Air Canada (AC.TO) reported a wider loss than analysts expected in the first quarter of the year, as costs climbed and pent-up demand slowed, sending the airline’s shares down nine per cent on Thursday.
The Montreal-based airline reported an adjusted net loss of $96 million, or 27 cents per share, more than the seven cents per share loss that analysts had expected. Shares of Air Canada were trading on the Toronto Stock Exchange at $18.58 as at 2:20 pm ET, a decline of nine per cent compared to Wednesday’s close.
Operating expenses grew six per cent in the quarter to $5.2 billion. While the airline benefited from falling jet fuel prices, which declined 18 per cent in the quarter, it saw other costs climb. Labor expenses were up 20 per cent, largely due to profit sharing and other wage initiatives, and the airline’s full-time employee count rose seven per cent. Aircraft maintenance costs climbed 21 per cent, in part due to higher rate of inflation for components. IT costs also rose for Air Canada, increasing 27 per cent in the quarter.
At the same time, the pent-up demand that fueled a recovery at the airline after the COVID-19 pandemic has started to wane.
“We see that, as expected, pent-up demand and revenge travel factors are slowing over time,” Mark Galardo, Air Canada’s vice-president of network and planning, said on a conference call with analysts on Thursday. The slowing demand has led to a normalization in yield – an industry measure of fares charged per passenger – in some markets, Galardo says. However, he notes that yields on domestic and Asia-Pacific flights remain strong.
“The yield performance this year reflects a normalization of market conditions,” National Bank analyst Cameron Doerksen wrote in a research note on Thursday. While Doersken lowered his price target for Air Canada slightly (from $31 per share to $30 per share) he said “we are not overly concerned by a modest miss in the quarter relative to expectations,” noting that Air Canada’s first quarter makes up between ten to 15 per cent of full year earnings before interest, taxes, depreciation, and amortization (EBITDA).
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“The market apparently remains concerned about the sustainability of air travel demand in Canada; however, while AC’s yields fell in Q1, most of the data continues to point to still positive end market demand,” Doerksen wrote.
While a rebound in business travel has boosted earnings at US airlines, corporate demand at Air Canada has been slower to recover.
“We didn’t see a big growth as some of our American peers did… but we’re starting to see some very encouraging signals on corporate demand, to the tune of almost 10 to 20 per cent greater on year-over- year basis,” Galardo said, adding that workers in the technology and transportation sectors have started to significantly return to business travel.
“It’s a bit early to spike the ball on that, but we’re seeing some very, very strong signals.”
With files from Reuters
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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