Airline expects summer capacity will be reduced 75% as a result of the pandemic

Air Canada said Monday it lost $1 billion in the first three months of the year as the effects of the world-wide pandemic started to take hold. Debt increased and cash reserves took a hit, the airline reported, and it will take steps to further cut costs.

“Our first quarter results reflect the severity and abruptness of the impact that the COVID-19 pandemic has had on Air Canada, which started to be felt across the global airline industry in late January with the suspension by many carriers, including Air Canada, of services to China,” said airline President and Chief Executive Officer Calin Rovinescu.

“We are now living through the darkest period ever in the history of commercial aviation.”

Air Canada announced it was aiming to reduce costs by more than $1 billion, including the retirement of 79 older aircraft.

The airline said it would accelerate the retirement of older Boeing 767, Embraer E190, and Airbus A319 aircraft, with the Embraer grounded immediately. Air Canada owns 27 of the aircraft outright, most of the rest have leases expiring within the next two years.

About half of the capacity would disappear outright, while some aircraft, such as the A319 and the E190, are being replaced by newer, more efficient planes.

“There is little doubt we’re not yet out of the trough,” said Rovinescu in a conference call with analysts.

The airline said about 20,000 of its 36,000 employees have been placed on inactive status, officially still on the payroll, but receiving a salary thanks to a federal wage subsidy.

In response to the pandemic, the airline has been reduced to a shadow of its former self. It has abandoned flights to the United States and most of its international destinations. This month, Air Canada expects to fly only 700 flights a week across its entire domestic network.

“We utilized approximately $900 million in cash, all in the month of March,” said Michael Rousseau, Air Canada’s Chief Financial Officer.

Rousseau said Air Canada burns through about $20 million per day in salaries, rent, and capital expenses, while revenues have all but disappeared due to the pandemic. The airline ended the quarter with $6.4 billion in cash.

“Realistically, we expect it to take at least three years before we get back to 2019 levels of revenue and capacity,” said Rovinescu.

Air Canada expects its capacity through the spring to be down 85 to 90% and expects summer capacity to be cut 75% compared to 2019.

To help soften the blow, Air Canada has shifted people and planes to cargo operations, planning up to 150 all-cargo flights per week, with 21 aircraft including four Boeing 777s, four Airbus A330s, and 13 De Havilland Dash 8s converted to freighter service by removing economy-class seats, though executives don’t see that lasting long-term.

The airline said passenger confidence would be key to getting people back in the air.

Executives announced a plan they’re calling Clean Care Plus. It includes infrared temperature checks for passengers and increased cleaning of aircraft. Air Canada will also block the sale of every other seat and cap capacity on its planes until June 30.

Passengers can also expect hand sanitizer and wipes, along with pre-packaged food and bottled water in all classes.

“We know that human connections would be more important than ever,” said Lucie Guillemette, Air Canada’s Chief Commercial Officer.

At the same time, executives acknowledged the airline would be smaller, both in terms of fleet and employees, coming out of the pandemic.

“All of the conventional revenue models have been flushed down the proverbial toilet,” said Rovinescu.

He expected domestic travel to recover first as people want to visit friends and family.

“We think the U.S. fits well within this dynamic,” he said. That would be followed by a gradual return of leisure and international travel, followed by business travel, though it’s unclear what impact greater acceptance of remote meetings would have on the business market.

Rovinescu said a fuller recovery, particularly in international markets, depends on government actions such as reopening restaurants and removing travel restrictions.

Air Canada said its Rouge brand will continue to be a key component of the company, but would be converted to a narrow-body operation focusing on leisure markets.