Air Canada posts first annual profit since pandemic, but rising costs cloud outlook
Air Canada posted its first full-year profit since 2019, but projected higher costs for the upcoming year, giving investors pause.
Net income of over $2 billion for 2023 put an end to years of losses since the start of the COVID-19 pandemic in 2020, when travel restrictions effectively grounded the global airline industry.
Last year, Air Canada reported a net loss of $1.7 billion for 2022, an improvement from its net loss of $3.602 billion in 2021 and a net loss of $4.647 billion in 2020.
“In 2023, we saw meaningful improvement yearover-year in key operational metrics despite many uncontrollable issues we had to deal with,” chief executive Michael Rousseau said during a Friday earnings call after the airline released its fourth-quarter and full-year results.
The 2023 full-year net income and diluted earnings per share of $5.96 were also above the net income of $1.476 billion and diluted earnings per share of $5.44 that the airline reported in 2019.
The results, however, did not persuade investors as the stock dropped the most in a year in trading Friday, falling 6.85 per cent to $17.94.
In Air Canada’s updated 2024 guidance, the company said it expects costs outside of fuel to be up between 2.5 and 4.5 per cent compared to the prior year.
Executives said this forecast adjustment includes an assumption for higher pilot costs from a new labour agreement which is currently being negotiated.
Wages, salaries and benefits expenses in 2023 increased 21 per cent from 2022, the company said.
National Bank of Canada analyst Cameron Doerksen noted that cost increases are industry-wide, so Air Canada is not unique in this regard. He added that large U.S. legacy airlines have 2024 CASM guidance that is similar to Air Canada’s.
Still, Doerksen said his previous forecast for a 2.5 per cent year-over-year drop in costs was “admittedly overly optimistic.”
Air Canada also adjusted its prior 2024 target for earnings before interest, taxes, depreciation and amortization to between $3.7 and $4.2 billion from the previous guidance of $3.5 billion to $4 billion.
This is reliant on strong airfare pricing, which Royal Bank of Canada analyst Walter Spracklin considers at risk.
“(This) will likely not be well received given trends among U.S. peers for better results off strong top-lines,” Spracklin wrote in a note to clients.