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'Darkest period ever': Air Canada reports $1.05B loss due to COVID-19

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TORONTO, April 27, 2020 .Travellers wearing protective gears arrive at the Air Canada check-in counters of Pearson International Airport in Toronto, Canada, April 27, 2020. Air Canada suspended all scheduled flights to the United States for four weeks starting on Monday. As of Monday afternoon, there were 48,230 confirmed COVID-19 cases in Canada and 2,701 deaths. (Photo by Zou Zheng/Xinhua via Getty) (Xinhua/Zou Zheng via Getty Images)
Xinhua/Zou Zheng via Getty Images

Air Canada lost more than $1 billion in the first quarter of 2020, the company reported Monday, as COVID-19 lockdowns and travel restrictions continue to devastate the global airline industry.

The airline (AC.TO) reported a net loss of $1.05 billion in the three-month period ending March 31, or a loss of $4 per diluted share, compared to a profit of $285 million, or $1.26 per diluted share, during the same time last year. The loss marks the first time in nearly seven years that the airline has failed to report year-over-year revenue growth.

“No adjectives can adequately describe the pandemic’s cataclysmic effects upon our industry, nor can numbers fully quantify the extent of financial devastation,” Air Canada chief executive Calin Rovinescu said on a conference call with analysts on Monday.

“We’re now living through the darkest period ever in the history of commercial aviation, significantly worse than the aftermath of 9/11, SARS, and the 2008 financial crisis.”

While the company is working on a restart plan that will see a gradual return to service, Rovinescu expects it will take a minimum of three years to return to 2019 revenue and capacity levels.

Airlines around the world have been forced to slash capacity, ground planes and lay off thousands of employees to reduce costs as revenues drastically decline. The International Air Transport Association (IATA), an industry group that represents 290 airlines including Air Canada, warned last week that airline revenues in Canada will decline by 43.2 per cent, or roughly $14.6 billion.

Air Canada said it has reached $1.05 billion in cost savings through capacity and staffing reductions, as well as other “mitigation programs,” but warned that the airline will be “considerably smaller for some time.”

Canada’s largest airline has already parked a majority of its fleet as it grapples with severely reduced capacity. It also announced on Monday that it is also accelerating the retirement of 79 planes.

Seat capacity reductions will also continue, with capacity being cut by between 85 and 90 per cent in the second quarter, and by 75 per cent in the third quarter.

In the meantime, the airline is introducing new health and safety procedures and will require passengers to wear protective face coverings and maintain social distancing on flights.

While a recovery will be prolonged, Rovinescu said the airline expects that domestic travel will be the first segment to bounce back and people look to visit friends and family following a gradual lifting of various restrictions. Transborder and international travel will come next, depending on how countries are able to control the pandemic and when travel restrictions are lifted.

“We don’t believe that you flick on a switch by the third quarter and all of a sudden we’re back to 2019 (numbers),” Rovinescu said.

“That's why we've estimated what we said is a minimum of a three year recovery timeframe.”

National Bank Financial analyst Cameron Doerksen wrote in a note to clients Monday that while Air Canada is in a financial position to “weather the storm,” the recovery will be “very slow.”

“There remains significant uncertainty around the timing of the lifting of international travel restrictions, how willing travellers will be to get on a plane and what safety measures will be introduced at airports and on the flights themselves,” Doerksen wrote.

“We therefore see significant losses and negative free cash flow in the coming quarters keeping us cautious on investor enthusiasm for airline stocks.”

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