Air Canada Faces Challenges in First Quarter as Business Travel Shows Signs of Recovery

Air Canada experienced a challenging first quarter as the company reported a loss amid rising expenses due to increased seat capacity. The Montreal-based airline posted a loss of $81 million, a stark decline from the $4 million profit in the same period a year ago.

Despite the loss, operating revenues saw a 7% increase to reach $5.2 billion, with a notable 11% rise in seat capacity. Operating expenses also climbed by 6% or $311 million compared to the previous year.

Michael Rousseau, the CEO of Air Canada, highlighted that the increase in expenses was primarily driven by higher costs across various areas, including labor, maintenance, and information technology, partially offset by lower fuel expenses.

The airline plans to further enhance its seat capacity by 7% in the second quarter compared to the same period last year, with a particular focus on adding leased Boeing 737 Max aircraft to the fleet.

Mark Galardo, who oversees revenue and network planning at Air Canada, noted that the first quarter saw a stable corporate travel sector, with a stronger growth trend expected in subsequent quarters. Premium products, including business cabin and premium economy fares, played a significant role in the passenger revenue growth of the company.

Industry-wide challenges, such as the grounding of certain Airbus A220 aircraft due to Pratt & Whitney engine issues, have also impacted Air Canada’s operations and expenses. Talks are ongoing between the airline and Pratt & Whitney for compensation related to the grounded planes.

While Air Canada is hopeful for a revival in corporate travel demand, challenges in the supply chain and ongoing operational constraints are areas of concern for the company’s financial outlook. The stock price of Air Canada saw a significant dip following the earnings report.

Analysts, including those at National Bank led by Cameron Doerksen, believe that the current valuation of Air Canada may reflect an overly pessimistic view, considering the broader industry dynamics and the company’s long-term plans for recovery.