- Operating revenues of $6.344 billion increased 19 per cent from the third quarter of 2022
- Operating income of $1.415 billion, with an operating margin of 22.3 per cent, increased $771 million year over year
- Adjusted EBITDA of $1.830 billion, with adjusted EBITDA margin of 28.8 per cent, an improvement of over $773 million year over year
- Third quarter net cash flows from operating activities of $408 million, and free cash flow of $135 million
- Leverage ratio of 1.4 at September 30, 2023, down from 5.1 at December 31, 2022
MONTREAL, Oct. 30, 2023 /CNW/ – Air Canada today reported its third quarter 2023 financial results.
“Air Canada performed strongly in the third quarter, generating solid operating revenues of more than $6.3 billion, a 19 per cent increase over the same period last year. Our focus on growing our international network, building scale at our hubs and leveraging our solid partnerships is delivering strong results. Our operating income reached $1.4 billion, more than double from a year ago, and adjusted EBITDA grew by $773 million to $1.83 billion, representing an adjusted EBITDA margin of nearly 29 per cent. I thank our employees and management team for their hard work in safely transporting 12.6 million customers during the busy and demanding summer season. We managed costs prudently, with operating expenses rising 5 per cent, on a 10 per cent increase in capacity. We have continued to pay down debt in the quarter, lowering our leverage ratio to 1.4 from 5.1 at the end of last year, while also maintaining a healthy level of liquidity, which stood at nearly $10 billion at the quarter’s end,” said Michael Rousseau, President and Chief Executive Officer at Air Canada.
“Viewed sequentially, Air Canada’s progressive performance to date proves the success of its strategy to grow back the airline and improve operational stability, while mitigating risks. This requires navigating geopolitical uncertainty, inflation and the volatile fuel price environment, meeting increased competition and dealing with supply chain, and the evolving regulatory environment. Yet our demonstrated adaptability, combined with a stable demand environment, give us every confidence for the rest of the year and into 2024 despite the inevitable headwinds to which our global industry is prone. We will continue to manage our business with diligence. We remain confident with our full year adjusted EBITDA guidance and at this point in time, expect to land in the higher range of our full year guidance.”
Third Quarter 2023 Financial Results
- Operating revenues of $6.344 billion increased over $1 billion from the third quarter of 2022 driven by higher passenger revenues. Operated capacity increased 10 per cent from the third quarter of 2022, about one percentage point below the projection provided in Air Canada’s August 11, 2023, news release.
- Operating expenses of $4.929 billion increased $251 million or 5 per cent from the third quarter of 2022. The increase was due primarily to increases in nearly all line items reflecting higher traffic and capacity year over year and general inflationary pressures. Lower aircraft fuel expense resulting from 23 per cent lower jet fuel prices year over year partially offset the increase.
- Operating income of $1.415 billion, with an operating margin of 22.3 per cent, improved $771 million from the third quarter of 2022.
- Adjusted EBITDA of $1.830 billion, with an adjusted EBITDA margin of 28.8 per cent, increased $773 million from the third quarter of 2022.
- Net income of $1.250 billion increased $1.758 billion from the third quarter of 2022. Diluted earnings per share of $3.08 compared to a diluted loss per share of $1.42 in the third quarter of 2022.
- Adjusted net income of $1.281 billion improved $850 million from the third quarter of 2022. Adjusted earnings per diluted share of $3.41 compared to $1.07 in the third quarter of 2022.
- Adjusted CASM of 12.20 cents increased 5.6 per cent from the third quarter of 2022. The unit cost was impacted by a 17 per cent increase in salaries, wages and benefits expenses — on higher staffing levels — and by higher passenger service costs due to higher traffic and higher selling costs — which are correlated to revenues — and by inflationary pressures on various line items. Third quarter 2023 CASM of 17.57 cents decreased 4.0 per cent from the third quarter of 2022, driven by lower fuel prices and higher capacity year over year, and was partially offset by higher salaries, wages and benefits, higher passenger service costs and inflationary pressures.
- Net cash flows from operating activities of $408 million increased $118 million from the third quarter of 2022.
- Free cash flow of $135 million increased $178 million from the third quarter of 2022.
- Net debt-to-adjusted EBITDA ratio was 1.4, as measured at September 30, 2023, an improvement from the ratio of 1.7 at June 30, 2023, and 5.1 at December 31, 2022, driven by an increase in adjusted EBITDA and a $2.1 billion reduction in net debt in the first nine months of 2023.
