- COVID-19 Mitigation and Recovery Plan nearly complete
- Total passengers carried declined 88 per cent due to COVID-19 and travel restrictions
- Deferral and/or cancellation of Boeing 737-8 and Airbus A220 deliveries
- Reduction of capital expenditures by about
$3.0 billion over 2020-2023 period
"Today's results reflect COVID-19's unprecedented impact on our industry globally and on
"In parallel, we acted decisively to implement our COVID-19 Mitigation and Recovery Plan. Since March, we have raised almost
"At the end of June, we made the difficult decision to indefinitely suspend 30 domestic routes and close eight regional stations and our Network Planning team has identified up to a further 95 domestic,
"According to IATA's Chief Economist, governments have already provided more than
"We have also continued our discussions with the
"We have taken several measures to carefully rationalize our existing fleet: We are accelerating the retirement of 79 mainline and Rouge aircraft. We are deferring delivery of new Boeing 737-8 and Airbus A220 aircraft scheduled for delivery in 2021 and 2022 and cancelling 10 Boeing 737-8s and 12 Airbus A220s, representing about 40 per cent of the remaining scheduled deliveries. Despite modifications made to our orders, these two aircraft remain the core of our narrowbody fleet and enable us to efficiently serve transcontinental domestic and transborder routes through improved economics and range, while providing an excellent customer experience. Through this fleet restructuring and other capital reduction initiatives, we have successfully lowered total projected capital expenditures by about
"In addition to the mitigation steps we have taken,
Customer Service and Safety
Air Canada makes safety its first consideration in all that it does and has been continually updating its health and safety policies and procedures for travellers and employees in all workplaces, airports, and onboard aircraft to account for new information about COVID-19 as it becomes available. This includes a requirement for customers to wear a protective face covering, as well as enhanced protective personal equipment for airport agents and crews, the reinforcement of safe practices such as frequent hand-washing and collaborating with the Canadian federal government to screen passengers to help determine fitness for flying.- To underscore its commitment to customer and employee safety,
Air Canada introduced Air Canada CleanCare+. This program is designed to reduce the risk of exposure to COVID-19 through such measures as enhanced aircraft grooming, mandatory preflight customer temperature checks in addition to required health questionnaires and providing all customers with care kits for hand cleaning and hygiene. Air Canada has undertaken several medical collaborations to continue advancing biosafety across its business, including with Cleveland Clinic Canada inToronto , a renowned global healthcare leader, to provide additional science-based evidence in our ongoing COVID-19 response; withOttawa -based Spartan Bioscience to explore rapid COVID-19 testing in an aviation environment; and since last year withToronto -based BlueDot, a company that monitors infectious diseases globally in real time to give us accurate, relevant information to make business and safety decisions quickly.Air Canada has been partnering with McMaster HealthLabs and theGreater Toronto Airports Authority in a study of international travellers arriving atToronto Pearson International Airport . Preliminary results indicate that testing can provide an effective, responsible alternative to facilitate the safe relaxation of quarantines.Air Canada recently announced that it was finalizing an initial order of Abbott's ID NOW COVID-19 rapid response tests as part of its ongoing evaluation of COVID-19 testing technology and protocols, one of the first private sector companies to do so.Air Canada also recently announced plans to explore the application of COVID-19 contact tracing technology in its workplace using the Bluetooth enabled TraceSCAN app and wearable technology developed by Canadian-based Facedrive Inc.- To meet the demand for the global transport of goods, including personal protective equipment during the pandemic,
Air Canada operated more than 3,000 all-cargo international flights sinceMarch 22, 2020 , and plans to operate up to 100 all-cargo flights per week in the fourth quarter of 2020 using a combination of Boeing 787 and Boeing 777 aircraft as well as four converted Boeing 777 and three converted Airbus 330 aircraft where it has doubled available cargo space by removing seats from the passenger cabin. Air Canada announced special benefits and accommodations for Aeroplan and Altitude members in light of COVID-19. These include pausing mileage expiration, grandfathering mileage-earned status, waiving certain change and redeposit fees, and launching new promotions so that members can earn additional Aeroplan Miles without leaving home.
Capacity and Route Network
Air Canada reduced second and third quarter 2020 ASM capacity by 92.0 per cent and 81.7 per cent, respectively, compared to the same quarters in 2019, and plans to reduce fourth quarter 2020 capacity by approximately 75 per cent compared to the fourth quarter of 2019. The airline will continue to dynamically adjust capacity and take other measures as required to adjust for demand, including as a result of health warnings, travel restrictions, quarantines, border closures and passenger demand.- On
June 30, 2020 ,Air Canada suspended service indefinitely on 30 domestic regional routes and closed eight stations at regional airports inCanada .
