‘Onerous’ travel rules hurting Air Canada
MONTREAL • Despite posting a massive fourth-quarter loss, Air Canada is increasingly confident the federal government will soon come through with a financial aid package for the beleaguered airline industry.
The net loss was $1.16 billion, or $3.91 per diluted share, Air Canada said Friday in a statement. A year earlier, in the last quarter before COVID-19 affected operations, the carrier had net income of $152 million, or 56 cents a share. Air Canada burned through $1.38 billion of cash, or about $15 million a day, in the last three months of 2020.
Canada’s biggest airline has shrunk its network, retired older aircraft and eliminated about 20,000 jobs — more than half of its workforce — to comply with various government-imposed travel restrictions since the pandemic began. On Tuesday, the company said it would lay off another 1,500 employees this month and suspend 17 U.S. and international routes.
After reducing capacity by 67 per cent in 2020, Air Canada said Friday it plans to implement a further 85 per cent cut in the first quarter of 2021 compared with the first quarter of 2019. Its net loss for all of 2020 was $4.65 billion, or $16.47 a share.
“While undeniably grim, results such as these are being reported the world over in our industry due to the impact of COVID-19,” outgoing chief executive Calin Rovinescu said Friday as he bemoaned “extremely onerous” government measures. U.S. carriers recently reported cumulative 2020 losses of US$34 billion.
Faced with restrictions such as a ban on non-essential foreign travellers, international operations from just four airports, no service to the Caribbean or Mexico through April and mandatory quarantines upon arrival, Air Canada “continues to be subjected to perhaps the strictest COVID-19 preventative regime in the Americas,” Citigroup analyst Stephen Trent said in a note to clients.
A “patchwork of new and ever-changing travel restrictions” is “stifling travel demand, impacting our ability to operate or plan, and even preventing us from formulating reliable guidance,” rovinescu said on a conference call.
Though Canada — unlike all other G7 member nations — has so far resisted calls to help airlines navigate through the pandemic, talks with the federal government offer some promise. Governments globally have provided more than US$200 billion in aid to their domestic airlines, according to the International Air Transport Association.
“Basically the discussions have picked up the pace,” Rovinescu told financial analysts. “I’m more confident that there can be an outcome now than I was, say, a month ago.”
Still, “even if Canada’s government comes through with aid, it seems that an international route recovery could take a long time,” said Trent, the Citigroup analyst.
Canada would do well to pattern its aid package after the U.S., which offered its carriers five-year loans and a payroll support program, said Air Canada chief financial officer Michael Rousseau, who will officially replace Rovinescu as CEO Monday.
“We compete with the U.S. airlines, so we think that a similar program, maybe with some Canadian modifications, would best suit the airline industry up here,” Rousseau said.
Besides financial assistance for aerospace companies, Rovinescu said two other policy-related elements are being discussed: an agreement on passenger ticket refunds and a return of some regional air service within Canada. He declined to elaborate.
Air Canada has been lobbying Ottawa to relax travel restrictions and put in place a “robust” COVID-19 testing program that may offer better results than existing measures, Rovinescu said.
The company says a recent study of international travellers, conducted with Mcmaster Health Labs and the Greater Toronto Airports Authority, found that testing can “facilitate the safe relaxation of quarantines,” and that a 14-day quarantine is unnecessary for more than 99 per cent of passengers.
Rovinescu, who overhauled Canada’s flag carrier and solidified its finances during his almost 12-year stint at the helm, used his final conference call to underline his confidence in the company’s future. under his watch, Air Canada doubled its reach to more than 100 international destinations over the past decade before the pandemic forced a pullback.
“The effects of COVID-19 are transitory,” he said. “Our airline has been transformed in all its aspects. It will emerge from the pandemic still a Canadian global champion. There’s little doubt that we will rebuild our global network.”
Rousseau will take over a company that had about $8 billion in unrestricted liquidity as of dec. 31.
Air Canada said Friday it expects to burn through between $1.35 billion and $1.53 billion of cash in the first the months of 2021 — a key metric for financial analysts. That represents a daily average of $15 million to $17 million.
The airline’s “near-term outlook remains challenging,” doug Taylor, an analyst at Canaccord Genuity Capital Markets in Toronto, said Friday in a note to clients. The first-quarter outlook “suggests no improvement in balance sheet pressure in the near term.”
The quarterly results come a day after Transat A.T. Inc. said the federal government conditionally approved Air Canada’s proposed acquisition of the Montreal-based travel company. Conditions include ensuring effective competition, maintaining a Transat head office in Quebec, preserving jobs and the Transat brand and launching new routes.
Since the agreement between the companies calls for the transaction to be completed by Monday, Transat said Thursday it will “discuss with Air Canada the appropriateness” of extending the deadline. The accord “may be extended at any time by agreement of the parties and remains in force unless terminated by either of them,” Air Canada said.
Air Canada’s purchase of Transat must also be approved by the European Commission. The EC is expected to announce its decision by June 30, Transat said Thursday.