Air Canada To Cut Q2 Capacity By 50%, Says It Can Weather The Storm

Bruce Parkinson, Open Jaw

Calin Rovinescu

Air Canada says it expects overall second quarter system capacity to decline by approximately 50% versus the same period in 2019, reflecting capacity reductions in all key markets affected by COVID-19 or by travel restrictions.

The airline, along with the rest of the global airline industry, is facing a severe drop in traffic and a corresponding decline in revenue. 

"COVID-19 presents the global airline industry with unprecedented challenges, compounded by uncertainty as to the extent of its effects. However, 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 Calin Rovinescu, President and Chief Executive Officer. 

“Most importantly for business continuity, it also has the necessary financial resources, including a solid balance sheet, record liquidity levels, higher debt ratings based on a low leverage ratio, and a significant pension plan surplus. These deep strengths enable us to fully focus our immediate attention on both the safety and well-being of our customers and our employees and on mitigating the financial impact of the virus." 

The airline says a combination of significantly lower jet fuel prices, projected cost savings associated with capacity reductions, including workplace reductions and other programs, and a general cost reduction program is expected to mitigate 50-60% of the company's total revenue loss for the second quarter of 2020. 

To preserve cash, Air Canada is initiating a company-wide cost reduction and capital deferral program, targeting savings of at least $500 million. But it will also be looking for some government assistance.

"The crisis facing our industry is worsening as countries around the world adopt increasingly severe measures, national lockdowns and travel restrictions,” said Rovinescu. 

“We understand that the governments of the United States and many European countries such as Germany, France, Italy, Norway and others have approved or are considering assistance for their airline industries in one form or another. 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.”  

Air Canada had cash, cash equivalents, short and long investments of $7.1 billion at 13MAR. In addition, it has a Canadian $200 million revolving credit facility which it intends to draw down in the next week. 

AC has also announced that it has come to a settlement with Boeing in relation to the grounding of the Boeing 737 MAX aircraft. However, AC says it won’t be disclosing the terms of the settlement due to confidentiality restrictions.

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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