Yahoo Finance Air Canada Socked by $215 Million in Customer Comp in 2022
Air Canada expects “solid” demand through 2023 as it comes off a small operating loss last year driven, in part, by operational challenges over the year-end holiday period.
The Montreal-based carrier reported an operating loss of $139 million (C$187 million) for 2022 on Friday, with executives citing increased fuel expenses and weather disruptions as part of the challenge to fly back to profitability. Revenues were 87 percent of 2019 levels at $12.3 billion for 2022. Ticket sales in the fourth quarter surpassed pre-pandemic levels by 2 percent that was, in part, thanks to its stronger than expected performance by its loyalty program, Aeroplan.
The big year-end hit, however, was severe winter weather across North America that disrupted operations over the peak Christmas and New Year holiday travel period. This contributed to roughly $215 million in expenses related to hotels, meals or other forms of customer compensation for 2022.
“In Vancouver, four-foot icicles formed on aircraft and bridges, rendering the assets unusable,” Air Canada Chief Commercial Officer Craig Landry said Friday. “In Calgary, the extreme cold exceeded safe conditions for deicing activities. And in Toronto, facilities such as airport baggage handling systems, started to freeze.”
The increase in fuel expenses, which jumped 42 percent compared to 2019 to $3.9 billion, were driven by increased flying and higher global spot prices for crude oil. The inflationary climate and unfavorable foreign exchange rates also contributed to the rising costs.
Compared to the fourth quarter in 2019, unit costs, measured by the expense to fly a seat one mile, excluding fuel increased roughly 15 percent in 2022. The company expects the metric to be 13-15 percent above 2019 levels for 2023, and is looking towards efficiency savings from investments in technology and artificial intelligence for optimized maintenance planning, revenue management and more self-service options at airports.
Transatlantic demand led Air Canada’s revenues in the fourth quarter, up 16 percent from 2019 and making up 27 percent of the airline’s entire take during the three months ending in December. Lucrative corporate travel demand in North America is holding at roughly 70 percent of 2019 levels, which airline executives largely attributed to a later-than-anticipated return in roadwarriors.
Air Canada is also benefitting from the ease of travel restrictions in Asia-Pacific, but has yet to recover to pre-pandemic capacity levels. The airline continues to rebuild its international network with a tailwind from strong advanced bookings.
The airline is also investing in the customer experience. This includes a multi-year plan to improve onboard dining, including in economy class, and upgrade its premium Maple Leaf lounges. Air Canada also continues its fleet renewal with new Airbus A220, Boeing 737 Max, and Boeing 787s due this year and next. It also has orders for 30 Airbus A321XLRs.
“We expect a solid demand environment throughout all of 2023,” said Michael Rousseau, president and CEO of Air Canada. “Our strong liquidity position, pricing power … [and] diligence regarding our cost structure and our ability to execute on the overall strategic direction provides us a foundation to effectively compete and be very successful.”
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