Air Canada's Q2 revenues hit a record $5.5bn, but full-year forecast drops due to market pressures
Air Canada has announced its preliminary second-quarter results and adjusted its full-year forecast, anticipating lower-than-expected earnings for 2024.
Despite reporting a record $5.5bn in Q2 operating revenues, a 6.5 percent increase year-over-year, the airline cited a “healthy demand environment” as reported by Financial Post.
The airline now expects its 2024 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to be between $3.1 and $3.4bn, down from the initial guidance of $3.7 to $4.2bn.
The updated forecast reflects a lower yield environment, lower-than-expected load factors for the second half of the year, and competitive pressures in international markets. It also considers assumptions about jet fuel prices and a weakened Canadian dollar against the US dollar.
Air Canada also revised its capacity guidance range for the full year, now projecting an increase of 5.5 to 6.5 percent over 2023, down from the initial forecast of 6 to 8 percent. This adjustment accounts for ongoing supply chain pressures, evolving market conditions, and geopolitical issues.
Additionally, the airline increased its adjusted cost per available seat mile range to 2.5 to 4.5 percent, compared to 2.5 to 3.5 percent in 2023. Both the lowered 2024 guidance and preliminary second-quarter estimates fell below consensus expectations.
For the second quarter, Air Canada reported operating revenues of about $5.5bn, setting a record for a second quarter, with load factors remaining above historical averages.
However, its operating income for Q2 was $466m, with an operating margin of 8.4 percent, compared to $802m in Q2 2023. The adjusted EBITDA for the quarter was $914m, down from approximately $1.2bn in Q2 2023.
RBC Capital Markets analyst James McGarragle noted in a client note that other airlines, including Air Transat and US peers, also reported weaker results.
McGarragle highlighted yield and load factors as the main reasons for Air Canada’s lowered 2024 guidance, despite a healthy demand backdrop for Q2 air travel. He mentioned potential demand challenges for the remainder of the year.
Cameron Doerksen, an analyst at the National Bank of Canada, stated that Air Canada's stock is likely to remain under pressure until a new agreement with the pilots is reached. He suggested that the current valuation reflects an overly pessimistic earnings outlook for the company.