Financing and Liquidity
- In
March 2020 ,Air Canada drew down itsUS$600 million and$200 million revolving credit facilities for aggregate net proceeds of$1.027 billion . - In
June 2020 ,Air Canada concluded an underwritten marketed public offering of 35,420,000 voting shares ofAir Canada at a price of$16.25 per share for aggregate proceeds of$576 million , and a concurrent marketed private placement of convertible senior unsecured notes due 2025 for aggregate proceeds ofUS$748 million ($1.011 billion ). - In
June 2020 ,Air Canada completed a private offering of$840 million aggregate principal amount of 9.00 per cent Second Lien Secured Notes due 2024, which were sold at 98 per cent of par. - In
June 2020 ,Air Canada completed a private offering of one tranche of ClassC Enhanced Equipment Trust Certificates (EETCs) with a combined aggregate face amount of approximatelyUS$316 million ($426 million ), which were sold at 95.002 per cent of par. - In
September 2020 ,Air Canada concluded a private offering of two tranches of EETCs, the proceeds of which were used to purchase equipment notes issued byAir Canada and secured by three Boeing 787-9 aircraft, three Boeing 777-300ER aircraft, one Boeing 777-200LR and nine Airbus A321-200 aircraft. The two tranches of certificates have a combined aggregate face amount ofUS$553 million ($740 million ) and a weighted average interest rate of 5.73 per cent.Air Canada used the proceeds from this financing together with cash on hand to repay in full theUS$600 million ($803 million ) 364-day term loan originally put in place inApril 2020 and discussed inAir Canada's second quarter 2020 MD&A. - In
September 2020 ,Air Canada concluded a committed secured facility totaling$788 million to finance the purchase of the first 18 Airbus A220 aircraft. As aircraft are financed under this new Canadian dollar facility, the bridge financing of$788 million put in place inApril 2020 (and discussed inAir Canada's second quarter 2020 MD&A) will be repaid concurrently. AtSeptember 30, 2020 , nine Airbus A220 aircraft were financed under this facility with the corresponding bridge financing repaid. - In early
October 2020 ,Air Canada announced that it had completed sale and leaseback transactions for nine Boeing 737-8 aircraft for total proceeds ofUS$365 million ($485 million ). The nine aircraft were delivered toAir Canada in the past three years. Air Canada's unencumbered asset pool (excluding the value of Aeroplan,Air Canada Vacations and Air Canada Cargo) amounted to approximately$1.8 billion following the closing of the transactions discussed above. As part ofAir Canada's ongoing efforts to maintain adequate liquidity levels, additional financing arrangements continue to be assessed.Air Canada suspended share purchases under its Normal Course Issuer Bid in earlyMarch 2020 and did not renew its issuer bid upon its expiry in the second quarter of 2020.
Cost Reduction and Capital Reduction and Deferral Program
Air Canada initiated a company-wide cost reduction and capital reduction and deferral program for 2020, which has now reached approximately$1.5 billion , increased from an initial target of$500 million . On a capacity reduction of 81.7 per cent, third quarter 2020 operating expenses decreased$3.032 billion or 66 per cent from the same quarter in 2019, reflecting the significant progress made on both managing variable costs and reducing fixed expenses.Air Canada continues to seek additional opportunities for cost reduction and cash preservation.Air Canada announced a workforce reduction of approximately 20,000 employees, representing more than 50 per cent of its workforce. This was achieved through layoffs, terminations of employment, voluntary separations, early retirements and special leaves.Air Canada adopted theCanada Emergency Wage Subsidy (CEWS) for most of its workforce effectiveMarch 15, 2020 . InJuly 2020 , the program was redesigned and extended untilDecember 2020 . InSeptember 2020 , theGovernment of Canada announced a further extension of the program toJune 2021 .Air Canada intends to continue its participation in the CEWS program for active employees, subject to meeting the eligibility requirements.Air Canada is permanently retiring 79 older aircraft from its fleet – consisting of Boeing 767, Airbus A319 and Embraer 190 aircraft. Their retirement will simplify the airline's overall fleet, reduce its cost structure, and lower its carbon footprint.Air Canada concluded an amendment to the purchase agreement for Airbus A220-300 aircraft which became effective in earlyNovember 2020 . As a result,Air Canada has deferred 18 aircraft deliveries over 2021 and 2022 and will not be purchasing the last 12 Airbus A220 aircraft.Air Canada expects to take delivery of five Airbus A220 aircraft in the fourth quarter of 2020.- In early
November 2020 ,Air Canada also amended its agreement with Boeing to cancel 10 Boeing 737-8 aircraft deliveries from its firm order of 50 aircraft and to defer its remaining 16 aircraft deliveries over the late 2021 to 2023 period. - Through this fleet restructuring and other capital reduction initiatives,
Air Canada successfully lowered its planned capital expenditures by approximately$3.0 billion for the 2020 to 2023 period compared to its projected capital expenditures at the end of 2019.