Outlook
For the fourth quarter of 2023, Air Canada plans to increase its ASM capacity by about 10 per cent from the same quarter in 2022. Air Canada is providing the following update for the full year 2023 guidance as described below.
| Metric | Full Year 2023 | |
| Prior 2023 Guidance (Provided on August 11, 2023) | Updated 2023 Guidance (Provided on October 30, 2023) | |
| ASM capacity | About 21 per cent increase versus2022 | About 20 per cent increase versus2022 |
| Adjusted CASM | About 0.5 to 1.5 per cent above2022 levels | About 1.5 to 2.25 per cent above2022 levels |
| Adjusted EBITDA | About $3.75 – $4.0 billion | About $3.75 – $4.0 billion |
Major Assumptions
Air Canada made assumptions in preparing its updated guidance and making forward looking statements — including moderate Canadian GDP growth for 2023, that the Canadian dollar will trade, on average, at C$1.35 per U.S. dollar for the full year 2023 and that the price of jet fuel will average C$1.13 per litre for the full year 2023.
Air Canada is modifying its 2023 adjusted CASM guidance to reflect the change in full year ASM capacity guidance, as well as adjustments to various expense items related to the ongoing cost environment.
Air Canada is not updating its 2024 targets at this time and will continue evaluating them as it progresses with its plans and executes on its strategic priorities.
Air Canada uses adjusted CASM to assess the operating and cost performance of its ongoing airline business without the effects of aircraft fuel expense, the cost of ground packages at Air Canada Vacations, impairment of assets and freighter costs as these items may distort the analysis of certain business trends and render comparative analysis across periods less meaningful and their exclusion generally allows for a more meaningful analysis of Air Canada’s operating expense performance and a more meaningful comparison to that of other airlines.
In calculating adjusted CASM, aircraft fuel expense is excluded from operating expense results as it fluctuates widely, depending on many factors, including international market conditions, geopolitical events, jet fuel refining costs and Canada/U.S. currency exchange rates. Air Canada also incurs expenses related to ground packages at Air Canada Vacations, which some airlines, without comparable tour operator businesses, may not incur. In addition, these costs do not generate ASMs and, therefore, excluding these costs from operating expense results provides for a more meaningful comparison across periods when such costs may vary.
Air Canada also incurs expenses related to the operation of freighter aircraft that some airlines, without comparable cargo businesses, may not incur. Air Canada had six Boeing 767 dedicated freighter aircraft in its operating fleet as at September 30, 2023, compared to two Boeing 767 dedicated freighter aircraft in service as at September 30, 2022. These costs do not generate ASMs and, therefore, excluding these costs from operating expense results provides for a more meaningful comparison of the passenger airline business across periods.
Adjusted CASM is reconciled to GAAP operating expense as follows:
| (Canadian dollars in millions, except where indicated) | Third Quarter | First Nine Months | ||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||
| Operating expense – GAAP | $ | 4,929 | $ | 4,678 | $ | 251 | $ | 14,458 | $ | 12,035 | $ | 2,423 |
| Adjusted for: | ||||||||||||
| Aircraft fuel | (1,365) | (1,617) | 252 | (3,927) | (3,817) | (110) | ||||||
| Ground package costs | (99) | (80) | (19) | (543) | (311) | (232) | ||||||
| Impairment of assets | – | – | – | – | (4) | 4 | ||||||
| Freighter costs (excluding fuel) | (41) | (26) | (15) | (111) | (59) | (52) | ||||||
| Operating expense, adjusted for the above-noted items | $ | 3,424 | $ | 2,955 | $ | 469 | 9,877 | 7,844 | 2,033 | |||
| ASMs (millions) | 28,060 | 25,562 | 9.8 % | 74,573 | 60,190 | 23.9 % | ||||||
| Adjusted CASM (cents) | ¢ | 12.20 | ¢ | 11.56 | ¢ | 0.64 | ¢ | 13.24 | ¢ | 13.03 | ¢ | 0.21 |
| Third Quarter | First Nine Months | |||||||||||
| (Canadian dollars in millions, except where indicated) | 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||
| Operating income (loss) – GAAP | $ | 1,415 | $ | 644 | $ | 771 | $ | 2,200 | $ | (159) | $ | 2,359 |
| Add back: | ||||||||||||
| Depreciation and amortization | 415 | 413 | 2 | 1,261 | 1,223 | 38 | ||||||
| EBITDA | $ | 1,830 | $ | 1,057 | $ | 773 | $ | 3,461 | $ | 1,064 | $ | 2,397 |
| Remove: | ||||||||||||
