Air Canada urges feds to ease travel restrictions as it reports fifth straight quarterly loss.
Fifth quarterly loss in a row amid pandemic
Air Canada’s new chief executive officer urged Ottawa to step up plans to lift global travel restrictions, saying mandatory hotel quarantines should be scrapped because they don’t work.
Canada’s biggest airline reported on Friday a first-quarter loss of $1.3 billion, its fifth consecutive shortfall since the start of the COVID-19 pandemic, as revenue plunged 80 per cent. A year ago, the quarterly loss was $1.05 billion.
To cope with travel curbs and border closures, Air Canada has shrunk its network, operated most of its passenger flights on domestic routes and ramped up cargo operations by transforming some aircraft into freighters. First-quarter passenger capacity shrank 82 per cent as cargo revenue jumped 89 per cent.
“It’s time to develop and communicate a reopening plan for international travel to and from Canada,” CEO Michael Rousseau said Friday on a conference call with analysts. “After over 14 months of restrictions, Canadians, who we know are eager to travel, want and deserve clear guidelines. They are seeing other countries articulate clear and safe plans, and they want to hear what Canada’s plan will be.”
Among other changes, Air Canada wants authorities to replace blanket restrictions with science-based testing and limited quarantine measures.
The mandatory hotel quarantine for arrivals “has proven ineffective,” said Rousseau. “It should be eliminated.”
Air Canada and other “key travel partners” have been holding talks with Canadian government officials “on how to move forward,” Rousseau added. While not travel-focused, the recent announcement by the Saskatchewan government of a three-step roadmap to relax COVID-19 rules is “a good first step,” he said.
Although the third wave of COVID-19 infections has made planning more difficult, “there is tremendous work being done behind the scenes to prepare,” Rousseau said. An expert panel should issue recommendations on matters such as border closures and quarantines “in the next several weeks, which we think will be important,” he added. “We will continue to push.”
Much of the discussion during the 90-minute call centred around Air Canada’s ability to add flights in short order and return to profitability.
“We’re certainly ready to add capacity fairly quickly,” said Rousseau, a former chief financial officer who took over in February. “We’ve kept all our pilots recent, with rotations. They’re still on staff. Our planes are parked. They’re well maintained. Bringing them back is not going to be a constraint.”
Air Canada expects advance bookings to start climbing as soon as restrictions are rolled back and the government implements a reopening plan, Rousseau said.
“That will be our first indication of our ability to break even and at what point we will break even,” he said.
Results in the latest period include a $12.5-million special item to account for the termination fee paid to Montreal-based travel company Transat A.T. Inc. Last month, Air Canada abandoned plans to buy Transat after both companies concluded they wouldn’t be able to secure European Commission approval.
Capacity in the second quarter — as measured by available seat miles — will probably double from the same period last year, Air Canada said Friday. Still, compared with two years ago, it will be 84 per cent smaller.
Air Canada burned through $1.27 billion of cash during the latest period, or about $14 million per day. Net cash burn will probably range from $1.18 billion to $1.37 billion during the current quarter.
After ending the first quarter with almost $6.6 billion in liquidity, Air Canada struck a deal with the federal government last month that will give it access to as much as $5.9 billion in financing.
Although the agreement “removes any lingering liquidity risks” for Air Canada, “air travel restrictions are not set to be materially eased in time to salvage much of the upcoming peak summer travel period,” Cameron Doerksen, a National Bank of Canada analyst, said Friday in a note to clients. Those restrictions represent “the key impediment to recovery,” he wrote.
Air Canada’s pact with Ottawa also compels the airline to pay back passengers holding non-refundable tickets whose flights were cancelled because of the pandemic. The company’s maximum exposure to cash refunds is about $2 billion, though actual payments may end up being “substantially less” since some customers will opt to keep their travel voucher, Air Canada said.
“We’re a bit surprised,” chief financial officer Amos Kazzaz said. “The take-up has been much slower than anticipated.”
Refunds will be paid out of a dedicated $1.4 billion credit facility provided by the federal government. As such, they will be “neutral to Air Canada’s liquidity position,” the company said.