"Summer is our peak season and this year our pilot contract negotiations added complexity. We proactively offered options and flexibility to customers, and I am proud that we concluded a mutually beneficial agreement without significant disruption to customers and with a contained revenue impact. I thank our customers for their loyalty and reiterate our promise to keep providing industry-leading products and services to them.
"The demand environment remains favourable. We have adjusted our full year guidance and underlying assumptions to account for the evolution of the fuel price environment and for certain contract-related adjustments. We are delivering on our commitments and are confident in our future. We are now announcing a new share buyback program, addressing some of the dilution experienced from financing decisions necessary during the pandemic, and returning value to shareholders. This additional step, after paying down our debt and funding our growth, is consistent with our capital allocation roadmap and our strategic plan, which we will detail at our Investor Day on December 17, 2024," said Mr. Rousseau.
*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. |
Third Quarter 2024 Financial Results
The following is an overview of Air Canada's results of operations and financial position for the third quarter 2024 compared to the third quarter 2023.
- Operating revenues of $6.106 billion decreased $238 million or 4%, resulting from lower passenger revenues.
- Operated capacity increased 3%, lower than the capacity guidance of 4%-4.5% increase communicated in Air Canada's news release dated August 7, 2024. This was primarily due to fleet constraints and to adjustments made to the operating schedule.
- Operating expenses of $5.066 billion increased $137 million or 3%. The increase was largely due to higher costs in most line items due to capacity growth and was partially offset by certain contract-related adjustments recorded this quarter.
- Operating income of $1.040 billion, with an operating margin of 17.0%, declined $375 million.
- Adjusted EBITDA of $1.523 billion, with an adjusted EBITDA margin* of 24.9%, declined $307 million.
- Net income of $2.035 billion, which included a favourable tax asset recognition of $1.154 billion, and diluted earnings per share of $5.38 compared to $1.250 billion and $3.08 per diluted share, respectively.
- Adjusted net income* of $969 million and adjusted earnings per diluted share* of $2.57, compared to $1.281 billion and $3.41 per diluted share, respectively.
- Adjusted CASM* of 12.15 cents decreased 0.4%, primarily due to the impact of contract-related adjustments recorded in the third quarter of 2024.
- Net cash flows from operating activities of $737 million increased $329 million.
- Free cash flow* of $282 million increased $147 million.
- Net debt-to-adjusted EBITDA ratio* (leverage ratio) was 1.0 at September 30, 2024, compared to 1.1 at December 31, 2023.
Outlook
For the full year 2024, Air Canada is updating its guidance to account for updated expectations of jet fuel prices and the impact of contract-related cost adjustments. Full year 2024 guidance is as follows:
Metric | 2024 Guidance | Prior 2024 Guidance |
ASM capacity | Approximately 5% increase versus 2023 | 5.5% to 6.5% increase versus 2023 |
Adjusted CASM | Approximately 2% increase versus 2023 | 2.5% to 3.5% increase versus 2023 |
Adjusted EBITDA | Approximately $3.5 billion | $3.1 billion to $3.4 billion |
Major Assumptions
Air Canada made assumptions in providing its guidance—including moderate Canadian GDP growth for 2024. Air Canada also assumes that the Canadian dollar will trade, on average, at C$1.36 per U.S. dollar for the full year 2024 and that the price of jet fuel will average C$1.00 per litre for the full year 2024.
Normal Course Issuer Bid
Air Canada is also announcing today that the Toronto Stock Exchange ("TSX") has accepted notice of its intention to make a normal course issuer bid ("NCIB") allowing it to purchase for cancellation up to 35,783,842 of its Class A variable voting shares and Class B voting shares (collectively the "Shares") in accordance with the rules of the TSX.
Air Canada believes that purchases of Shares under the NCIB will allow it to address some of the shareholder dilution experienced from financing decisions necessary during the pandemic. Air Canada further believes that the market price of its Shares from time to time may not fully reflect the underlying value of its business and future business prospects. In such circumstances, the purchase of Shares under the NCIB may be an attractive and appropriate use of its available cash, consistent with Air Canada's priority of investing in its growth, maintaining balance sheet strength and generating shareholder value through a balanced capital allocation strategy.
