Air Canada logos are seen on the tails of planes at the airport in Montreal on Monday, June 26, 2023.THE CANADIAN PRESS
Air Canada's role as the official carrier of Team Canada did not shield it from the summer sales impact caused by the Paris Olympics. Despite a strong desire among Canadians for Mediterranean vacations, the airline's transatlantic ticket sales dipped in the latest quarter. This was partly due to travelers from France and Germany choosing to stay in Europe to enjoy the Olympic Games and Euro 2024.
Mark Galardo, Air Canada's head of revenue and network planning, noted, "Core Europe markets like France and Germany, where there's a significant point-of-sale Europe component, were quite weak." He attributed some of these declines to the Olympics and Euro soccer tournaments.
The athletic events, combined with an abundance of Atlantic flights from competitors, prompted Air Canada to reduce its capacity for transatlantic trips. Galardo explained that many vacationers avoided Paris, as parts of the city were closed off during the Olympics. Chris Murray, an analyst at ATB Capital Markets, confirmed this trend, noting that numerous travelers chose to steer clear of France during the games.
This weaker demand contributed to a 51% year-over-year drop in Air Canada's profit last quarter, even though revenues increased. CEO Michael Rousseau described the second-quarter results as solid but not meeting internal expectations. Higher capacity and strong demand for international flights drove a 2% year-over-year revenue growth to $5.52 billion in the quarter ending June 30. However, revenue per seat declined compared to the previous year, when post-pandemic demand and lower capacity resulted in fuller planes, higher fares, and wider profit margins.
Consequently, Air Canada's net income for the second quarter fell to $410 million from $838 million a year earlier. Operating expenses, which were 9% higher than the previous year, also contributed to the decline due to rising jet fuel and labor costs, according to CFO John Di Bert.
Despite ongoing growth, Air Canada's post-COVID recovery remains incomplete. Di Bert mentioned, "We’re still not back to 2019 levels in terms of scale and the size of the airline." The airline's adjusted earnings were slightly lower last quarter compared to the same period five years ago, and its fleet size decreased to 356 planes from 400 in the second quarter of 2019. The scrapped aircraft were generally smaller, older, and less efficient.
Air Canada shares dropped 1.39% to close at $14.93 on Wednesday, a closing price not seen since October 2020. Rousseau acknowledged shareholder disappointment, stating, "Like our shareholders, we're disappointed with our stock price performance here... especially coming off our record 2023 and having completely repaired the balance sheet."
Executives had previously expected corporate travel to boost profits in 2024, despite persistent habits of video conferencing and remote work. As competitors focused on transatlantic routes, Air Canada increased its Pacific flight volumes by a third. New routes from Toronto to Seoul and Montreal to Osaka performed well, according to Galardo. However, challenges in the Pacific remain, including China's tight restrictions on tour group visits to Canada and a Russian airspace ban that adds significant fuel and labor costs for Canadian carriers.
Looking ahead, Galardo mentioned a "measured approach" to expansion. The airline had only two more planes last quarter compared to the previous year but secured leases on eight Boeing 737 Max 8s for next summer. On an adjusted basis, Air Canada earned 98 cents per diluted share, down from $1.85 per diluted share a year ago, yet slightly above analysts' expectations of 92 cents per diluted share. Air Canada plans to increase its flight capacity in the third quarter by 4 to 4.5% compared to the same quarter in 2023.
