"Air Canada performed strongly in the third quarter, generating solid operating revenues of more than $6.3 billion, a 19 per cent increase over the same period last year. Our focus on growing our international network, building scale at our hubs and leveraging our solid partnerships is delivering strong results.
Our operating income reached $1.4 billion, more than double from a year ago, and adjusted EBITDA grew by $773 million to $1.83 billion, representing an adjusted EBITDA margin of nearly 29 per cent. I thank our employees and management team for their hard work in safely transporting 12.6 million customers during the busy and demanding summer season. We managed costs prudently, with operating expenses rising 5 per cent, on a 10 per cent increase in capacity. We have continued to pay down debt in the quarter, lowering our leverage ratio to 1.4 from 5.1 at the end of last year, while also maintaining a healthy level of liquidity, which stood at nearly $10 billion at the quarter's end," said Michael Rousseau, President and Chief Executive Officer at Air Canada."Viewed sequentially, Air Canada's progressive performance to date proves the success of its strategy to grow back the airline and improve operational stability, while mitigating risks. This requires navigating geopolitical uncertainty, inflation and the volatile fuel price environment, meeting increased competition and dealing with supply chain, and the evolving regulatory environment. Yet our demonstrated adaptability, combined with a stable demand environment, give us every confidence for the rest of the year and into 2024 despite the inevitable headwinds to which our global industry is prone. We will continue to manage our business with diligence. We remain confident with our full year adjusted EBITDA guidance and at this point in time, expect to land in the higher range of our full year guidance."
*Adjusted CASM, adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization), adjusted EBITDA margin, leverage ratio, net debt, adjusted pre-tax income (loss), adjusted net income (loss), adjusted earnings (loss) per share, and free cash flow are referred to in this news release. Such measures are non-GAAP financial measures, non-GAAP ratios, or supplementary financial measures, are not recognized measures for financial statement presentation under GAAP, do not have standardized meanings, may not be comparable to similar measures presented by other entities and should not be considered a substitute for or superior to GAAP results. Refer to the "Non-GAAP Financial Measures" section of this news release for descriptions of these measures, and for a reconciliation of Air Canada non-GAAP measures used in this news release to the most comparable GAAP financial measure. |
Third Quarter 2023 Financial Results
- Operating revenues of $6.344 billion increased over $1 billion from the third quarter of 2022 driven by higher passenger revenues. Operated capacity increased 10 per cent from the third quarter of 2022, about one percentage point below the projection provided in Air Canada's August 11, 2023, news release.
- Operating expenses of $4.929 billion increased $251 million or 5 per cent from the third quarter of 2022. The increase was due primarily to increases in nearly all line items reflecting higher traffic and capacity year over year and general inflationary pressures. Lower aircraft fuel expense resulting from 23 per cent lower jet fuel prices year over year partially offset the increase.
- Operating income of $1.415 billion, with an operating margin of 22.3 per cent, improved $771 million from the third quarter of 2022.
- Adjusted EBITDA of $1.830 billion, with an adjusted EBITDA margin of 28.8 per cent, increased $773 million from the third quarter of 2022.
- Net income of $1.250 billion increased $1.758 billion from the third quarter of 2022. Diluted earnings per share of $3.08 compared to a diluted loss per share of $1.42 in the third quarter of 2022.
- Adjusted net income of $1.281 billion improved $850 million from the third quarter of 2022. Adjusted earnings per diluted share of $3.41compared to $1.07 in the third quarter of 2022.
- Adjusted CASM of 12.20 cents increased 5.6 per cent from the third quarter of 2022. The unit cost was impacted by a 17 per cent increase in salaries, wages and benefits expenses — on higher staffing levels — and by higher passenger service costs due to higher traffic and higher selling costs — which are correlated to revenues — and by inflationary pressures on various line items. Third quarter 2023 CASM of 17.57 cents decreased 4.0 per cent from the third quarter of 2022, driven by lower fuel prices and higher capacity year over year, and was partially offset by higher salaries, wages and benefits, higher passenger service costs and inflationary pressures.
- Net cash flows from operating activities of $408 million increased $118 million from the third quarter of 2022.
- Free cash flow of $135 million increased $178 million from the third quarter of 2022.
- Net debt-to-adjusted EBITDA ratio was 1.4, as measured at September 30, 2023, an improvement from the ratio of 1.7 at June 30, 2023, and 5.1 at December 31, 2022, driven by an increase in adjusted EBITDA and a $2.1 billion reduction in net debt in the first nine months of 2023.
Outlook
For the fourth quarter of 2023, Air Canada plans to increase its ASM capacity by about 10 per cent from the same quarter in 2022. Air Canada is providing the following update for the full year 2023 guidance as described below.
Metric | Full Year 2023 | |
Prior 2023 Guidance | Updated 2023 Guidance | |
ASM capacity | About 21 per cent increase versus 2022 | About 20 per cent increase versus 2022 |
Adjusted CASM | About 0.5 to 1.5 per cent above 2022 levels | About 1.5 to 2.25 per cent above 2022 levels |
Adjusted EBITDA | About $3.75 - $4.0 billion | About $3.75 - $4.0 billion |
Major Assumptions
Air Canada made assumptions in preparing its updated guidance and making forward looking statements — including moderate Canadian GDP growth for 2023, that the Canadian dollar will trade, on average, at C$1.35 per U.S. dollar for the full year 2023 and that the price of jet fuel will average C$1.13 per litre for the full year 2023.
Air Canada is modifying its 2023 adjusted CASM guidance to reflect the change in full year ASM capacity guidance, as well as adjustments to various expense items related to the ongoing cost environment.
Air Canada is not updating its 2024 targets at this time and will continue evaluating them as it progresses with its plans and executes on its strategic priorities.
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