Air Canada expects to reduce capacity by 50 per cent in Q2
Air Canada today released a statement in response to the impact of COVID-19, which includes withdrawing its 2020 and 2021 financial guidance because of what it describes as a severe drop in traffic and a corresponding decline in revenue. Canada’s flag carrier is preparing for a capacity reduction of up to 50 per cent in its current second quarter relative to the corresponding quarter last year.
Air Canada states the reduction in capacity in Pacific markets for the month of April is expected to be approximately 75 per cent, as a result of the COVID-19 outbreak and travel restrictions imposed in many countries around the world, including Canada and the United States.
“COVID-19 presents the global airline industry with unprecedented challenges, compounded by uncertainty as to the extent of its effects,” stated Calin Rovinescu, president and CEO of Air Canada. “However, we are confident that after a decade of transformation and record results, Air Canada today has the agility, the team and the route network to successfully navigate through this crisis.”
Rovinescu continues to explain the coronavirus crisis facing the global airline industry is worsening as countries around the world adopt increasingly severe measures, national lockdowns and travel restrictions. “We understand that the governments of the United States and many European countries such as Germany, France, Italy, Norway and others have approved or are considering assistance for their airline industries in one form or another,” he said. “Under these circumstances, we believe that the Canadian airline industry should also see similar assistance, whether through forbearance of taxes, landing fees and other charges that form part of the aviation burden in Canada or otherwise until the industry stabilizes.”
Rovinescu states Air Canada will not wait on decisions about such support measures from the government and that it is proceeding with its own mitigation plan. In addition to its planned capacity reduction of 50 per cent, as described above, Air Canada describes the following measures in response to COVID-19:
• A combination of significantly lower jet fuel prices, the projected cost savings associated with capacity reductions, including workplace reductions and other programs, and a general cost reduction program is expected to mitigate between 50 and 60 per cent of the company’s total revenue loss for the second quarter of 2020.
• Air Canada believes that, excluding fuel and depreciation and amortization expenses, approximately 50 per cent of its operating expenses are variable in nature. Air Canada has no current outstanding fuel hedge positions.
• To preserve cash, Air Canada is initiating a company-wide cost reduction and capital deferral program, targeting at least $500 million.
• Air Canada suspended its share repurchase program effective March 2, 2020.
• Air Canada drew down its US$600 million revolving credit facility. In addition, Air Canada is working with several parties to raise additional liquidity over the next several weeks, which will require pro-rata security from its unencumbered asset pool.
• Air Canada assumes that the Canadian dollar will trade, on average, at C$1.39 per U.S. dollar for both the second quarter and the remainder of 2020 and that the price of jet fuel will average 47 CAD cents per litre for the second quarter of 2020 and 50 CAD cents per litre for the remainder of 2020.