Air Canada Shares Surge 13% After Earnings Beat Estimates

Air Canada posted quarterly earnings that beat estimates while announcing a new buyback program, boosting the airline’s shares the most in more than a year.

(Bloomberg) — Air Canada posted quarterly earnings that beat estimates while announcing a new buyback program, boosting the airline’s shares the most in more than a year.

The Montreal-based company raised its full-year outlook for adjusted Ebitda, a measure of profit that excludes items such as taxes and interest, to C$3.5 billion ($2.5 billion) — up from a previous forecast of C$3.1 billion to C$3.4 billion. Adjusted earnings per share beat the analysts’ average estimate, according to a news release. 

While the airline’s stock price has barely recovered from its pandemic lows, shares surged as much as 13%, the most since May 2023, in Toronto trading on Friday.

Buoyed by lower fuel and aircraft maintenance costs, Air Canada managed to achieve better results than expected. That was despite the “added complexity” brought by pilot contract negotiations, said the Chief Executive Officer Michael Rousseau in a statement. In September, Air Canada struck a deal with the Air Line Pilots Association that represents company’s more-than 5,000 aviators. The agreement increases wages by 42% by 2027, averting a potentially disruptive strike. The contract was ratified last month. 

The agreement will add some pressure in the fourth quarter, with a C$500 million one-time pension past service cost charge, and the financial impact of the deal will be fully reflected in the earnings of fiscal year 2025. Labor negotiations with flight attendants are also coming up next spring. 

“We think it’ll probably be a shorter process than the pilot negotiation, which went on for approximately 15 months,” Rousseau said in a conference call with analysts.

Air Canada announced it will start a new share buyback program, “addressing some of the dilution experienced from financing decisions necessary during the pandemic.” The company is authorized to purchase as much as 10% of its public float by November 2025.

“Overall, the results and guide looked very encouraging,” said Citigroup Inc.’s analyst Stephen Trent in a note to clients, adding that the “bookaway fears on a possible pilots’ strike were overblown.”

Aircraft Shortages

Growth at Canada’s largest airline has been slowed by aircraft shortages and international conflicts.

In the conference call, Air Canada’s executive vice president of revenue and network planning, Mark Galardo, said that full-year capacity will increase by 5% in 2024, instead of between 5.5% and 6.5% as initially expected.

“This is slightly less than we had anticipated due to ongoing supply-chain pressures, aircraft availability and geopolitical conditions,” he said. In 2025, capacity growth should also be limited to mid-single digits.

The company said it’s monitoring how labor and production issues at Boeing might impact the delivery timeline of 12 remaining 737 Max aircraft planned next year.

The airline sees demand from travelers remaining healthy in the coming quarters, with no leisure demand slowdown in sight, Galardo said.