GuruFocus -
- Operating Revenue: $6.1 billion for Q3 2024.
- Adjusted EBITDA: $1.5 billion with a margin of 24.9%.
- Adjusted EPS: $2.57 per diluted share.
- Net Income: $2 billion, including a $1.2 billion tax recovery.
- Passenger Revenue: $5.6 billion, a 4% decline from Q3 2023.
- Cargo Revenue: $253 million, an 18% increase year over year.
- Premium Cabin Revenue: 28% of total revenues, up 1 percentage point from Q3 2023.
- Operating Income: $1 billion for the quarter.
- Operating Expenses: Increased by 3% year over year.
- Fuel Expense: Increased by 1% compared to Q3 2023.
- Labor Expense: Increased by 3% year over year.
- Maintenance Expense: Decreased by 4% from Q3 2023.
- Adjusted CASM: Decreased by 0.4% year over year.
- Cash Flow: Generated $282 million in Q3 2024.
- Free Cash Flow: Nearly $1.8 billion year-to-date.
- CapEx: Expected to be close to $2.5 billion for the full year 2024.
- Full Year Capacity Growth: Expected to increase by around 5% from 2023.
- Share Buyback Program: Approved to purchase up to 10% of the public float.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Air Canada (TSX:AC) (ACDVF) reported solid third-quarter results with operating revenues of $6.1 billion and an adjusted EBITDA of $1.5 billion, surpassing market expectations.
- The company successfully reached a new four-year collective agreement with its pilot group, avoiding significant disruptions and maintaining revenue impact.
- Air Canada's cargo segment showed strong performance with an 18% year-over-year revenue growth, driven by higher yields and volumes in the Pacific market.
- The company announced a new share buyback program, aiming to reverse some of the dilution from measures taken during the COVID-19 pandemic.
- Air Canada (ACDVF) continues to see healthy demand across its markets, with stable load factors and encouraging signals for yield improvement in upcoming quarters.
- Passenger revenues declined by 4% from the same quarter last year, with decreases in yield and system load factor leading to a 7% decline in PRASM.
- The pilot contract negotiations led to softer booking volumes, impacting revenues particularly in September and continuing into October.
- Air Canada (ACDVF) faces ongoing supply chain pressures, aircraft availability issues, and geopolitical conditions affecting capacity growth.
- The company anticipates more intense unit cost pressure in 2025 due to regulatory changes, higher airport infrastructure fees, and maintenance cost inflation.
- A one-time pension past service cost charge of about $500 million is expected in the fourth quarter, impacting financials despite being funded from the planned surplus.
A: John Di Bert, CFO, explained that the $500 million pension charge will not impact cash or equity as it will be funded from the plan surplus. There will be a retroactive payment for the pilot agreement, affecting working capital in Q4. The run rate for wages in 2025 will see some pressure due to the new agreement, but overall costs are expected to align with projections.
Q: How is Air Canada planning to manage its capital plan and free cash flow in the coming years?
A: John Di Bert, CFO, stated that Air Canada plans to maintain a highly equitized fleet, with room for sales leasebacks to manage cash flow. The company aims for breakeven or positive free cash flow in 2025, despite entering a higher CapEx cycle. The balance sheet is strong, allowing for both fleet investments and share buybacks.
Q: What are the current demand trends across different geographies, and how is corporate travel performing?
A: Mark Galardo, EVP of Revenue and Network Planning, noted stable demand in domestic, US, and Sun markets, with some pressure in the Atlantic due to capacity increases. Corporate travel is showing encouraging signals, particularly in the US network, despite a slowdown due to labor uncertainties.
Q: How does Air Canada plan to fund its new share buyback program, given the flat free cash flow forecast for 2025?
A: John Di Bert, CFO, explained that the buyback program is supported by a strong balance sheet and liquidity. The company has paid down debt and holds significant liquidity, allowing it to restore share count while managing CapEx and maintaining credit quality.
Q: What is the outlook for Air Canada's capacity growth and CASM in 2025?
A: John Di Bert, CFO, indicated that capacity is expected to grow in the mid-single digits in 2025, with CASM facing some pressure due to regulatory and labor cost increases. However, productivity improvements and fleet modernization are expected to mitigate some of these pressures.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.