Third Quarter Summary
At
In the third quarter of 2020, net cash flows used in operating activities of
In the third quarter of 2020, net cash used in financing activities amounted to
In the third quarter of 2020, net cash flows used in investing activities of
In the third quarter of 2020, net cash burn(1) of
Outlook and Major Assumptions
As indicated above,
As discussed above, the Honourable Marc Garneau made public statements on
(1) Non-GAAP Measures
Below is a description of certain non-GAAP financial measures used by
- EBITDA (earnings before interest, taxes, depreciation and amortization) is commonly used in the airline industry and is used by
Air Canada as a means to view operating results before interest, taxes, depreciation and amortization as these costs can vary significantly among airlines due to differences in the way airlines finance their aircraft and other assets.Air Canada excludes special items from EBITDA as these items may distort the analysis of certain business trends and render comparative analysis to other airlines less meaningful. Readers are advised to review the section entitled Non-GAAP Financial Measures inAir Canada's Third Quarter 2020 MD&A for a further discussion and a reconciliation of this measure to Canadian GAAP. - Net cash burn is commonly used in the airline industry and is used by
Air Canada as a measure of cash used to maintain operations, support capital expenditures, and settle normal debt repayments, all before the net impact of new financing proceeds. Net cash burn is defined as net cash flows from operating, financing, and investing activities, and excludes proceeds from new financings, and lump sum debt maturities made where the Corporation has refinanced or replaced the amount. Net cash burn also excludes movements between cash and short and long-term investments. Readers are advised to review the section entitled Non-GAAP Financial Measures inAir Canada's Third Quarter 2020 MD&A for a further discussion of this measure, and to review the section entitled "Consolidated Cash Flow Movements" inAir Canada's Third Quarter 2020 MD&A for a reconciliation of this measure to Canadian GAAP.
For further information on
Third Quarter Analyst Conference Call
Media and the public may access this call on a listen-in basis. Details are as follows:
Dial 416-340-2217 or 1-800-806-5484 Passcode: 9933124#
Live audio webcast: https://bell.media-server.com/mmc/p/j6iivqtc
CAUTION REGARDING FORWARD-LOOKING INFORMATION
This news release includes forward-looking statements within the meaning of applicable securities laws. Forward-looking statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements may involve, but are not limited to, comments relating to guidance, strategies, expectations, planned operations or future actions. Forward-looking statements are identified using terms and phrases such as "preliminary", "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "predict", "project", "will", "would", and similar terms and phrases, including references to assumptions. Forward-looking statements, by their nature, are based on assumptions, including those described herein and are subject to important risks and uncertainties. Forward-looking statements cannot be relied upon due to, among other things, changing external events and general uncertainties of the business. Actual results may differ materially from results indicated in forward-looking statements due to a number of factors, including those discussed below.
