Company Reports

Roughly 74% of Air Canada's 2023 passenger revenue came from trips that began or ended outside of Canada, with just over 21% from flights to or from the US Air Canada capitalizes on so-called sixth freedom traffic, which connects long-haul international routes to the US via layover in a Canadian airport. While we think Air Canada came into the covid crisis in better financial shape than many of its US-based peers, its international exposure and extensive travel restrictions in the Canadian market placed it under comparably more financial stress.

Having reviewed no-moat Air Canada's first-quarter 2024 results, we have raised our fair value estimate to CAD 14.30 from CAD 14 to reflect the accrual of time. The firm's results were well within our expectations, and our 2024 full-year and forward forecasts remain unchanged.

Having reviewed no-moat Air Canada's final 2023 results and management's 2024 expectations, we have lowered our fair value estimate to CAD 14 from CAD 15.

Roughly 74% of Air Canada's 2023 passenger revenue came from trips that began or ended outside of Canada, with just over 21% from flights to or from the U.S. Air Canada capitalizes on so-called sixth freedom traffic, which connects long-haul international routes to the U.S. via layover in a Canadian airport. While we think Air Canada came into the COVID-19 crisis in better financial shape than many of its U.S.-based peers, its international exposure and extensive travel restrictions in the Canadian market placed it under comparably more financial stress.

With no-moat Air Canada's third-quarter financial results and revised 2023 expectations in hand, we have lowered our fair value estimate to CAD 15 from CAD 18.

Roughly 70% of Air Canada's 2022 passenger revenue came from trips that began or ended outside of Canada, with just over 20% from flights to or from the U.S. Air Canada capitalizes on so-called sixth freedom traffic, which connects long-haul international routes to the U.S. via layover in a Canadian airport. While we think Air Canada came into the COVID-19 crisis in better financial shape than many of its U.S.-based peers, its international exposure and extensive travel restrictions in the Canadian market placed it under comparably more financial stress. We expect Air Canada's capacity and passenger load factors will return to prepandemic levels by 2024.

With no-moat Air Canada's second-quarter financial results and revised 2023 expectations in hand, we have lowered our fair value estimate to CAD 18 from CAD 18.30.

Roughly 70% of Air Canada's 2022 passenger revenue came from trips that began or ended outside of Canada, with just over 20% from flights to or from the U.S. Air Canada capitalizes on so-called sixth freedom traffic, which connects long-haul international routes to the U.S. via layover in a Canadian airport. While we think Air Canada came into the COVID-19 crisis in better financial shape than many of its U.S.-based peers, its international exposure and extensive travel restrictions in the Canadian market placed it under comparably more financial stress. We expect Air Canada's capacity and passenger load factors will return to prepandemic levels by 2024.

We have taken a fresh look at North American airlines, and instituted an industry-based demand model for air travel, capacity, and airline revenue yields. As a result, we have lowered no-moat Air Canada's fair value estimate to CAD 18.30 from CAD 27.00 per share.

Roughly 70% of Air Canada's 2022 passenger revenue came from trips that began or ended outside of Canada, with just over 20% from flights to or from the U.S. Air Canada capitalizes on so-called sixth freedom traffic, which connects long-haul international routes to the U.S. via layover in a Canadian airport. While we think Air Canada came into the COVID-19 crisis in better financial shape than many of its U.S.-based peers, its international exposure and extensive travel restrictions in the Canadian market placed it under comparably more financial stress. We expect Air Canada's capacity and passenger load factors will return to prepandemic levels by 2024.

Air Canada posted solid first-quarter results as international travel demand continues to rebound from pandemic lows. The company delivered record first-quarter revenue of CAD 4.9 billion, a 10% increase over 2019 levels despite operating at 84% of prepandemic capacity. Nonetheless, Air Canada posted an adjusted loss per share of CAD 0.53 as the company continues to grapple with persistent cost pressures that have plagued the broader airline industry. While we do not expect a material abatement of cost inflation in the near term, we are encouraged by the rebound in air travel demand and see a path to full-year profitability—something that hasn’t occurred since 2019. As such, we are maintaining our CAD 27 fair value estimate as our outlook remains intact.

Air Canada is an internationally focused airline. Roughly 25% of 2022 capacity was utilized for domestic Canadian flights and less than 20% of capacity was for U.S. transborder flights. Air Canada’s strategy before the coronavirus pandemic was to capitalize on so-called sixth freedom traffic, which is flying (mostly) U.S. nationals on long-haul international routes with a layover in a Canadian airport. In our view, Air Canada came into the COVID-19 crisis in better financial shape than many U.S.-based peers, but its internationally focused business model will face considerably more stress than domestically focused U.S. peers.

