Air Canada

Air Canada sees 50% capacity cut due to Covid-19

An Air Canada Boeing 787 departs Vancouver International Airport in February 2020 (photo: Brett Ballah).

Air Canada said Monday its available seat kilometres would be half what they were a year ago, as the effects of Covid-19 cause air traffic to plummet around the world. The company is also planning to cut costs by half a billion dollars this quarter.

The announcement comes as the Canadian government announced more aggressive steps against Covid, including closing the borders to non-citizens or permanent residents. Exceptions would be allowed for air crews, passengers transiting Canada to another country, and U.S. citizens.

Airlines will also be ordered to screen passengers and ban people with Covid-19 symptoms. Ottawa also announced funding to help Canadians get back to the country from overseas, so long as they don’t have symptoms.

“Any passenger regardless of citizenship with possible Covid-19 symptoms will not be allowed to board flights to Canada,” said Transport Minister Marc Garneau. Airlines will also be required to inform air traffic control if a passenger falls ill during a flight.

International flights will be limited to Toronto, Montreal, Vancouver, and Calgary, which already accept roughly 90% of international passengers. Flight from the U.S., Mexico, and the Caribbean are exempt from the restrictions.

“By keeping resources focussed in certain locations, we will ensure travellers are being managed as efficiently as possible,” said Garneau.

“The crisis facing our industry is worsening as countries around the world adopt increasingly severe measures, national lockdowns and travel restrictions,” said Air Canada Chief Executive Officer Calin Rovinescu in a statement.

The airline has already suspended most services to the areas hardest hit by Covid-19, including several routes to Asia – representing 75% of its Pacific capacity – and to Italy, among others. Monday’s announcement is the clearest indication of the ravages Covid-19 are having on Canada’s largest airline, though it did not provide details of further capacity cuts.

Air Canada it has already cancelled an order for 11 Boeing 737 Max 9 aircraft and warns other new aircraft deferrals are possible. It expects to receive 17 Airbus A220 and six Boeing 737 Max aircraft this year.

“Dependent on the impact of the COVID-19 virus, Air Canada will work with its aircraft partners in exploring the potential deferment of aircraft deliveries,” the company said in a statement.

Air Canada’s warning comes on the heels of a similar announcement by smaller rival Westjet, which expects to outline cuts of 60% in its international capacity and 40% domestically. Both airlines are taking measures to preserve cash and ensure their long-term viability.

Airlines around the world have been pummelled by the Covid-19 outbreak, as countries close their borders, warn citizens to stay home, and nervous passengers cancel their travel plans.

“By the end of May-2020, most airlines in the world will be bankrupt,” warned the CAPA Centre for Aviation, an aviation consultancy.

The three largest airline alliances in the world – Star Alliance, oneworld, and SkyTeam – came together Monday to issue a call for governments to help the airline industry.

“The unprecedented circumstances triggered by the coronavirus outbreak poses an existential threat not only to the airline industry but more generally to global trade and commerce, and social connectivity,” said Star Alliance CEO Jeffrey Goh. “As airlines stretch their limits to manage the crisis, it is equally critical for governments and stakeholders to avoid further burdens and step up with measures, as some have, that will ensure the future of the travel industry.”

While emphasizing his airline had more than $7 billion in cash and cash equivalents as well as owning 89 aircraft outright, Air Canada’s Rovinescu shared the appeal, due to the extraordinary effect of the Covid-19 crisis.

An Air Canada De Havilland Dash 8-400 departs Vancouver International Airport in February 2020 (photo: Brett Ballah).

“Under these circumstances, we believe that the Canadian airline industry should also see similar assistance, whether through forbearance of taxes, landing fees and other charges that form part of the aviation burden in Canada or otherwise until the industry stabilizes,” he said.

Air Canada has withdrawn its financial guidance for this year and next. It says the 50% capacity decline reflects cuts to key markets that are hit by Covid-19 and national travel bans already in place.

“We are confident that after a decade of transformation and record results, Air Canada today has the agility, the team and the route network to successfully navigate through this crisis,” said Rovinescu.

Air Canada also announced it has reached an agreement with Boeing over the grounding of the 737 Max around the world more than a year ago. It did not release terms of the compensation settlement.