Other factors which may cause results to differ materially from results indicated in forward-looking statements include our ability to successfully achieve or sustain positive net profitability, economic and geopolitical conditions, our ability to pay our indebtedness and maintain liquidity, industry and market conditions and the demand environment, competition, the timing and conditions of the return to service of Boeing 737 MAX aircraft into our fleet (including the introduction of those on order and the management of our fleet and operations until their return to service or introduction), energy prices, our dependence on technology, our ability to successfully implement appropriate strategic and other important initiatives (including our ability to reduce operating costs), cybersecurity risks, war, terrorist acts, other epidemic diseases, our dependence on key suppliers, casualty losses, changes in laws, regulatory developments or proceedings, our ability to successfully launch and operate our new loyalty program, climate change and environmental factors (including weather systems and other natural phenomena and factors arising from man-made sources), interruptions of service, our dependence on regional and other carriers, our ability to preserve and grow our brand, employee and labour relations and costs, our dependence on Star Alliance and joint ventures, limitations due to restrictive covenants, pending and future litigation and actions by third parties, currency exchange, pension plans, our ability to attract and retain required personnel, insurance issues and costs, as well as the factors identified in
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HIGHLIGHTS
The financial and operating highlights for
(Canadian dollars in millions, except where indicated) | Third Quarter | First Nine Months | ||||
2020 | 2019 | $ Change | 2020 | 2019 | $ Change | |
Financial Performance Metrics | ||||||
Operating revenues | 757 | 5,530 | (4,773) | 5,006 | 14,702 | (9,696) |
Operating income (loss) | (785) | 956 | (1,741) | (2,773) | 1,505 | (4,278) |
Income (loss) before income taxes | (821) | 878 | (1,699) | (3,578) | 1,603 | (5,181) |
Net income (loss) | (685) | 636 | (1,321) | (3,486) | 1,324 | (4,810) |
Adjusted pre-tax income (loss) (1) | (1,141) | 857 | (1,998) | (3,099) | 1,207 | (4,306) |
EBITDA (excluding special items) (1) | (554) | 1,472 | (2,026) | (1,315) | 2,971 | (4,286) |
Unrestricted liquidity (2) | 8,189 | 7,355 | 834 | 8,189 | 7,355 | 834 |
Net cash flows from (used in) operating activities | (286) | 834 | (1,120) | (1,557) | 5,035 | (6,592) |
Free cash flow (1) | (568) | 533 | (1,101) | (2,424) | 1,649 | (4,073) |
Net debt (1) | 4,973 | 2,999 | 1,974 | 4,973 | 2,999 | 1,974 |
Diluted earnings (loss) per share | ( | ( | ( | ( | ||
Operating Statistics (3) | % Change | % Change | ||||
Revenue passenger miles ("RPM") (millions) | 2,517 | 27,954 | (91.0) | 20,807 | 72,710 | (71.4) |
Available seat miles ("ASM") (millions) | 5,949 | 32,457 | (81.7) | 31,703 | 86,383 | (63.3) |
Passenger load factor % | 42.3% | 86.1% | (43.8) pp | 65.6% | 84.2% | (18.5) pp |
Passenger revenue per RPM ("Yield") (cents) | 20.2 | 18.4 | 9.6 | 18.8 | 18.2 | 3.0 |
Passenger revenue per ASM ("PRASM") (cents) | 8.5 | 15.8 | (46.2) | 12.3 | 15.3 | (19.7) |
Operating revenue per ASM (cents) | 12.7 | 17.0 | (25.3) | 15.8 | 17.0 | (7.2) |
Operating expense per ASM ("CASM") (cents) | 25.9 | 14.1 | NM | 24.5 | 15.3 | NM |
Adjusted CASM (cents) (1) | 26.1 | 10.1 | NM | 20.1 | 10.8 | NM |
Average number of full-time equivalent ("FTE") employees (thousands) (4) | 17.2 | 33.2 | (48.1) | 22.2 | 32.8 | (32.3) |
Aircraft in operating fleet at period-end (5) | 351 | 404 | (13.1) | 351 | 404 | (13.1) |
Seats dispatched (thousands) | 3,597 | 17,780 | (79.8) | 19,107 | 49,147 | (61.1) |
Aircraft frequencies (thousands) | 30.1 | 148.1 | (79.7) | 160.4 | 418.2 | (61.6) |
Average stage length (miles) (6) | 1,654 | 1,825 | (9.4) | 1,659 | 1,758 | (5.6) |
Fuel cost per litre (cents) | 52.5 | 74.7 | (29.7) | 63.7 | 76.4 | (16.6) |
Fuel litres (thousands) | 332,658 | 1,633,120 | (79.6) | 1,781,560 | 4,364,351 | (59.2) |
Revenue passengers carried (thousands) (7) | 1,728 | 14,627 | (88.2) | 12,135 | 39,495 | (69.3) |
(1) | Adjusted pre-tax income (loss), EBITDA (excluding special items) (earnings before interest, taxes, depreciation and amortization), free cash flow and adjusted CASM are each non-GAAP financial measures and net debt is an additional GAAP measure. Refer to section 16 of |
(2) | Unrestricted liquidity refers to the sum of cash, cash equivalents and short and long-term investments, and the amount of available credit under |
(3) | Except for the reference to average number of FTE employees, operating statistics in this table include third party carriers operating under capacity purchase agreements with |
(4) | Reflects FTE employees at |
(5) | The number of aircraft in |
(6) | Average stage length is calculated by dividing the total number of available seat miles by the total number of seats dispatched. |
(7) | Revenue passengers are counted on a flight number basis (rather than by journey/itinerary or by leg) which is consistent with the IATA definition of revenue passengers carried. |
SOURCE
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