Air Canada says further route cuts, closures ‘on pause’ as Ottawa weighs aid for battered airlines

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Air Canada chief executive officer Calin Rovinescu said he is prepared to cancel 95 more routes and pull out of nine smaller domestic airports, a move that could sever more parts of the country from air service, but will wait to see how government aid talks progress.

Less than 24 hours earlier, Transport Minister Marc Garneau said any airline that gets a taxpayer bailout would have to refund customers' money for flights cancelled because of the pandemic, an amount estimated in the billions of dollars.

The back-and-forth highlights the high stakes and financial hardships spawned by the COVID-19 pandemic, during which as much as 90 per cent of Canada’s commercial airline traffic has been grounded, the country’s borders closed to non-essential travel, thousands of aviation workers were laid off and thousands of airline customers have demanded refunds for cancelled flights.

Mr. Rovinescu said getting rid of the unnamed domestic, U.S. and international routes and the airport operations would help the carrier cut costs as it grapples with pandemic-related losses that total $3.4-billion this year. However, “we put that on pause pending discussions with the government,” Mr. Rovinescu said on a conference call to present the Montreal-based carrier’s third-quarter financial results, which included a loss of $685-million.

Air Canada has already pulled out of eight regional airports and suspended 30 domestic routes, lamenting a lack of government support targeted to the industry, in addition to travel restrictions and border closings. Air Canada said on Monday it has cancelled orders for 10 Boeing 737-8s and 12 Canadian-made Airbus A220s, accelerated the retirement of 79 planes and deferred the delivery of new ones.

Mr. Rovinescu said the steps the airline has taken to cut costs and bolster its financial position will enable the carrier to emerge a “strong, albeit smaller” competitor. A healthy airline industry is essential to the economic recovery, he said, and noted his company’s global rivals have received US$160-billion in government aid. The carrier had unrestricted liquidity of $8.2-billion after making several moves to shore up its finances to weather the unprecedented collapse in the aviation industry. Advance ticket sales, including cancelled flights, totalled $2.3-billion.

Negotiations for taxpayer aid packages for the airlines devastated by the plunge in demand for air travel are set to begin this week, Mr. Garneau said on Sunday.

The bailouts, which could include loans and other measures, are needed to prop up the airlines, airports and aerospace industries, in addition to preserving jobs and Canadians' access to regional air service, Mr. Garneau said. But he added that airlines must reimburse customers for cancelled flights, calling the withheld refunds “interest-free loans.”

“Before we spend one penny of taxpayer money on airlines, we will ensure Canadians get their refunds,” Mr. Garneau said.

“Rightfully so,” said Vancouver resident Divyesh Gadhia, who describes himself as a loyal Air Canada customer and shareholder.

Mr. Gadhia said Air Canada cancelled his November flight to Los Angeles two days after he booked it, in October. The airline bumped him to another flight a day later, which would have made him miss his connecting flight on another airline. So he cancelled, rebooked on another carrier and asked Air Canada for a refund. “They said, ‘You are not eligible. We’ll give you a credit or voucher,’” Mr. Gadhia said by phone from Maui.

Mr. Gadhia said he backs the idea of tying refunds to aid, and said the airlines are not being “entirely forthcoming” with customers on their refund policies.

WestJet Airlines said recently it will give refunds to customers whose flights it cancelled, but not if the customers themselves made the cancellations. Transat AT Inc., a Montreal-based leisure carrier, said on Sunday it welcomed the prospect of government aid negotiations. The airline held $564-million in travel credits for cancelled flights as of July 31.

Toronto-based Porter Airlines, meanwhile, said on Monday it is extending its shutdown to Feb. 11. The carrier halted passenger service on March 21, and has pushed back the restart date several times. “Planning a restart after the traditionally slow post-holiday January period provides a reasonable opportunity to begin flying if conditions improve,” Porter said in a statement.

Air Canada, in its results released before markets opened on Monday, said its planes flew at 43-per-cent capacity, down from 86 per cent a year ago. That’s after cancelling thousands of flights, grounding much of its fleet and laying off 20,000 people – half its work force.

Air Canada lost $685-million in the third quarter as revenue fell by 88 per cent from the year-earlier quarter. The carrier burned through $9-million a day to keep operating, or $818-million for the quarter, less than the $16-million-a-day management had forecast. The reduction is owing to deferred capital expenditures and supplier payments and government wage subsidies.

Walter Spracklin, a Royal Bank of Canada stock analyst, said Air Canada’s results missed his expectations on several measures, including the outlook for the final quarter of 2020. He said cash burn was lower than expected, however. “We continue to view [Air Canada] as sufficiently funded to weather the pandemic under our existing vaccine timeline assumptions,” Mr. Spracklin said in a note to clients.

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