Air Canada's Second Quarter 2024 Financial Results

Air Canada today reported its second quarter 2024 financial results.

Second quarter operating revenues of $5.5 billion, increased 2% year over year

Operating income of $466 million, decreased $336 million year over year

Adjusted EBITDA* of $914 million, decreased $306 million year over year

Leverage ratio* of 1.0 as at June 30, 2024, compared to 1.1 at end of 2023

"Air Canada today reported second quarter operating revenues of more than $5.5 billion and adjusted EBITDA of $914 million.  We saw healthy demand, with load factors remaining above historical averages. We remained sharply focused on our customers and operations throughout the quarter and experienced a 10-percentage point year-over-year improvement in our on-time performance, even with the increased flying. I thank our employees for their hard work in safely transporting 11.6 million customers in the quarter and I am pleased to see their efforts recognized as we were ranked the best airline in Canada and received five honours at the Skytrax 2024 World Airline Awards, the most of any Canadian carrier," said Michael Rousseau, President and Chief Executive Officer of Air Canada.

"When compared to the second quarter of 2023, we increased our capacity 6.5 per cent in the period.  Our adjusted unit cost was well contained, increasing 1.7 per cent. This was supported through rigorous cost discipline, which is always a top priority for us.  We will continue to adapt to market conditions, manage capacity proactively and contain costs through productivity and other initiatives. 

We further diversified our network, including with services to Singapore, Stockholm and India, and enhanced our operational flexibility by securing an additional eight Boeing 737-8 aircraft, set to enter service next year. These actions reaffirm our dedication to our customers, whom I thank for their continued loyalty.  We are proud of our role as Canada's leading global airline, connecting Canada to the world."

*Adjusted CASM, adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization), adjusted EBITDA margin, leverage ratio, net debt, adjusted pre-tax income (loss), adjusted net income (loss), adjusted earnings (loss) per share, and free cash flow are referred to in this news release. Such measures are non-GAAP financial measures, non-GAAP ratios, or supplementary financial measures, are not recognized measures for financial statement presentation under GAAP, do not have standardized meanings, may not be comparable to similar measures presented by other entities and should not be considered a substitute for or superior to GAAP results. Refer to the "Non-GAAP Financial Measures" section of this news release for descriptions of these measures, and for a reconciliation of Air Canada non-GAAP measures used in this news release to the most comparable GAAP financial measure.

.
Second Quarter 2024 Financial Results
The following is an overview of Air Canada's results of operations and financial position for the second quarter 2024 compared to the second quarter 2023.

Operating revenues of $5.519 billion increased $92 million or 2% on 6.5% more operated capacity. The year-over-year capacity increase was in line the projection provided in Air Canada's May 2, 2024, news release.

Operating expenses of $5.053 billion increased $428 million or 9%.

Operating income of $466 million, with an operating margin of 8.4%, decreased $336 million.

Adjusted EBITDA of $914 million, with an adjusted EBITDA margin of 16.6%, declined $306 million.

Net income of $410 million or $1.04 diluted earnings per share, compared to $838 million or $2.34 respectively.

Adjusted net income of $369 million or $0.98 adjusted earnings per diluted share, compared to $664 million or $1.85 respectively.

Adjusted CASM of 13.53 cents increased 1.7% year-over-year, driven by labour, maintenance and information technology expenses increasing at a higher rate than capacity.

Net cash flows from operating activities of $924 million, decreased $566 million.

Free cash flow* of $451 million, decreased $514 million.

Net debt-to-adjusted EBITDA ratio was 1.0 at June 30, 2024, compared to 1.1 at December 31, 2023.

Adjusted CASM
Air Canada uses adjusted CASM to assess the operating and cost performance of its ongoing airline business without the effects of aircraft fuel expense, the cost of ground packages at Air Canada Vacations and freighter costs as these items may distort the analysis of certain business trends and render comparative analysis across periods less meaningful and their exclusion generally allows for a more meaningful analysis of Air Canada's operating expense performance and a more meaningful comparison to that of other airlines.
In calculating adjusted CASM, aircraft fuel expense is excluded from operating expense results as it fluctuates widely depending on many factors, including international market conditions, geopolitical events, jet fuel refining costs and Canada/U.S. currency exchange rates. Air Canada also incurs expenses related to ground packages at Air Canada Vacations which some airlines, without comparable tour operator businesses, may not incur. In addition, these costs do not generate ASMs and therefore excluding these costs from operating expense results provides for a more meaningful comparison across periods when such costs may vary.
Air Canada also incurs expenses related to the operation of freighter aircraft which some airlines, without comparable cargo businesses, may not incur. Air Canada had six Boeing 767 dedicated freighter aircraft in service as at June 30, 2024 and six as at June 30, 2023. These costs do not generate ASMs and therefore excluding these costs from operating expense results provides for a more meaningful comparison of the passenger airline business across periods.

