Air Canada says it could be a full year before it gets the full fleet of Boeing 737 Max passenger jets back in the air, as it announced that the grounding was beginning to hurt its bottom line.
The Montreal-based airline, which has 24 of the grounded jets and another 26 on order, said the negative impact of the global halt, which weighed on second-quarter results, will worsen in the third quarter’s peak travel season. Calin Rovinescu, Air Canada’s chief executive officer, said the loss of the Max hurt profit growth in the second quarter and drove up costs as the airline leased planes to try to replace the Max’s 100 daily flights.
The loss of the Boeing Co. aircraft, which was barred from flying in March after two fatal crashes that killed 346 people, will reduce third-quarter passenger capacity by 2 per cent from the year-ago period, said Air Canada, which has removed the planes from its schedule until Jan. 8.
Michael Rousseau, Air Canada’s deputy CEO, said he hopes the world’s aviation regulators will clear the planes to fly by the end of this year, but the time it takes to hire and train cabin crews and 400 pilots will mean the full fleet of 50 planes might not be in service until next summer. The two-dozen Max planes currently in its fleet could resume carrying passengers much sooner than that, he said.
Canada’s largest airline said on Tuesday it made a profit of $343-million, or $1.26 a share, in the three months ended June 30, aided by a foreign exchange gain of $117-million. This compares with a loss of $102-million (37 cents) in the second quarter of 2018, a period in which Air Canada saw currency exchange losses of $82-million and asset sales losses worth $186-million.
Air Canada responded to the loss of its Max planes by cancelling routes, leasing aircraft and relying on its Rouge subsidiary’s planes. The carrier said it covered 97 per cent of its flights, a number that drops to about 95 per cent in the third quarter, historically its most profitable and busy period. Air Canada’s full-year guidance remains suspended in light of the Max grounding.
Passenger revenue – primarily ticket sales – rose by almost 11 per cent to $4.3-billion and traffic rose by 3.6 per cent in the second quarter.
“In a way, the tighter capacity is the silver lining of the Max impact, and should bode well for [returns],” said Walter Spracklin, a stock analyst at Royal Bank of Canada.
Ben Cherniavsky, a stock analyst at Raymond James, said Air Canada’s spare seat capacity enabled it to overcome the loss of the Max, but that the financial results will be less favourable when the Max planes resume flying.
“That’s what economics 101 dictates, right?” Mr. Cherniavsky said by phone. “When supply goes up, price goes down. And when supply goes down, price goes up. That’s what we’ve seen here.” Adjusted costs per available seat mile rose by almost 6 per cent from the second quarter of 2018, owing to a decline in seats to sell, and the costs of the Max grounding, including paying 400 idled pilots and replacing aircraft.
Transat A.T. Inc. shareholders are scheduled to vote on Air Canada’s $520-million takeover on Aug. 23. Mr. Rovinescu said the deal, if approved, would provide greater job security to employees of both companies.
Air Canada released its results before markets opened on Tuesday. Investors responded by driving up its share price on the Toronto Stock Exchange by $1.60, or 3.6 per cent, to $46.69.
The world’s airlines have parked the 370-plane fleet of 737 Max aircraft, awaiting regulators’ approval of an expected fix to the plane’s control system.
U.S. carrier Southwest Airlines Co., which has the largest Max fleet, has removed the plane from its schedule until Jan. 8. Calgary’s WestJet Airlines Ltd. has no Max planes scheduled through to Nov. 4. WestJet and a handful of other carriers have said they are seeking compensation from Boeing.
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