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Air Canada earnings: Revenue surges in Q1 as travel demand returns

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Air Canada travellers wait at the check-in area as baggage handlers at Pierre Elliott Trudeau airport walked off the job, causing cancellations and delay, in Montreal March 23, 2012. REUTERS/Olivier Jean (CANADA - Tags: BUSINESS EMPLOYMENT CIVIL UNREST TRANSPORT)
Air Canada saw its revenue more than triple in its most recent quarter. (REUTERS/Olivier Jean)

Air Canada's (AC.TO) revenue more than tripled in the first quarter as its net loss improved to nearly $1 billion, a sign the airline's CEO says is "clear evidence the recovery is underway."

After a sluggish start to the year marred by the Omicron variant and travel restrictions, travel demand surged in March with bookings hitting 90 per cent of 2019 levels. The boost in demand helped the airline improve its net loss in the three-month period ending March 31 to $974 million, or $2.72 per diluted share, from $1.3 billion, or $3.90 per diluted share, last year.

The loss, however, was larger than what analysts had expected and sent shares down as much as nearly 8 per cent on Tuesday. They were expecting a loss of $1.49 a share, according to estimates from Refinitiv.

Air Canada's stock closed the trading day down 7 per cent.

The company saw operating revenue in the quarter jump from $729 million to $2.6 billion, as the airline increased capacity and saw travel demand start to return by the end of the quarter.

"Traffic is returning. Revenues are growing. Our networks are being restored and our finances, including our liquidity position, are very strong," Air Canada CEO Michael Rousseau said on a conference call with analysts on Tuesday morning.

Domestic travel led the way in sales for Air Canada, with revenue from Canadian flights reaching $648 million, a 174 per cent increase from $237 million last year. Sales from transborder flights to the U.S. surged 1,380 per cent, growing from $29 million last year to $425 million.

But business travel demand continues to struggle, with bookings at 50 per cent of 2019 levels. Air Canada's chief commercial officer Lucie Guillemette says corporate demand recovery will take longer, but that business bookings may be within 70 per cent of 2019 levels by September or October.

Higher fares on the horizon

While revenue rose in the quarter, the airline also grappled with soaring fuel prices spurred by Russia's invasion of Ukraine. Fuel expenses jumped from $200 million last year to $750 million as the cost per litre increased from $62.7 to $98.6. The airline expects the price of jet fuel will average $1.24 per litre for the full year.

Increasing fares is one way the airline can mitigate the rising cost of fuel, Guillemette said on Tuesday.

"We continue to do all possible to recover, either through base fares, fuel surcharges or even revisiting some of our ancillary revenues," she said, noting that the airline needs to manage pricing "wisely" given the current competitive environment in Canada.

"There's no doubt that maybe for some segments of the market demand may be more challenged with fares, but there's still opportunities for us to bring in more money here using other levers than just the basic fare increase."

The growing demand for travel, as well as rising fuel costs, has meant airfares are on the rise in Canada. Statistics Canada data released last week showed that air transportation prices increased 8.3 per cent between February and March, fuelled by strong demand for domestic travel and trips to the U.S.

RBC Capital Markets analyst Walter Spracklin said in a note to clients released on Tuesday that the results were "a solid indication" that the recovery continues for the airline, although he noted that the return of business travel remains a key risk, as well as high fuel prices.

"While leisure travel seems to be rebounding, we remain mindful of the recovery trajectory in business travel, which remains half of pre-pandemic levels," Spracklin wrote.

"Moreover, meaningfully higher fuel prices are pushing AC to ramp up air fares to offset — which while successful during a pent-up demand stage, does mean higher risk longer term if fuel prices remain elevated."

The results come as Air Canada's traffic numbers continue to rise, hitting levels not seen since before the COVID-19 pandemic hit. The airline flew more than 100,701 customers on April 15, the first time it had carried more than 100,000 passengers on its planes in a single day since March 13, 2020.

Air Canada will boost its full-year seat capacity by 150 per cent compared to 2021 levels, representing 75 per cent of what the airline flew in 2019. The airline says it expects capacity to reach 95 per cent of its 2019 levels by 2024.

With files from Reuters

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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