Achi news desk-
Montreal –
Canadian airlines have enjoyed a two-year boom amid consumer hunger for post-pandemic travel. But as that pent-up demand dwindles, the country’s largest airline hopes to boost ticket sales to business customers instead.
Until recently, the surge in travel following COVID-19 restrictions failed to trickle down to the business world, where pandemic habits of video conferencing and remote work have proven difficult to shake.
But Air Canada, which reported a first-quarter profit loss on Thursday — and suffered a 10% drop in its share price — is seeing signs of change.
“In the first quarter it was relatively stable. We didn’t see great growth, as some of our American colleagues did,” said Mark Gallardo, head of the revenue and network planning department, referring to business travel.
“But as we look late into the quarter and into the second quarter, we’re starting to see some very encouraging signals about corporate demand — to the extent of almost 10 to 20% more year-over-year.”
Air Canada said that premium products – business cabin and premium economy fares – accounted for 30% of the increase in passenger revenue in its first quarter. The tickets yield fatter profit margins than lower tier seats.
The bump hints at the potential demonstrated by the American airlines, which enjoyed a considerable recovery in business travel this year.
Delta Airlines posted a double-digit year-over-year jump in corporate sales in its first quarter. It expects record revenue from business travelers in the second quarter, and said 90% of its corporate customers aim to maintain or increase their travel levels this quarter.
United Airlines’ chief financial officer said two weeks ago that its return to business travel was “wind in our sails,” and predicted a stronger tailwind.
Alaska Airlines earlier this month raised its earnings forecast for 2024 on the assumption that the company’s revenue will offset rising fuel costs. Additional spending on travel by technology companies such as Microsoft and Amazon contributed to the increase, the carrier said.
Air Canada has seen a similar trend. Executives in the technology and transportation sectors have returned to Canadian skies in greater numbers, “which is a very, very good sign of rebuilding on the corporate demand side,” Gallardo said.
“It’s a little early to get the ball rolling on this, but we’re seeing some very, very strong signals.”
Nationwide, spending on business travel is expected to grow nearly 14 percent to $25.9 billion this year, beating the U.S. and global averages, according to a new report from the World Business Travel Association.
Some of these sales will be welcomed by Air Canada. The company lost $81 million in its first quarter, falling below analysts’ expectations even as revenue and capacity rose.
Canadians’ waning appetite for post-pandemic travel has resulted in thinner margins on airfares, while a 21% year-over-year increase in labor costs has pushed up overall expenses, the airline said.
“As expected, the pent-up demand factors and ‘revenge trips’ are slowing over time,” Gallardo said.
“Winter is challenging every year,” added CEO Michael Russo, referring to what is traditionally the toughest quarter for top North American companies.
Supply chain issues were another obstacle. Air Canada is among the airlines facing ongoing impacts from the return of Pratt & Whitney turbofan jet engines for inspection and repair.
“We have at this point in time six or seven planes sitting on the ground,” Russo said. “We are taking the costs at the moment.”
The company hopes to restore some of them “in the not-so-distant future”, the CEO said.
Its stock was down nearly $1.95 at $18.51 in afternoon trading on Thursday.
Not everyone was bothered by the drop.
“Air Canada’s current valuation continues to reflect what we believe is an overly pessimistic outlook,” National Bank analyst Cameron Doerksen said in a note to investors.
“Although there are some pockets of the market where competition leads to lower prices (Sun destinations in particular), we emphasize that the first quarter of last year was particularly strong from a demand and pricing perspective, so Air Canada is considering some tough comparisons.”
The first quarter also accounted for no more than 15% of adjusted earnings for the full year, he added, “so we’re not too worried about a modest miss.”
The company increased passenger revenue by nearly 11% year over year in the three months ended March 31.
It also reaffirmed plans to boost capacity by six percent to eight percent and increase adjusted earnings to a range of $3.7 billion to $4.2 billion this year.
However, the airline still expects to remain below its buoyant capacity levels in 2019 through 2025, five years after COVID-19 first hit the travel industry.
On Thursday, Air Canada reported that it rose to a loss in its first quarter compared to a net profit of $4 million in the same period last year.
Operating income rose seven percent year over year to $5.23 billion.
On an adjusted basis, the Montreal-based company said it lost 27 cents per diluted share in its most recent quarter, compared with an adjusted loss of 53 cents per diluted share a year earlier.
Despite an improvement, the result did not meet analysts’ expectations of an adjusted loss of seven cents per diluted share.
This report by The Canadian Press was first published on May 2, 2024
