Air Canada cuts 2024 forecast due to tough competition and overcapacity

MONTREAL — Air Canada has lowered its profit forecast for 2024, saying planes did not fly as full as expected this summer, partly due to fierce competition in international markets.

The Montreal airline said Monday it now expects adjusted earnings before interest, taxes, depreciation and amortization for the year to be between $3.1 billion and $3.4 billion, down from its previous forecast of $3.7 billion to $4.2 billion.

The new guidance was announced as the company reported preliminary second-quarter results ahead of its next earnings date on Aug. 7.

Air Canada expects second-quarter operating revenue of about $5.5 billion, compared with $5.4 billion in the same quarter last year.

The company also expects operating income of $466 million, down from $802 million in the second quarter of 2023.

In addition to increased competition, the airline is also experiencing challenges due to continued pressure on its supply chain, changing market conditions and “ongoing geopolitical issues”.

The North American airline industry is currently facing a number of challenges, including an oversupply of seats that exceeds total demand.

Airlines also face high labor and fuel costs and ongoing supply chain challenges.

Several Canadian airlines, including Air Canada rival WestJet, have faced aircraft delivery delays due to production problems at planemaker Boeing Co., limiting their ability to expand their fleets.

Air Canada, along with Transat AT Inc., is among the airlines affected by the recall of Pratt & Whitney turbofan jet engines for inspection and repair.

The possibility of labor disputes is another cloud on Air Canada’s horizon. Last month, the union representing the airline’s pilots filed a request for federal mediation assistance in negotiations with Air Canada that have been ongoing for more than a year.

The collective agreement between the airline and its pilots expired on September 29, 2023.

While Air Canada’s updated earnings forecast won’t be well received by investors, RBC Capital Markets analyst James McGarragle said in a note, “indications from Transat and U.S. peers in the quarter pointed to some weakness in the sector.”

Air Canada said it continues to see a healthy demand environment despite the challenges. The airline said preliminary second-quarter operating revenues would represent a record for a second quarter, with load factors remaining above historical averages.

The airline says it is effectively managing its costs through productivity, cost savings and other cost control measures.

This report by The Canadian Press was first published July 22, 2024.

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