MONTREAL — With losses topping $1 billion last quarter, Air Canada says it will be at least three years before flights and earnings return to 2019 levels as the "cataclysmic" effects wrought by the COVID-19 pandemic continue to mount.
"We're now living through the darkest period ever in the history of commercial aviation, significantly worse than 9/11, SARS and the 2008 financial crisis," CEO Calin Rovinescu said on a conference call with analysts Monday.
"There is no doubt that we are not yet out of the trough."
Since mid-March, the country's largest airline has slashed its flight schedule by more than 90 per cent and grounded more than 200 aircraft, cutting service internationally to just five airports from more than 150.
Passenger revenue dropped by $604 million or 16 per cent in the first quarter compared with a year earlier as the company burned through $22 million in cash per day in March.
And the crisis won't be over quickly.
In the second quarter, flight capacity will be down as much as 90 per cent, Air Canada said. Cash burn should actually ease up slightly due to the dramatic cost reductions, even as it expects virtually "no revenue coming in other than cargo."
The carrier predicted third-quarter capacity will still be reduced by 75 per cent compared with a year earlier, though uncertainty around travel restrictions, passenger demand and proliferation of the virus itself make some predictions akin to "crystal ball gazing," Rovinescu said.
When travellers do start venturing back onto airplanes, the airline expects they will edge toward domestic flights and trips to the U.S., "visiting friends and relatives, visiting their vacation homes," he said.
The CEO was less confident about business traffic. "We know that people are getting comfortable with alternative facilities such as these video conferences, the Zooms of this world."
Amid border shutdowns and record-low travel demand across the globe, Berkshire Hathaway CEO Warren Buffet said over the weekend that he had divested his company's entire stake in the top four U.S. airlines last month. The announcement prompted shares of American, Delta and United and Southwest to fall between five and eight per cent Monday.
Air Canada's shares dropped by $1.67 or nearly nine per cent to close at $17.63 on the Toronto Stock Exchange, a 62 per cent plunge from Feb. 4.
To "provide greater peace of mind" to travellers, the company plans to check the temperatures of all passengers. Mandatory temperature screenings with infrared thermometers at all airports are part of a suite of measures to be introduced by May 15, Air Canada said.
Rovinescu declined to discuss the viability of his plan to buy travel company Transat AT for $720 million — $18 per share for a company whose stock closed at $8.50 on Monday — which received a thumbs-up from shareholders in August but awaits regulatory approval in Canada and the European Union.
The acquisition agreement specifically excludes "outbreaks of disease" or "any change...affecting generally the airline industry" as provisions allowing either side to call off the deal.
"I think they're getting a ton of pressure from shareholders, but their counsel's basically said, 'Guys, if you read the contract, we're committed to it,'" AltaCorp Capital analyst Chris Murray said in a phone interview.
Air Canada said it has achieved $1.05 billion in cost savings through reductions or deferrals in its capital spending plan as well as 20,000 furloughed employees and hundreds of parked planes.
It had $6.52 billion in cash at the end of March — some $860 million less than three months earlier — after drawing down two revolving lines of credit that yielded $1.03 billion.
Cash liquidity may increase from that "formidable buffer" in the second quarter as the company draws down new debt— last month it was granted a pair of loans amounting to $1.62 billion — secured in part by aircraft and spare engines, Canaccord Genuity analyst Doug Taylor said in a research note.
Air Canada has converted four Boeing 777s — its largest wide-body aircraft — and several Airbus 330s into cargo planes as the need for medical supplies rises, but "the volume's not incredibly high," Rousseau said.
The Montreal-based company is also accelerating the retirement of 79 older planes, including the less efficient Boeing 767s, Airbus 319s and Embraer 190s.
Air Canada said it lost $1.05 billion in its first quarter compared with a profit of $345 million in the same quarter last year as governments imposed travel restrictions around the world due to the novel coronavirus.
The loss amounted to $4.00 per diluted share for the quarter compared with a profit of $1.26 per diluted share in the first quarter of 2019.
Operating revenue fell to $3.72 billion in the quarter ended March 31, compared with $4.43 billion a year earlier, the company said.
On an adjusted basis, Air Canada lost $392 million or $1.49 per diluted share in the first quarter compared with an adjusted profit of $17 million or six cents per diluted share in first three months of 2019. The results fell 22 per cent short of analyst expectations, which had predicted adjusted earnings of $1.22 per diluted share, according to financial markets data firm Refinitiv.
This report by The Canadian Press was first published May 4, 2020.
Companies in this story: (TSX:AC, TSX:TRZ)
Christopher Reynolds, The Canadian Press