| Impairment of assets | – | – | – | – | 4 | (4) | ||||||
| Adjusted EBITDA | $ | 1,830 | $ | 1,057 | $ | 773 | $ | 3,461 | $ | 1,068 | $ | 2,393 |
| Operating revenues | $ | 6,344 | $ | 5,322 | $ | 1,022 | $ | 16,658 | $ | 11,876 | $ | 4,782 |
| Operating margin (%) | 22.3 | 12.1 | 10.2 pp | 13.2 | (1.3) | 14.5 pp | ||||||
| Adjusted EBITDA margin (%) | 28.8 | 19.9 | 8.9 pp | 20.8 | 9.0 | 11.8 pp | ||||||
Adjusted Pre-tax Income (Loss)
| (Canadian dollars in millions) | Third Quarter | First Nine Months | ||||||||||
| 2023 | 2022 | $ Change | 2023 | 2022 | $ Change | |||||||
| Income (loss) before income taxes – GAAP | $ | 1,317 | $ | (504) | $ | 1,821 | $ | 2,090 | $ | (1,670) | $ | 3,760 |
| Adjusted for: | ||||||||||||
| Impairment of assets | – | – | – | – | 4 | (4) | ||||||
| Foreign exchange (gain) loss | 61 | 951 | (890) | (317) | 1,048 | (1,365) | ||||||
| Net interest relating to employee benefits | (6) | (9) | 3 | (18) | (17) | (1) | ||||||
| (Gain) loss on financial instruments recorded at fair value | (101) | 25 | (126) | (24) | (89) | 65 | ||||||
| (Gain) loss on debt settlement | 7 | (17) | 24 | 9 | (17) | 26 | ||||||
| Adjusted pre-tax income (loss) | $ | 1,278 | $ | 446 | $ | 832 | $ | 1,740 | $ | (741) | $ | 2,481 |
Adjusted Net Income (Loss) and Adjusted Earnings (Loss) Per Share – Diluted
| (Canadian dollars in millions) | Third Quarter | First Nine Months | ||||||||||
| 2023 | 2022 | $ Change | 2023 | 2022 | $ Change | |||||||
| Net income (loss) – GAAP | $ | 1,250 | $ | (508) | $ | 1,758 | $ | 2,092 | $ | (1,868) | $ | 3,960 |
| Adjusted for: | ||||||||||||
| Impairment of assets | – | – | – | – | 4 | (4) | ||||||
| Foreign exchange (gain) loss | 61 | 951 | (890) | (317) | 1,048 | (1,365) | ||||||
| Net interest relating to employee benefits | (6) | (9) | 3 | (18) | (17) | (1) | ||||||
| (Gain) loss on financial instrumentsrecorded at fair value | (101) | 25 | (126) | (24) | (89) | 65 | ||||||
| Gain (loss) on debt settlement | 7 | (17) | 24 | 9 | (17) | 26 | ||||||
| Income tax, including for the abovereconciling items (1) | 70 | (11) | 81 | 15 | 168 | (153) | ||||||
| Adjusted net income (loss) | $ | 1,281 | $ | 431 | $ | 850 | $ | 1,757 | $ | (771) | $ | 2,528 |
| Weighted average number of outstanding shares used in computing diluted incomeper share (in millions) | 376 | 404 | (28) | 376 | 358 | 18 | ||||||
| Adjusted earnings (loss) per share –diluted | $ | 3.41 | $ | 1.07 | $ | 2.34 | $ | 4.67 | $ | (2.15) | $ | 6.82 |
The table below reflects the share amounts used in the computation of basic and diluted earnings per share on an adjusted earnings per share basis:
| (In millions) | Third Quarter | First Nine Months | ||
| 2023 | 2022 | 2023 | 2022 | |
| Weighted average number of shares outstanding – basic | 358 | 358 | 358 | 358 |
| Effect of dilution | 18 | 46 | 18 | – |
| Weighted average number of shares outstanding – diluted | 376 | 404 | 376 | 358 |
Net Debt to Trailing 12-Month Adjusted EBITDA (Leverage Ratio)
| (Canadian dollars in millions) | September 30, 2023 | December 31, 2022 | Change | |||
| Long-term debt and lease liabilities | $ | 13,413 | $ | 15,043 | $ | (1,630) |
| Current portion of long-term debt and lease liabilities | 959 | 1,263 | (304) | |||
| Total long-term debt and lease liabilities | 14,372 | 16,306 | (1,934) | |||
| Less cash, cash equivalents and short- and long-term investments | (8,934) | (8,811) | (123) | |||
| Net debt | $ | 5,438 | $ | 7,495 | $ | (2,057) |
| Adjusted EBITDA (trailing 12 months) | $ | 3,850 | 1,457 | 2,393 | ||
| Net debt to adjusted EBITDA ratio | 1.4 | 5.1 | (3.7) | |||
About Air Canada
Air Canada is Canada’s largest airline, the country’s flag carrier and a founding member of Star Alliance, the world’s most comprehensive air transportation network. Air Canada provides scheduled service directly to more than 180 airports in Canada, the United States and Internationally on six continents. It holds a Four-Star ranking from Skytrax. Air Canada’s Aeroplan program is Canada’s premier travel loyalty program, where members can earn or redeem points on the world’s largest airline partner network of 45 airlines, plus through an extensive range of merchandise, hotel and car rental rewards. Its freight division, Air Canada Cargo, provides air freight lift and connectivity to hundreds of destinations across six continents using Air Canada’s passenger and freighter aircraft. Air Canada aims to achieve an ambitious net zero emissions goal from all global operations by 2050.