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Airlines
Air Canada cuts 2024 forecast amid tough competition, excess capacity
July 23, 2024 By The Canadian Press
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Air Canada has lowered its 2024 earnings forecast, saying its planes have not been flying as full as anticipated this summer in part due to tough competition in international markets.
The Montreal-based carrier said Monday it now expects its adjusted earnings before interest, taxes, depreciation and amortization for the year to be within $3.1 billion to $3.4 billion, down from its previous outlook of $3.7 billion to $4.2 billion.
The new outlook came as the company reported preliminary results for the second quarter ahead of its next earnings date of Aug. 7.
Air Canada said it expects operating revenues of around $5.5 billion for its second quarter, compared with $5.4 billion in the same quarter last year.
It also expects operating income of $466 million, down from $802 million in the second quarter of 2023.
In addition to increased competition, the airline said it has seen challenges stemming from sustained supply chain pressures, evolving market conditions and “ongoing geopolitical issues.”
The North American airline industry is grappling with a host of challenges right now, including an over-supply of seats for sale that is exceeding overall demand.
Airlines are also facing high labour and fuel costs, as well as continued supply chain challenges.
Several Canadian airlines — including Air Canada competitor WestJet — have run into plane delivery delays caused by production problems at aircraft maker Boeing Co., which has constricted their ability to grow their fleets.
Air Canada, along with Transat A.T. Inc., is among the airlines facing knock-on effects from the recall of Pratt & Whitney turbofan jet engines for inspection and repair.
The potential for labour strife is another cloud on Air Canada’s horizon. Last month, the union representing the airline’s pilots filed for federal conciliation assistance with its negotiations with Air Canada, which have been ongoing for more than a year.
The airline’s collective agreement with its pilots expired on Sept. 29, 2023.
While Air Canada’s updated earnings forecast won’t be well-received by investors, said RBC Capital Markets analyst James McGarragle in a note, although “indications from Transat and U.S. peers into the quarter pointed to some weakness across the industry.”
Air Canada said in spite of the challenges, it continues to see a healthy demand environment. The airline said its preliminary second quarter operating revenues would represent a record for a second quarter, with load factors remaining above historical averages.
The carrier said it is effectively managing its costs through productivity, cost reductions and other cost discipline issues.
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This report by The Canadian Press was first published July 22, 2024.