Air Canada reports ‘excellent’ first quarter, despite Max grounding

An Air Canada A321 departs Vancouver International Airport May 2, 2019 (photo: Brett Ballah).

Air Canada reported solid first quarter earnings, Monday, despite the loss of 24 aircraft because of the world-wide grounding of the Boeing 737 Max.

“I am pleased to report excellent first quarter results for Air Canada, despite several challenges in the quarter. We set records of $4.453 billion in operating revenue,” said Calin Rovinescu, President and Chief Executive Officer of Air Canada. “We are further encouraged by strong booking trends entering the busy summer peak,”

Air Canada said the quarter proved to be particularly difficult, despite the solid results. The airline cancelled 8,000 flights in the first three months of the year, up 40% from the same time in 2018, due mainly to terrible winter weather conditions across the country early in the year.

Air Canada was also hampered during the quarter by the grounding of 20% of its narrow-body fleet when the Boeing 737 Max grounded around the world. Air Canada had 24 737 Max aircraft in the fleet when Transport Canada grounded the type, and expected to receive another dozen for a total of 36 brand-new aircraft by the end of July.

Air Canada has lost 3-4% of its overall capacity due to the Max crisis, and airline executives said costs will rise as the grounding drags on, due to leasing costs and higher fuel burns in older aircraft.

Air Canada estimated getting their 737s back in the skies will take several weeks after the type is permitted to fly by regulators.

The airline said Max pilots are currently in the simulator getting ready for the type’s eventual return to service, including situations modelled on the Lion Air and Ethiopian Airline crashes in February and March. Air Canada is the only airline in North America to have a 737 Max simulator.

A small number of the 450 Max pilots have been reassigned to other aircraft types.

Air Canada said system-wide traffic was up 4.6% in the quarter over the previous year. The airline said business class performed particularly well, with revenues up 12.4%, and traffic up eight per cent. Domestically, Air Canada said transcontinental routes performed particularly well, despite a small increase in capacity.

Air Canada said routes to the United States also did well, with capacity and revenue growth, as a growing number of passengers connect through its Canadian hubs between the U.S. and Europe.

“We were particularly pleased with our performance to the UK,” said Lucie Guillemette, Chief Commercial Officer for Air Canada, in a conference call with analysts.

Guillemette said the only black mark on the airline’s performance was across the Pacific, where competition to Australia hurt revenues, and traffic to China took a hit due to political difficulties between the two countries. Air Canada has responded by redeploying capacity to Europe, instead.

An Air Canada Rouge 767 lands at Vancouver International Airport in March (photo: Brett Ballah). Rouge planes have been tapped to replace domestic capacity with the Boeing 737 Max grounding.

Things are going so well for Air Canada, the airline said that in the quarter, it bought one 787 Dreamliner and six 737 Max planes in the quarter for $920 million – and paid cash.

“The first quarter is always the most demanding for an airline,” said Rovinescu. The “737 Max black swan event has tested us, and we passed.”

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