Yahoo Finance Air Canada shares fall despite profit beat, strong travel demand
Air Canada (AC.TO) shares fell on Monday after the release of third-quarter results that blew past analyst expectations, as concerns about economic uncertainty and cost pressures appeared to weigh on investors.
Strong summer travel demand in the three month period ending Sept. 30 helped Air Canada beat analyst expectations for the third quarter. The Montreal-based airline reported an adjusted profit of $1.28 billion, or $3.41 per diluted share, in the quarter, up from an adjusted net income of $438 million, or $1.07 per diluted share, during the same period last year. Analysts had expected an adjusted profit of $2.15 billion, according to Reuters.
Despite concerns about the economy and the impact of higher interest rates, that travel demand has remained strong.
"We see relatively strong demand for (the fourth quarter) in almost every single geography that we operate in, in almost every single segment that we operate in," Mark Galardo, Air Canada's executive vice-president of network planning and revenue management, said on a conference call with analysts on Monday.
"We're not seeing any major slowdown at this point in time."
But the positive results and resilient demand were not enough to alleviate potential investor concerns. Shares of the Montreal-based airline jumped as much as 5 per cent in early trading on the Toronto Stock Exchange following the release of results on Monday, before falling below Friday's close. Air Canada's stock closed the trading day on Monday at $16.50 per share, a drop of more than 1 per cent compared to Friday's close.
"It was a very good summer, but investors are worrying it's as good as it gets," TD Cowen analyst Helane Becker wrote in a note to clients.
National Bank analyst Cameron Doerksen said in a research note on Monday that Air Canada's share price "reflects an overly pessimistic view of the current air travel market and the company's long-term prospects."
"Although there are concerns due to macroeconomic uncertainty, growing competition and higher jet fuel prices, we believe that positive market conditions for the company will continue as demand still looks solid and industry supply remains constrained," Doerksen wrote.
Airlines around the world are facing rising cost pressures due in part to higher labour costs. Air Canada is in the midst of negotiating a new contract with the Air Canada Pilots Association (ACPA), and while chief executive Michael Rousseau did not provide an update on the talks, he says WestJet's deal reached with its pilots was in "our range of expectations."
Air Canada's chief financial officer John Di Bert also noted that the airline expects continuing cost pressures from the potential impact of a new pilot agreement, as well as "an evolving regulatory environment." Transport Canada is in the process of updating its Air Passenger Protection Regulations, and Di Bert says changes could bring "some additive pressure to our cost structure."
Despite the potential rising costs, the airline expects its 2023 profit to be in the higher range of its previously issued guidance. Air Canada said Monday it now expects adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) to be in the higher end of its forecast range of about between $3.75 billion and $4 billion. The airline also raised its full-year guidance for cost per available seat mile, an industry measure of operating costs, to between 1.5 per cent and 2.25 per cent above 2022 levels, up from a previous forecast of between 0.5 per cent and 1.5 per cent above 2022 levels.
"Like most airlines, we continue to face challenges," Rousseau said, but that the airline's adaptability over the last nine months "combined with the continuing stable demand environment give us every assurance for the rest of the year and into 2024."
With files from Reuters.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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