Air Canada Profits Suffer Double Whamy From MAX & Coronavirus

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Air Canada announced that the first quarter 2020 Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) will be approximately $200 million USD lower than the first quarter of 2019. This is because of the impact the airline has sustained due to the ongoing MAX and coronavirus crisis worldwide.

Still, the Canadian airline expects to have a small increase in EBIDTA by the end of the year. Let’s check it out.

Air Canada B777
Air Canada expects a hit of 200 million USD in the first quarter due to coronavirus and the MAX crisis. Photo: Air Canada.

Last year, the MAX crisis didn’t hit the Canadians that much

During the first quarter of 2019, Air Canada had 24 Boeing 737 MAX aircraft operating on its routes. Then, tragedy struck for the second time and worldwide regulators grounded the global MAX fleet. It seemed as if the Canadian airline was going to be one of the most affected by the MAX crisis, as it was one of the biggest operators worldwide at the time. But, this wasn’t the case.

The airline managed to report an EBITDA of 3.636 billion USD, an increase of 13 percent in comparison with 2018. Calin Rovinescu, president and CEO of Air Canada, said,

“We generated record revenues in excess of $19 billion and reached record levels of unrestricted liquidity, despite the loss to Air Canada of approximately 25 percent of our narrow-body fleet for the most of the year.”

In 2019, Boeing planned to deliver 12 Boeing 737 MAX to Air Canada, increasing the fleet of the airline up to 36.

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But, for now, Air Canada is expecting to receive just six of the 12 undelivered airplanes scheduled in 2019. The remaining six will arrive in 2021. And the 14 undelivered MAX aircraft originally scheduled for 2020 will be delivered in 2021, said the carrier.

One way or another, Air Canada managed to surf through the uncertainty and gain some profit along the way. Then, 2020 arrived, with a different scenario.

Air Canada B737 MAX
The airline expects to receive six Boeing 737 MAX in 2020. Photo: Air Canada.

2020 starts with uncertainty

Calin Rovinescu said that 2020 started with uncertainty due to the ongoing grounding of the MAX. He added to this scenario the emerging economic and geopolitical risks and route suspensions resulting from the coronavirus, or COVID-19 virus.

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Currently, Air Canada has suspended its services to mainland China and Hong Kong. The carrier is only a small player in a market that has reached the point of being smaller than Portugal’s aviation market. Still, there is a big Chinese community in Canada, mainly in the west, which is currently being underserved due to the worldwide crisis.

And when does Air Canada expect to be back in China? According to its outlook, mainland China and Hong Kong Services will be fully recovered by the third quarter of 2020.

Air Canada A220
Will the A220 launch Air Canada’s connectivity? Photo: Air Canada.

Nevertheless, Air Canada expects a great 2020

Air Canada has a bright future ahead. Not only the carrier will bring back all its Boeing 737 MAX fleet, but it also has a nice thing going with the new Airbus A220. Although the A220 is not a substitute for the MAX, it is at least 20% more fuel-efficient. And it will allow the airline to open up new routes in North America.

Let’s remember what the airline said last month about the Airbus A220,

“This aircraft is a game-changer for Air Canada as there is simply no rival in this category. The A220 will further strengthen our position on transborder and transcontinental markets and be instrumental in our continued growth.” 

Finally, for the full year 2020, Air Canada projects an EBITDA margin of approximately 19 percent. This would result in a small increase in EBITDA  versus the reported in 2019. Also, the airline expects to increase its ASM capacity between 1 and 2 percent. The airline also expects to complete the merger with fellow Canadian carrier, Air Transat.

What do you think? Let us know in the comments.

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