Adjusted CASM is reconciled to GAAP operating expense as follows:

(Canadian dollars in millions, except where indicated)	Second Quarter						First Six Months
	2024		2023		Change		2024		2023		Change
Operating expense – GAAP	$	5,053	$	4,625	$	428	$	10,268	$	9,529	$	739
Adjusted for:
Aircraft fuel		(1,333)		(1,187)		(146)		(2,587)		(2,562)		(25)
Ground package costs		(137)		(126)		(11)		(472)		(444)		(28)
Freighter costs (excluding fuel)		(38)		(39)		1		(73)		(70)		(3)
Operating expense, adjusted for the above-noted items	$	3,545	$	3,273	$	272		7,136		6,453		683
ASMs (millions)		26,203		24,606		6.5 %		50,540		46,513		8.7 %
Adjusted CASM (cents)	¢	13.53	¢	13.30	¢	0.23	¢	14.12	¢	13.87	¢	0.25

EBITDA and Adjusted EBITDA

Selected Financial Metrics and Statistics

The financial and operating highlights for Air Canada for the periods indicated are as follows:

(Canadian dollars in millions, except per share data or where indicated)	Second Quarter			First Six Months
Financial Performance Metrics	2024	2023	$ Change	2024	2023	$ Change
Operating revenues	5,519	5,427	92	10,745	10,314	431
Operating income	466	802	(336)	477	785	(308)
Operating margin (1) (%)	8.4	14.8	(6.4) pp (8)	4.4	7.6	(3.2) pp
Adjusted EBITDA (2)	914	1,220	(306)	1,367	1,631	(264)
Adjusted EBITDA margin (2) (%)	16.6	22.5	(5.9) pp	12.7	15.8	(3.1) pp
Income before income taxes	404	796	(392)	339	773	(434)
Net income	410	838	(428)	329	842	(513)
Adjusted pre-tax income (2)	371	656	(285)	277	462	(185)
Adjusted net income (2)	369	664	(295)	273	476	(203)
Total liquidity (3)	10,203	10,551	(348)	10,203	10,551	(348)
Net cash flows from operating activities	924	1,490	(566)	2,516	2,927	(411)
Free cash flow (2)	451	965	(514)	1,507	1,952	(445)
Net debt (2)	3,608	5,330	(1,722)	3,608	5,330	(1,722)
Diluted earnings per share	1.04	2.34	(1.30)	0.87	2.35	(1.48)
Adjusted earnings per share – diluted (2)	0.98	1.85	(0.87)	0.73	1.33	(0.60)
Operating Statistics (4)	2024	2023	Change %	2024	2023	Change %
Revenue passenger miles (RPMs) (millions)	22,449	21,617	3.8	42,969	40,195	6.9
Available seat miles (ASMs) (millions)	26,203	24,606	6.5	50,540	46,513	8.7
Passenger load factor %	85.7 %	87.9 %	(2.2) pp	85.0 %	86.4 %	(1.4) pp
Passenger revenue per RPM (Yield) (cents)	22.2	22.7	(2.0)	22.0	22.4	(2.0)
Passenger revenue per ASM (PRASM) (cents)	19.0	19.9	(4.4)	18.7	19.3	(3.4)
Operating revenue per ASM (TRASM) (cents)	21.1	22.1	(4.5)	21.3	22.2	(4.1)
Operating expense per ASM (CASM) (cents)	19.3	18.8	2.6	20.3	20.5	(0.8)
Adjusted CASM (cents) (2)	13.5	13.3	1.7	14.1	13.9	1.8
Average number of full-time-equivalent (FTE) employees (thousands) (5)	37.2	35.9	3.5	37.1	35.2	5.3
Aircraft in operating fleet at period-end	356	354	0.6	356	354	0.6
Seats dispatched (thousands)	14,213	13,390	6.1	27,692	25,683	7.8
Aircraft frequencies (thousands)	97.9	93.5	4.7	188.9	178.7	5.7
Average stage length (miles) (6)	1,844	1,838	0.3	1,825	1,811	0.8
Fuel cost per litre (cents)	104.3	101.1	3.2	104.9	114.2	(8.2)
Fuel litres (thousands)	1,273,467	1,162,714	9.5	2,458,185	2,229,799	10.2
Revenue passengers carried (thousands) (7)	11,588	11,287	2.7	22,339	21,256	5.1

(1)	Operating margin is a supplementary financial measure and is defined as operating income (loss) as a percentage of operating revenues.
(2)	Adjusted pre-tax income (loss), adjusted net income (loss), adjusted earnings (loss) per share, adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization), adjusted EBITDA margin, free cash flow, net debt and adjusted CASM are non-GAAP financial measures, capital management measures, non-GAAP ratios or supplementary financial measures. Such measures are not recognized measures for financial statement presentation under GAAP, do not have standardized meanings, may not be comparable to similar measures presented by other entities and should not be considered a substitute for or superior to GAAP results. Refer to section "Non-GAAP Financial Measures" of this release for descriptions of Air Canada's non-GAAP financial measures and for a quantitative reconciliation of Air Canada's non-GAAP financial measures to the most comparable GAAP measure.
(3)	Total liquidity refers to the sum of cash, cash equivalents, short- and long-term investments, and the amounts available under Air Canada's credit facilities. Total liquidity, as at June 30, 2024, of $10,203 million consisted of $8,869 million in cash, cash equivalents, short- and long-term investments and $1,334 million available under undrawn credit facilities. As at June 30, 2023, total liquidity of $10,551 million consisted of $9,556 million in cash, cash equivalents, short- and long-term investments, and $995 million available under undrawn credit facilities. Total liquidity also includes funds ($181 million as at June 30, 2024, and $189 million as at June 30, 2023) held in trust by Air Canada Vacations in accordance with regulatory requirements governing advance sales for tour operators.
(4)	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 Air Canada.
(5)	Reflects FTE employees at Air Canada and its subsidiaries. Excludes FTE employees at third-party carriers operating under capacity purchase agreements with Air Canada.
(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.
(8)	"pp" denotes percentage points and refers to a measure of the arithmetic difference between two percentages.