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Air Canada to jack up fares amid higher fuel costs, weak business travel

Carrier more than tripled its revenues last quarter, but losses still significant
Grounded Air Canada planes sit on the tarmac at Pearson International Airport during the COVID-19 pandemic in Toronto on Wednesday, April 28, 2021. Air Canada reported a first-quarter loss of $974 million compared with a loss of $1.30 billion a year earlier as its revenue more than tripled. THE CANADIAN PRESS/Nathan Denette

Air Canada is poised to raise fares as it looks to offset the hit from higher fuel costs, sagging business travel and soaring inflation.

The country’s largest carrier more than tripled its revenues last quarter as demand for travel revved up, though a net loss of nearly $1 billion signalled the pandemic recovery is far from complete.

After the Omicron variant of COVID-19 slowed bookings in January, Air Canada’s sales spiked in March as travel restrictions eased, pushing bookings to 90 per cent of 2019 levels.

“We are very positive on the rest of the year and continued growth over the next several years,” CEO Michael Rousseau told analysts on a conference call Tuesday.

In spite of that optimism, Air Canada shares on Tuesday dropped by $1.76 or 7.3 per cent to $22.46 by day’s end on the Toronto Stock Exchange.

The airline maintained full-year forecasts that available seat capacity will average out at roughly three-quarters of what it was in 2019. A similar figure is expected for the current quarter, which would be five times the capacity of a year earlier.

However, Air Canada’s capacity continues to lag its U.S. counterparts and business travel remains at half the volume it hit three years ago, said chief commercial officer Lucie Guillemette.

“International might take a little bit longer,” she said, referring to overseas business bookings, even as domestic and leisure travel ramp up.

Air Canada hopes to take advantage of a renewed appetite for corporate travel in the United States as the carrier shores up its U.S. flight schedule, she added.

The prolonged plunge in business travel remains a “key risk” for Air Canada, while fuel costs have “eaten into the otherwise positive benefit of higher ticket fares,” said RBC analyst Walter Spracklin.

Jet fuel prices rose nearly 119 per cent year over year as of April 22, according to the International Air Transport Association. Spiking in March amid Russia’s invasion of Ukraine, the jet fuel price has nudged down by 5.5 per cent over the past month.

“The ability to pass on increases in fares and manage through optimization and cost discipline is really what’s key to how we’re trying to manage through this dislocation in the market pricing,” chief financial officer Amos Kazzaz told analysts on a conference call Tuesday.

Higher fuel surcharges and so-called ancillary fees — for services such as baggage and meals and for commission-based offerings such as car rentals and travel insurance — remain another path to profitability, added Guillemette.

A hiring blitz over the past year swelled Air Canada’s ranks to more than 27,000, up from 16,000 a year ago, even as a labour shortage — particularly for groundcrew and pilots — affects some airlines.

“There are some positions under the wing, potentially, that are a little bit more difficult to recruit for right now,” Rousseau said, adding that hiring is not a major hurdle as passengers flock back to the terminal.

“Travellers returned in force starting around March,” Helane Becker, an aviation analyst for financial-services firm Cowen, said in a note to investors.

“Even with the disappointing first-quarter results, we believe they’ll be on track as the recovery continues.”

Air Canada aims to restore 41 North American routes dropped during the pandemic and relaunch nine domestic and transborder routes this summer, on top of 34 international routes. It plans to serve 51 Canadian airports and 46 U.S. airports.

To offset ticket sales that remain below pre-pandemic levels, the Montreal-based airline continued to expand cargo services, looking to seize on demand caused by clogged supply chains and a stabilizing but persistent e-commerce surge.

Cargo revenue grew 42 per cent year over year to $398 million in the first quarter — 15 per cent of total revenue — with two new Boeing 767-300 freighters set for delivery this year.

“Looking ahead, we expect this to soften as we convert aircraft back to passenger configurations and receive our new freighter aircraft,” Guillemette said of cargo revenue.

Meanwhile bookings via the airline’s revamped Aeroplan rewards program surpassed those from the first three months of 2019 by 19 per cent, as Canadians put points racked up during the pandemic toward travel.

Air Canada reported a first-quarter loss of $974 million or $2.72 per diluted for its first quarter compared with a loss of $1.3 billion or $3.90 per diluted share a year earlier.

Revenue totalled $2.57 billion for the three months ended March 31, compared with $729 million in the first three months of 2021.

Analysts on average had predicted a loss of $1.49 per share, according to financial data firm Refinitiv.

—Christopher Reynolds, The Canadian Press

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