Air Canada’s second-quarter profit took a major hit as the airline faces rising costs, intense competition and softening demand.
On Wednesday, Canada’s largest international carrier reported net earnings of $410 million, half of the $838 million posted a year earlier. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $914 million, declining $306 million from a year ago.
In a call with analysts, Air Canada executives highlighted rising maintenance and labour expenses from “wage-related initiatives” as well as increased staffing to support a higher number of seats offered to passengers.
The Canadian travel industry has seen a wave of labour disputes this summer, with more than 5,000 Air Canada pilots represented by the Air Line Pilots Association currently seeking help from a federal conciliator with stalled negotiations for a deal.
“Our focus remains on building underlying sustainable cost structure that supports our long-term growth, competitiveness and profitability, while also rewarding our employees for their hard work and dedication,” said Air Canada CFO John Di Bert in a call with analysts.
The disappointing financial results also reflect aircraft delivery delays by manufacturers Boeing and Airbus, impacting passenger capacity growth, and intensified international and domestic competition, pressuring airfare prices, Matthew Lee, analyst at Canaccord Genuity, wrote in a note to clients.
Earlier this summer, the airline said it expected to grow this year’s available seat miles, a measure of supply reflecting total number of seats multiplied by the total distance travelled, as much as 6.5 per cent. That’s down from a previous forecast of eight per cent due to the aircraft delivery delays.
Air Canada said it expects to receive a remaining fleet of A220 aircraft soon, while it leased eight Boeing 737 Max aircraft, which will be operational in the summer of 2025.
Available seat miles are forecasted to rise between four per cent and 4.5 per cent in the third-quarter compared to the same quarter in 2023.
Second-quarter revenues totalled $5.5 billion, rising two per cent year-over-year. The airline industry has become more competitive as new players with lower-cost business models enter the market, some of which don’t have “costly constraints imposed on Air Canada,” said Michael Rousseau, CEO of Air Canada.
Last week, the Competition Bureau launched an investigation into the state of competition in the Canadian airline industry seeking ways to improve it.
In a June submission to the bureau, Air Canada argued that the industry has similar levels of competition to other countries of similar size.
“The airline industry is highly regulated and extremely dynamic, competitive and complex,” Rousseau said on the Wednesday analyst call.
“We serve passengers in moments that are important and often deeply meaningful to them. We don’t live up to expectations. We understand the criticism and disappointment.”
