Air Canada’s 26 consecutive quarters of year-on-year operating revenue growth came to a screeching halt in the first quarter 2020, as Covid-19 jammed the brakes on the world.
In a very visual impact of the virus on the global commercial air sector, Air Canada burned through CDN 857 million (USD 608.3 million) in liquidity in just the first three months of 2020, as it was forced to slash its schedule by nearly 90 per cent.
Air Canada recorded a net loss of $1.05 billion compared to a net income of $345 million in the first quarter of 2019. The first quarter of 2020 included foreign exchange losses of $711 million while the first quarter of 2019 included foreign exchange gains of $263 million.
“Our first quarter results reflect the severity and abruptness of the impact that the COVID-19 pandemic has had on Air Canada,” says Calin Rovinescu, president and chief executive officer of Air Canada. The global airline industry, he notes, first began to feel the impact in late January with the suspension by many carriers, including Air Canada, of services to China.
The impact was exacerbated during the month of March with mandated social distancing, unprecedented government-imposed travel restrictions in Canada and around the world and the shutting down of economies.
“The past quarter was the first in 27 consecutive quarters that we did not report year-over-year operating revenue growth. Our solid January and February results gave us every encouragement that this performance would continue until the sudden and catastrophic impact of COVID-19’s onset in Europe and North America in early March.
“We are now living through the darkest period ever in the history of commercial aviation,” Rovinescu says.
To assist with global requirements of goods and personal protective equipment during the pandemic, Air Canada has operated more than 500 all-cargo international flights since 22 March 2020.
It plans to operate up to 150 all-cargo flights per week in the second quarter using a combination of B787 and B777 aircraft, as well as four newly converted B777 and four converted A330 aircraft. These conversions double available cargo space by removing seats from the passenger cabin.
“We have developed a plan to manage through a protracted downturn, recognising that the pandemic and its fallout will materially impact both customer demand and our liquidity in the short and medium term.
“Moreover, while the duration of the pandemic and its fallout remain unknown, it is our current expectation that it will take at least three years to recover to 2019 levels of revenue and capacity,” Rovinescu warns.
He goes on to say that the group expects that both the overall industry and its airline will be “considerably smaller” for some time. This will lead to further reductions in both fleet and employee levels, Rovinescu adds.
But despite the challenges Rovinescu adds:
“Be assured that we are resolutely committed to bringing our airline successfully through this crisis.”
Air Canada has taken or will take the following measures in response to the COVID-19 pandemic:
- Air Canada has reduced second quarter 2020 capacity by 85 to 90 per cent when compared to 2019’s second quarter;
- Third quarter 2020 capacity is expected to be reduced by approximately 75 per cent when compared to the third quarter of 2019;
- The airline will continue to dynamically adjust capacity and take other measures as required to account for health warnings, travel restrictions, border closures globally and passenger demand;
- In March 2020, Air Canada drew down its USD 600 million and USD 200 million revolving credit facilities for aggregate net proceeds of USD 1.027 billion – as at 31 March 2020, Air Canada’s unrestricted liquidity amounted to $6.523 billion;
- In April 2020, Air Canada concluded a 364-day term loan in the amount of USD 600 million, secured by aircraft and spare engines, for net proceeds of USD 829 million;
- In late April 2020, Air Canada concluded a bridge financing of $788 million for 18 Airbus A220 aircraft which may be used for general corporate purposes and which Air Canada expects to replace with longer-term secured financing arrangements later in 2020 with the same lender.
Among other measures, Air Canada is accelerating the retirement of 79 older aircraft from its fleet – B767, A319 and Embraer 190 aircraft, with the Embraer aircraft exiting the fleet immediately. Their retirement will simplify the airline’s overall fleet, reduce its cost structure, and lower its carbon footprint, it says.