Carrier is optimistic about the prospect of government support, which will include restoring regional routes and refunding passengers for cancelled flights
Air Canada reported a loss of $4.6 billion in 2020 as the carrier closed the books on aviation’s bleakest year ever. The airline’s finances were ravaged by the global pandemic and government measures to prevent its spread.
“I am however, very encouraged by the constructive nature of discussions that we have had with the Government of Canada on sector specific financial support over the last several weeks,” said Air Canada President and Chief Executive Officer Calin Rovinescu. “While there’s no assurance at this stage that we will arrive at a definitive agreement on sector support. I am more optimistic on this front for the first time.”
Rovinescu was speaking for the final time as CEO. He will retire Monday, replaced by current Chief Financial Officer Michael Rousseau.
Revenues were down $13 billion from 2019 as passengers stayed home. And the first few months of 2021 are not shaping up any better. The airline cancelled all its flights to Mexico and the Caribbean until the end of April. And it expects to burn through $15 to $17 million per day in the first quarter. That compares to a daily cash burn of $12 million in the final months of 2020.
Air Canada has cut 20,000 people from the payroll, cancelled some aircraft orders, and sold shares to raise money.
Light on the horizon?
The airline is hoping for a revival of air travel by the end of April. Enough to get a few planes back in the air and put people back to work.
As with most forecasts in the age of COVID, there appears to be is some educated guessing at the exact timing.
“April 30 is the date by which we expect that the sun destination restrictions are lifted,” said Rovinescu. “And quite frankly, that’s the date by which we expect that there will be a proof dynamic with respect to testing replacing some degree quarantines.”
By then, he’s hoping more widespread testing at Canada’s key airports will allow the current 14-day quarantine to be reduced to a more manageable seven days or less. Rovinescu is also hopeful that provincial travel restrictions will be eased in time for summer.
“We need to open up domestic Canada for travel freely, and as well, having enough time to establish testing capabilities,” he said. “If we start on it today, on February 12, by April 30 with good hard work, we should have it, certainly at the at the key airports in Canada.”
Flair Airlines announced a summer expansion this week based on similar timelines.
Reviving its hub strategy
When governments reopen their borders and ease restrictions, Air Canada fully intends to rebuild its international strategy. Before the pandemic, the airline made millions funnelling passengers between international destinations. Namely, it would connect passengers from the United States, through its three Canadian hubs, onto European and Asian flights.
“Unlike Australia and New Zealand, Canada’s geography sits right in the middle of two of the busiest travel corridors in the world in the US to Europe and US to Pacific market,” said Air Canada Chief Commercial Officer Lucie Guillemette. “Nearly all commercial flights on these segments overfly Canadian airspace. We will continue to push to ensure we receive our fair share of these traffic flows through our hubs. It represents not only a major element of our recovery strategy, it is also an example of how Canada as a country can best compete in the global aviation market.”
Guillemette expects Toronto, Montreal, and Vancouver, with their large immigrant populations to lead the rebound as people go visit friends and relatives overseas.
The challenge is, Canada’s airlines say they are losing market share during the pandemic. Government-supported foreign carriers, they argue, are taking market share.
“We are a global carrier competing against other global carriers in a highly competitive and capital intensive industry,” said Rovinescu. “Canada remains the lone G-7 country that has, thus far, not provided any sector specific support to aviation, thereby threatening in the long term competitiveness of Air Canada’s airline industry. I am however, very encouraged by the constructive nature of discussions that we’ve had with the Government of Canada on sector specific financial support over the last several weeks.”
That support will include conditions that Air Canada refund passengers for cancelled flights and restore some suspended regional routes, he indicated.
Moving into cargo
Air Canada is firming up plans to dive head-first into cargo. The airline has already sold two of its 767s for cargo conversions. It will lease the planes back before the end of the year, in time for the Christmas rush. In all, the airline expects to use seven ageing 767s for cargo operations by the end of the year.
The 767s will be deployed mainly on international routes. Domestic cargo will be carried in the bellies of passenger flights.
“Our cargo revenue of $286 million in the fourth quarter represented an increase of $100 million or 53% compared to the same quarter in 2019,” said Guillemette. The airline made a quick shift to cargo in 2020. It removed the seats from four Boeing 777s and three Airbus A330s, converting them into makeshift cargo planes. By the end of the year, Air Canada flew more than 4,200 all-cargo international flights, she said. That helped Air Canada reduce its loss in 2020. “Our cargo business delivered more than $920 million of revenue in 2020, up 28%, from 2019.”
The airline plans to launch a branded cargo platform in the coming months.
Cargo represented one of the few bright spots in Canadian aviation last year. Statistics Canada reported that cargo revenues were up 46% in the first half of the year. The growth was fuelled by online shopping and deliveries of vital medical supplies.
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