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Air Canada says improving operations is 'highest priority' as it posts $386M loss

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 flew more than 9.1 million passengers in the second quarter of 2022, nearly 8 million more than it did during the same time last year. (Reuters) (Olivier Jean / Reuters)

Air Canada saw travel demand surge in its most recent quarter, but the airline still posted a net loss of $386 million as it continues to grapple with "operational instability" in the post-pandemic ramp-up.

While the Montreal-based airline says it expects operations to improve in the coming weeks, executives offered an apology to customers on Tuesday, saying the challenges seen throughout the second quarter were "not at all business as usual for us or anyone else involved."

"We did not achieve an acceptable level of operational stability, and for that we apologize to our affected customers and employees," Air Canada's chief operations officer Craig Landry said on a conference call with analysts.

"I can assure everyone, however, that our highest priority throughout the company has been and remains to work with all participants in the travel journey to remove any remaining instability and to return our operations to pre-pandemic levels of stability."

The surge in travel demand in the post-pandemic recovery has strained the global air transport system and resulted in difficulties for Air Canada and chaos at some of the country's busiest airports. The summer ramp-up pushed Air Canada and Toronto's Pearson airport to the very top of global flight delay lists, with Canada's largest airline frequently reaching No. 1 for percentage of delayed trips — up to two-thirds of scheduled flights on some days — in June and July.

The struggles come as the airline's total sales in the quarter reached $3.98 billion, a nearly five-fold increase from the same period last year. Air Canada says it flew nearly as many passengers – 70 per cent – in the three-month period ending June 30 as it did throughout the full year in 2021. It flew more than 9.1 million customers in the quarter, nearly 8 million more than in the same period in 2021.

"In Canada, we have gone from a near-two year shutdown of air travel, back to capacity levels close to 80 per cent of 2019," chief executive Michael Rousseau said on the conference call.

"We prepared well ahead of 2022 for a surge in travel demand... but despite all the planning, the increased traffic has created difficulties for all participants in the air transport system."

Air Canada entered the peak summer travel period with close to 90 per cent of its pre-pandemic staffing levels, but Landry pointed to challenges throughout the system that "began showing varying signs of unprecedented instability."

"These effects were primarily driven by resourcing challenges and could be seen in airport security screening, Canada and U.S. border customs processing, air traffic control, maintenance providers, equipment, supply chain, aircraft catering and fuelling partners, just to name a few," he said, adding that a series of mechanical failures at airport baggage handling systems at key hubs also contributed to the ongoing issues.

"This kind of instability in the delivery chain has a direct impact on our operations. It creates flight delays, flight cancellations and increased incidences of missed connections and mishandled bags."

The airline cut more than 15 per cent of its scheduled flights in July and August in order to improve operational stability. So far, Rousseau says operational metrics are improving.

"Baggage is improving, on-time performance is improving, cancellations are being reduced and that is a collective effort of everyone working together... to ensure that we can deliver consistent service level to our customers," he said.

"We are encouraged by the progress made in the past few weeks and we expect continuous improvement in the weeks to come."

RBC Capital Markets analyst Walter Spracklin said in a note to clients on Tuesday that the results showed the road to recovery from the COVID-19 pandemic will feature "twists and turns" but that it is "pointed in the right direction."

"The almost complete shutdown the company endured during the pandemic and the speed of the subsequent restart have tested the entirety of the air travel infrastructure, not just Air Canada," Spracklin wrote.

"While ensuing disruption is not surprising, we were encouraged by management's commentary on the call, which implied that the worst is behind us."

Air Canada reported a second-quarter loss of $386 million, or $1.60 per diluted share, compared to a net loss of $1.165 billion last year, or $3.31 per diluted share. Still, the loss fell short of expectations. Analysts had expected a loss of 83 cents per diluted share, according to financial data firm Refinitiv.

The airline's stock was up approximately 1 per cent as at 12:15 p.m. ET, trading at $17.55 per share.

With files from The Canadian Press

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

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