Air Canada Takes a Nosedive

By, Momal Khan

The travel industry is experiencing an unprecedented rate of downturn, with Canada’s largest airline being no exception. Air Canada’s stock has taken a plunge as it copes with the fallout from the COVID-19 pandemic that has caused mass cancellations and restrictions on airlines all over the world. 

The S&P/TSX Composite Index dropped 9.9 percent to the lowest level since February 2016, sending shares in Air Canada down by 28 percent in just one day as of March 16. The airline has announced a 50 percent cut to capacity in its second quarter, as it looks to save C$500 million in cash by cutting costs. 

According to an International Air Transport Association analysis released on March 12, worldwide passenger revenues are expected to drop 19 percent for a total loss of US$113 billion, with air travel revenue in Canada and the United States specifically expected to drop by US$21.1 billion. This poses an especially difficult challenge for Air Canada as it has already been attempting to reel back the effects of its Boeing’s 737 Max fleet being grounded in the previous year. 

Some cost cutting measures for Air Canada are set to include potential layoffs, however there has been no official statement made on the exact amount of workforce reductions expected. These measures and others, such as redirecting flights from Europe and added screening upon arrival, were elaborated upon last Monday following Prime Minister Justin Trudeau’s announcement banning all foreign non-US or Canadian citizens entry to the country. 

According to data retrieved from Bloomberg, revenue for Air Canada from outside Canada grew to 64 percent of total sales last year from 59 percent in 2014. However, the airline reported earnings per share that missed the lowest analyst estimate in its fourth quarter report from last week. This comes after a flurry of flight cancellations amid panic about the outbreak, which the airline will be responsible to provide full credit refunds for. In an update posted to its website, Air Canada has stated that it plans to reduce the majority of its US transborder and international flights, significantly weakening operations including the transport of cargo and other goods. 

“The crisis facing our industry is worsening as countries around the world adopt increasingly severe measures […]. However, we are not awaiting any decision on these measures before implementing our mitigation plan as we believe decisive action is the best course to follow,” says Rovinescu. 

Air Canada’s current cash position, however, places it at an advantage to cope with the fallout, as chief executive Calin Rovinescu states he is “confident the airline can navigate the crisis thanks to its strong financial position,” with upwards of C$7.3 billion in liquidity. In spite of this, the airline will still seek government assistance through postponement of landing fees and taxes, among other expenses. 

As of the beginning of 2020, the airline was awaiting delivery of two major additions to its fleet representing a significant chunk of investment: the 17 Airbus A220 and six Boeing 737 Max. These deliveries are expected to be postponed as the pandemic unfolds. 
The airline’s stock price has undoubtedly taken a nosedive, plummeting upwards of 34 percent overall from the start of the year. As of now, however, the full impact of the outbreak remains unclear. Air Canada has declined to make any comments regarding the financial impact of COVID-19 and is not expected to release any further details until it has released its first-quarter results in May.

Photo by Ethan McArthur on Unsplash.

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