Air Canada is authorized by the TSX to purchase up to 35,783,842 Shares under the NCIB, being about 10% of the public float of its Shares. As at October 22, 2024, the number of outstanding Shares totalled 358,493,006, of which 357,838,424 Shares represented the public float. Purchases under the NCIB are authorized during the period from November 5, 2024 to November 4, 2025. Decisions regarding the amount and timing of purchases of Shares will be based on market conditions, share price and other factors. Air Canada may elect to modify, suspend or discontinue the NCIB at any time.
Purchases will be made through open market transactions on the TSX or Canadian alternative trading systems, if eligible, or such other means as securities regulatory authorities may allow, including block purchases, pre-arranged crosses or exempt offers, as well as private agreements under an issuer bid exemption order issued by a securities regulatory authority. Air Canada will pay the market price at the time of acquisition for any Share purchased, plus brokerage fees, or such other price as may be allowed. Any purchases made under an issuer bid exemption order would be at a discount to the prevailing market price of the Shares or otherwise in accordance with the terms of the order.
Within the past 12 months, Air Canada has not purchased any of its Shares. The average daily trading volume ("ADTV") of the Shares on the TSX was 2,143,460 Shares for the six-month period ended September 30, 2024. Under TSX rules, Air Canada may accordingly purchase up to 535,865 Shares on the TSX on any trading day, being 25% of the ADTV. Air Canada may also, once weekly, purchase a block of Shares not directly or indirectly owned by insiders, which may exceed such daily limit, in accordance with TSX rules. All Shares purchased pursuant to the NCIB will be cancelled.
Air Canada will enter into an automatic share purchase plan (the "Plan") with its designated broker to be effective on the commencement date of the NCIB. The Plan will allow for the purchase of Shares at times when Air Canada would ordinarily not be active in the market due to regulatory restrictions, self-imposed blackout periods or otherwise. Purchases by the designated broker made under the Plan, if any, will be based on parameters established by Air Canada in accordance with the rules of the TSX, applicable securities laws and the terms of the Plan. Shares may in Air Canada's discretion be purchased under the NCIB outside of the self-imposed black-out or other restricted periods in compliance with the rules of the TSX and applicable securities laws.
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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 may allow for 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 September 30, 2024, and six as at September 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) | Third Quarter | First Nine Months | ||||||||||
2024 | 2023 | Change | 2024 | 2023 | Change | |||||||
Operating expense – GAAP | $ | 5,066 | $ | 4,929 | $ | 137 | $ | 15,334 | $ | 14,458 | $ | 876 |
Adjusted for: | ||||||||||||
Aircraft fuel | (1,377) | (1,365) | (12) | (3,964) | (3,927) | (37) | ||||||
Ground package costs | (102) | (99) | (3) | (574) | (543) | (31) | ||||||
Freighter costs (excluding fuel) | (40) | (41) | 1 | (113) | (111) | (2) | ||||||
Provision for contractual lease obligations | (34) | - | (34) | (34) | - | (34) | ||||||
Operating expense, adjusted for the above-noted items | $ | 3,513 | $ | 3,424 | $ | 89 | 10,649 | 9,877 | 772 | |||
ASMs (millions) | 28,892 | 28,060 | 3.0 % | 79,432 | 74,573 | 6.5 % | ||||||
Adjusted CASM (cents) | ¢ | 12.15 | ¢ | 12.20 | ¢ | (0.05) | ¢ | 13.41 | ¢ | 13.24 | ¢ | 0.17 |
EBITDA and Adjusted EBITDA
Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) is commonly used in the airline industry and is used by Air Canada as a means to view operating results before interest, taxes, depreciation and amortization as these costs can vary significantly among airlines due to differences in the way airlines finance their aircraft and other assets.
Adjusted EBITDA margin (adjusted EBITDA as a percentage of operating revenues) is commonly used in the airline industry and is used by Air Canada as a means to measure the operating margin before interest, taxes, depreciation and amortization as these costs can vary significantly among airlines due to differences in the way airlines finance their aircraft and other assets.