Air Canada posted strong top-line growth that exceeded our expectations, capping off a year that saw air travel continue to rebound from pandemic lows. The airline grappled with cost pressures during the quarter, however, resulting in an adjusted loss per share of CAD 0.61, missing FactSet consensus estimates of a CAD 0.26 per share loss. Management also guided for a higher cost per available seat mile than originally expected in 2023 and 2024. Shares tumbled over 8% as a result. Nonetheless, we don’t expect to materially alter our CAD 27 fair value estimate for shares of Air Canada following the firm’s fourth-quarter earnings release, but we will revisit our modeling assumptions when we roll our model forward for the end-of-year filing. We are encouraged by the continued rebound in air travel demand and expect to see profit levels trend upward as the airline navigates through the inflationary environment.

Air Canada is an internationally focused airline. Roughly about 22% of 2019 capacity was utilized for domestic Canadian flights and less than 20% of capacity was for U.S. transborder flights. Air Canada’s strategy before the coronavirus pandemic was to capitalize on so-called sixth freedom traffic, which is flying (mostly) U.S. nationals on long-haul international routes with a layover in a Canadian airport. In our view, Air Canada came into the COVID-19 crisis in better financial shape than many U.S.-based peers, but its internationally focused business model will face considerably more stress than domestically focused U.S. peers.

We don’t expect to materially change our CAD 27 fair value estimate for shares of Air Canada following the firm’s third-quarter earnings release. With easing global COVID-19-related restrictions, air travel has bounced back, and Air Canada has restored significant capacity to meet this increased demand. Indeed, available seat miles (a capacity measure) more than doubled year over year and reached nearly 79% of third-quarter 2019’s level during the quarter. With load factors reaching normalized levels during the quarter and strong yield, Air Canada’s third-quarter operating revenue of CAD 5.3 billion was just 4% lower as compared with third-quarter 2019 (and nearly triple last year’s CAD 2.1 billion). The airline’s strong yield was supported by favorable fare mix with good contribution from the premium cabin. Business travel continues to recover, and management noted seeing greater improvements after Labor Day. Despite elevated fuel and other costs, Air Canada achieved a 12.1% operating margin during the quarter, marking the first time the no-moat-rated airline has posted a positive operating margin since before the pandemic. We continue to project that Air Canada will return to 10%-plus full-year operating margins by 2026.

Air Canada is an internationally focused airline. Roughly about 22% of 2019 capacity was utilized for domestic Canadian flights and less than 20% of capacity was for U.S. transborder flights. Air Canada’s strategy before the coronavirus pandemic was to capitalize on so-called sixth freedom traffic, which is flying (mostly) U.S. nationals on long-haul international routes with a layover in a Canadian airport. In our view, Air Canada came into the COVID-19 crisis in better financial shape than many U.S.-based peers, but its internationally focused business model will face considerably more stress than domestically focused U.S. peers.

Air Canada is an internationally focused airline. Roughly about 22% of 2019 capacity was utilized for domestic Canadian flights and less than 20% of capacity was for U.S. transborder flights. Air Canada’s strategy before the coronavirus pandemic was to capitalize on so-called sixth freedom traffic, which is flying (mostly) U.S. nationals on long-haul international routes with a layover in a Canadian airport. In our view, Air Canada came into the COVID-19 crisis in better financial shape than many U.S.-based peers, but its internationally focused business model will face considerably more stress than domestically focused U.S. peers.

Air Canada is an internationally focused airline. Roughly about 22% of 2019 capacity was utilized for domestic Canadian flights and less than 20% of capacity was for U.S. transborder flights. Air Canada’s strategy before the coronavirus pandemic was to capitalize on so-called sixth freedom traffic, which is flying (mostly) U.S. nationals on long-haul international routes with a layover in a Canadian airport. In our view, Air Canada came into the COVID-19 crisis in better financial shape than many U.S.-based peers, but its internationally focused business model will face considerably more stress than domestically focused U.S. peers.

No-moat-rated Air Canada continued its recovery during second quarter as Canadian travel restrictions eased. Sales of CAD 4.0 billion were about in line with FactSet consensus estimates, but loss per share of CAD 1.60 widely missed the $0.56 loss per share consensus estimate. After updating our model with second-quarter earnings, we are maintaining our $27 per share fair value estimate as increased fuel costs offset faster recovery assumptions.

No-moat-rated Air Canada reported improved results as the firm continues its recovery from pandemic-ridden 2021. The firm is the most internationally-focused airline in our North American coverage and Canada maintained significant domestic travel restrictions in 2021, so the firm did not recover in line with U.S. peers. Sales of CAD 2.6 billion and loss per share of CAD 2.72 missed FactSet Consensus by 4.8% and 67.9%, respectively.