Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Air Canada (ACDVF, Financial) achieved second quarter operating revenues of $5.5 billion, reflecting a 2% year-over-year increase.
- The company generated $1.5 billion in free cash flow on a year-to-date basis.
- On-time performance improved by 10 points, despite operating 4% more flights and carrying 3% more passengers compared to the same quarter last year.
- Air Canada (ACDVF) won more awards than any other Canadian carrier at the 24 Skytrax World Airline Awards, including being rated among the top 30 airlines globally.
- The Pacific market continues to perform well, with new routes to Seoul and Osaka showing strong performance shortly after launch.
Negative Points
- Adjusted EBITDA margin was 16.6%, which did not meet internal expectations.
- Passenger revenue per available seat mile (PRASM) declined by 4.4% year-over-year.
- The system load factor declined by about 2 percentage points to 85.7%, compared to the same period last year.
- Operating expenses increased by 9% year-over-year, driven by higher fuel, labor, and maintenance costs.
- The Atlantic performance was impacted by weak point-of-sale in Europe and competitive pressures on the Canadian point-of-sale.
Q & A Highlights
Q: Can you talk a little bit about what you’re seeing on the corporate side and how corporate travel today looks versus pre-pandemic?
A: Our corporate travel grew about 4% in the quarter, mainly on the Canada-US sector. However, we are still about 25% to 30% below 2019 levels. We are reviewing our schedules to better facilitate business travel and stimulate corporate recovery. – Michael Rousseau, President, Chief Executive Officer, Director
Q: Could you flesh out your capacity plans for the second half of the year and into next year?
A: For Q4, we’re looking at around 5% growth, primarily in the Pacific sector and India. We’ve reduced our exposure to Europe and are reassessing our domestic capacity for Q4. It’s too early to specify plans for 2025. – Michael Rousseau, President, Chief Executive Officer, Director
Q: Are you expecting demand to catch up in the Pacific market, or do you expect competitive capacity to pull back?
A: The yield decline in the Pacific is due to tough comparisons from last year. Despite this, our Pacific routes remain highly profitable. Capacity growth in the Pacific will be moderate, depending on the outcome of China’s market. – Michael Rousseau, President, Chief Executive Officer, Director
Q: Can you provide an update on your CapEx plans, particularly regarding the 787-10 aircraft?
A: We’ve planned the delivery of the 787-10s over a two-year period starting in 2026 to ensure reliable capacity and balanced CapEx flow. There are no new assumptions regarding sale-leasebacks. – John Di Bert, Chief Financial Officer, Senior Vice President
Q: What are your thoughts on returning to pre-pandemic EBITDA margins of 18% to 19%?
A: We believe the airline can return to high teens margins over time. This will be driven by scale, a modern fleet, and productivity improvements. While yield environment is currently compressed, we expect stabilization and growth in the long term. – John Di Bert, Chief Financial Officer, Senior Vice President
Q: Are there any specific adjustments you’ve made to improve flight completion factors and reduce delays?
A: We’ve implemented a comprehensive program called ECX, focusing on on-time performance and disruption management. This includes technology improvements, changes to airport operations, and better baggage handling processes, leading to a 10-point improvement in on-time performance year-over-year. – Craig Landry, Chief Operations Officer, Executive Vice President
Q: Can you provide more details on the demand environment and yield environment, particularly in the Atlantic market?
A: Leisure demand to the Mediterranean remains strong, but core Europe (France, Germany) has seen weakness due to economic stagnation and events like the Olympics. We expect a rebound in France in September and October. – Michael Rousseau, President, Chief Executive Officer, Director
Q: What are the key milestones in your ongoing negotiations with pilots?
A: We are currently in negotiations overseen by a federal conciliator. We have reached agreements on several items and hope to finalize the remaining issues in the next several weeks. – Michael Rousseau, President, Chief Executive Officer, Director
Q: How do you see travel demand evolving in Canada next year, considering factors like mortgage resets and immigration flows?
A: We expect demand to remain strong, supported by positive indicators in leisure demand sentiment and international bookings. We are diversified in our customer base, which includes Canadian, US, and international travelers. – Michael Rousseau, President, Chief Executive Officer, Director
Q: How are you managing PRASM in the Pacific market as capacity is restored?
A: Despite tough comparisons from last year, the Pacific market remains favorable with strong margins. We are happy with the performance of new routes and expect the Pacific to remain robust through the end of the year. – Michael Rousseau, President, Chief Executive Officer, Director
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
