AC Weathers MAX Storm, Posts Higher Than Expected Q2 Profit

Bruce Parkinson, Open Jaw

Air Canada has posted a healthy second quarter profit of $343 million, while also announcing that the Boeing 737 MAX will be removed from its schedule until at least JAN 2020.

AC’s grounded fleet of 24 MAX planes and the failure to arrive of a dozen more means third-quarter capacity is projected to fall 2% instead of rising by 3% as planned.

On capacity growth of 2.3%, record second quarter system passenger revenues of $4.338 billion increased $417 million or 10.7% from the same quarter in 2018.

"I am delighted to report an excellent second quarter, including record operating revenues of $4.757 billion and record liquidity of nearly $7 billion,” said Calin Rovinescu, President and Chief Executive Officer.

"These are impressive results with revenue growth in each market segment and system passenger revenues up 10.7% on capacity growth of 2.3%. We also managed costs well, especially with the challenges of sourcing replacement flying for some of the Boeing 737 MAX aircraft that are out of service.”

The increase in system passenger revenues was driven by a yield improvement of 6.8% and traffic growth of 3.6%. AC says the yield improvement reflected incremental higher-yielding local traffic due to the impact of constrained capacity caused by the grounding of the Boeing 737 MAX aircraft and a generally improved pricing environment.

In the business cabin, system passenger revenues increased $83 million or 10.2% from the second quarter of 2018 on both traffic and yield growth of 5.0%.

For the 12 months ended 30JUN, 2019, the important metric of ‘return on invested capital’ was 15.5%, significantly higher than Air Canada's weighted average cost of capital of 7.2%.

Rovinescu praised the company’s response to the MAX grounding. “Our management team and all employees involved with this complex issue did an incredible job implementing creative solutions for our fleet, schedule, network and operations to get passengers to their destinations during the quarter.”

With “no visibility on reliable timing for the return to service of the Boeing 737 MAX,” Rovinescu says it’s better to err on the side of caution.

“In our planning, we will be removing the Boeing 737 MAX from our schedule until at least 8JAN, 2020. This reflects our prudent approach to scheduling, giving customers certainty when booking their Fall and especially their Winter holiday travel. If the aircraft are returned to service earlier, we would look for opportunities to have some enter the fleet for either replacement flying or as back-ups," said Rovinescu.

In the quarterly earnings report, Rovinescu also discussed AC’s bid to acquire Transat.

“On 27JUN, we announced that we had concluded a definitive agreement to acquire Transat A.T. Inc. which, we believe, once closed, will benefit all stakeholders,” Rovinescu said.

“Already, the merger's benefits have been recognized by key stakeholders, including Unifor, Aéroports de Montréal, Tourism Montréal, leading travel agencies, the Chamber of Commerce of Metropolitan Montreal, the Conseil du patronat du Québec and the Federation of Chambers of Commerce of Québec.”

Bruce Parkinson

Bruce Parkinson Editor-in-Chief

An observer and analyst of the Canadian and international travel industries for over 25 years, Bruce uses the pre-dawn hours to prepare a daily news and information package to keep industry members up to date.

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