Air Canada puts up to 95 route cancellations and nine station closures on hold pending government negotiations

Airline will be 75% smaller through the winter

Air Canada said Monday it is looking at up to 95 route cancellations and nine station closures as it copes with the ongoing effect of the COVID-19 pandemic. But the airline will put the cuts on hold while it negotiates support from the federal government.

Chief executive Calin Rovinescu did not identify which stations the airline would close. But they would be on top of eight closures announced in June.

“Given the public statements made by the Honourable Marc Garneau, Canada’s Minister of Transport yesterday, regarding commencing immediate discussions with major airlines on aviation industry sector-specific support, we are deferring the additional route suspension and station closures pending the progress of those discussions,” said Rovinescu. He made the comments in a conference call to release the airline’s third quarter results.

In a rare weekend statement, Garneau said Sunday the government was open to supporting airlines. But that help would come with strings attached. One of them would require airlines to refund passengers for cancelled flights. Another would be service guarantees on regional routes.

So far, Air Canada has offered refunds only to select groups of passengers. Like other airlines, it has offered vouchers for future travel to passengers who bought non-refundable tickets.

Air Canada reported that its revenues were just $757 million between July and September, down 86% from the same time last year. The airline recorded a net loss of $685 million in the quarter, usually its busiest and most profitable time.

To save money, Air Canada has cut thousands from the payroll and retired dozens of older 767 and Embraer aircraft.

Cutting capital expenses

Air Canada is also slashing its future fleet expectations. The airline announced Monday it will cancel 10 Boeing 737 Max and 12 Airbus A220 orders. That amounts to roughly 40% of its new aircraft orders. It is also deferring delivery of some of its remaining orders. Air Canada now expects to receive 15 new 737s and A220s next year and 15 more in 2022.

“Despite modifications made to our orders,” said Air Canada Chief Operating Officer Lucie Guillemette, “these two aircraft remain the core of our narrow-body fleet and enable us to efficiently serve transcontinental North America routes through improved economics and range.”

“When we made the original decision on the 737-8,” said Rovinescu, “we compared its functionality and the cost drivers. What missions we needed it to accomplish, what the cost structure was to accomplish those missions and what was the best aircraft to do that.”

Rovinescu expects to reintroduce 737 Max service early next year, pending regulatory approval. Regulators around the world grounded the type in 2019 following a pair of deadly crashes.

“From all indications, it’s heading in the right direction for an airworthiness directive this year, and a lifting of the ban for customer travel early next year,” said Rovinescu.

He said the delay will give Air Canada the time to complete its training and additional protocols before returning the type to service. “From our perspective that is something that is not necessarily a bad thing right now,” he said.

Costly quarantines

Rovinescu blasted quarantines that have closed Canada’s borders to most foreign travellers and decimated long-distance travel. Rovinescu said they cost Air Canada between $550 – $600 million in lost revenue over the summer, compared to other international carriers.

The government of Canada closed its borders to most non-Canadians and ordered anyone entering the country to quarantine for 14 days. Rovinescu expressed hope a trial program in Calgary would yield positive results and be expanded to Toronto.

“As people arrive in the country, they have the test,” said Rovinescu. “The expectation is that the quarantine will be reduced, and this is what’s going on in Alberta right now. But we could see a test on departure and a test on arrival. And I think at some stage that will be the way to really break the back of the quarantine requirements.”

It’s clear Air Canada has the resumption of international travel at the top of its agenda. Chief Operating Officer Lucie Guillemette was optimistic Air Canada would return to the U.S. market in force.

However, Guillemette said there was a “high degree of uncertainty” around the addition of more flights “due to the evolving health situation in the United States.”

“We do not expect a significant increase in transborder travel throughout the remainder of the year,” she said. “However, the U.S. market remains a key component of our recovery and our long-term strategy.”

The airline has built a lucrative business in recent years connecting passengers between the United States and Europe through its Canadian hubs.

Early signs of recovery

“The existence of the travel restrictions, the quarantines, the travel bubbles, the special rules that exist in many places, is a very, very negative factor that will have a lasting impact,” said Rovinescu. “Because people will say ‘Well I want to travel somewhere.’ And they get stuck in some corner of the world. And there’s a new restriction that’s brought in without any consultation at the last minute.”

Air Canada is seeing some signs of recovery. Guillemette pointed to transcontinental routes and service in Western Canada as showing promise right now. She said the airline would respond quickly if it saw demand picking up between Western Canada and Hawaii, for instance.

But overall, the airline expects its schedule to be 75% smaller through the winter.

“There is a real factor here of when the does demand return?” said Rovinescu. “Based on various companies’ travel restrictions, and different habits that are adopted, and all of the video conferencing and everything else.”

The airline is seeing some demand in the leisure market to visit friends and family overseas. For now, Air Canada is concentrating on international service to select core markets in London, Paris, Tokyo, Hong Kong as well as select Star Alliance hubs.

Guillemette said “unilateral, uncoordinated” border openings were further hurting air traffic.

“I think there are a lot of people who are hesitant to make any travel arrangements now,” said Rovinescu. “Even if they feel safe to travel – we made all these precautions that it’s safe to be on the airplane – they can’t justify coming back and taking two weeks at home on a quarantine dynamic. So they’re just simply not booking future travel.”