to ease as we convert aircraft back to passenger configurations and receive our new freighter aircraft,” Guillemette said of freight revenue.

Meanwhile, bookings through the airline’s revamped Aeroplan rewards program surged 19% over the first three months of 2019 as Canadians racked up points earned during the pandemic to travel.

Air Canada reported a first-quarter loss of $974 million or $2.72 per diluted share for its first quarter, compared with a loss of $1.3 billion or $3.90 per diluted share a year earlier.

Revenue totaled $2.57 billion for the three months ended March 31, compared to $729 million in the first three months of 2021.

Analysts had on average predicted a loss of $1.49 per share, according to financial data firm Refinitiv.

This report from The Canadian Press was first published on April 26, 2022.

Companies in this story: (TSX:AC)

Christopher Reynolds, The Canadian Press


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