Air Canada produces impressive report

Air Canada has reported strong financial results for 2019, despite being faced with a number of significant operational issues. Total revenue grew by 6.3 per cent year-over-year and operating income (earnings before income and taxes) were up 10.3 per cent from 2018.

Alvin Man Photo
Air Canada expects to have another financially sound year in 2020. Alvin Man Photo
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This performance was achieved despite significant challenges that included the grounding of the Boeing 737 Max family on March 13, 2019. At that time Air Canada had received 24 737-8 Max 8s and was to have had 36 in service during the busy summer season. To provide the required seat capacity, the carrier deferred the sales of older aircraft that had been scheduled to depart the fleet, extended the leases on others and took on a number of wet leased airplanes from other carriers.

Another challenge that the company dealt with was the replacement of its computerized reservation system (CRS). During the cutover, a wide variety of technical issues were experienced and this resulted in disappointing service to customers. Air Canada’s CEO, Calin Rovinescu, likened the complex project to that of “heart and lung transplant”. The system has reportedly stabilized and based on the financial performance achieved during the fourth quarter, the patient is thriving.

Looking forward, the Max issue remains a concern. Air Canada was to have had 50 737-8s in service during 2020’s peak summer season. However, the recertification of the type is now not expected until later this year. Air Canada now expects that it will resume flying the model late in the third quarter. As we have seen in the past, this timeline may have to be shifted further out – depending on the receipt of regulatory approvals from authorities around the globe.

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Another matter creating uncertainty is the COVID-19 virus. Air Canada has suspended service on a number of routes between Canada and the People’s Republic of China. For its 2020 financial forecast, the company is assuming that those services will be fully recovered by the third quarter.

Despite these challenges, Air Canada possesses the strongest balance sheet that it has had in many years – with a leverage ratio of 0.8. With stable fuel prices and a Canadian dollar expected to average US$0.75 during the year, Air Canada is expected to achieve another impressive financial performance in 2020.

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