Let The Good Times Roll: Air Canada Reports Record $2.3 Billion Operating Income For 2023

With the pandemic firmly in the rear-view mirror, Air Canada today reported record operating revenues of $21.8 billion for last year, up 32% from 2022. Operating income was $2.3 billion, a $2.5 billion improvement from 2022.

The company’s adjusted EBITDA (earnings before interest, taxes, deprecation and amortization) was nearly $4 billion; more than twice that of full year 2022.

“Air Canada produced very strong results for the fourth quarter and full year 2023, delivering on its key financial goals and strategic priorities,” said Michael Rousseau, President and Chief Executive Officer of Air Canada. “These results stem from the effective management, hard work and customer centric approach of everyone at Air Canada. I thank the entire team for their dedication as we safely transported more than 46 million passengers in 2023.

“The focus on operational improvements was evident as, even with the growth in traffic and ongoing supply chain challenges, our key operational metrics and customer satisfaction improved year over year,” Rousseau said.

“We also took important steps during the year to enable ourselves to continue performing consistently as we remain firmly committed to our plan and to enhancing our level of customer service, improving our operational reliability, strategically adding to our key hubs and network and growing profitably,” he said. “We strengthened our balance sheet, reduced our debt and, despite the continuing macroeconomic and structural cost pressures on our industry, our unit costs were contained within our adjusted CASM guidance.

“Additionally, we will continue to expand Aeroplan, a key driver of customer loyalty that has doubled its membership to eight million members over the last five years,” Rousseau said. “Our airline remains adaptable to changing business conditions, and is poised to take advantage of opportunities, giving us every confidence for the year ahead.  As we look into the future, we aim to grow, deliver on our financial objectives and create long-term value for all stakeholders.”

Air Canada plane over the western U.S. JIM BYERS PHOTO

Outlook 

For the first quarter of 2024, Air Canada plans to increase its ASM capacity by about 10 per cent from the same quarter in 2023.

Major Assumptions

Assumptions were made by Air Canada in preparing and making forward-looking statements. As part of its assumptions, Air Canada assumes moderate Canadian GDP growth for 2024. Air Canada also assumes that the Canadian dollar will trade, on average, at C$1.33 per U.S. dollar for the full year 2024 and that the price of jet fuel will average C$1.00 per litre for the full year 2024. 

2023 Financial Results

The following is an overview of Air Canada’s results of operations and financial position for the fourth quarter 2023 compared to the fourth quarter 2022.

• Operating revenues of $5.175 billion increased $495 million or 11% on an operated capacity growth of over 9 per cent year over year, close to the guidance provided in Air Canada’s news release dated October 30, 2023.
• Operating expenses of $5.096 billion increased $388 million or eight per cent. The increase was due to higher costs in nearly all line items reflecting higher operated capacity and traffic year over year, including higher wages, salaries and benefits. The increase was partially offset by lower aircraft fuel expense on a jet fuel price decline.
• Operating income of $79 million, with an operating margin of 1.5 per cent, improved $107 million.
• Adjusted EBITDA of $521 million, with an adjusted EBITDA margin* of 10.1%, improved $132 million.
• Net income of $184 million and diluted earnings per share of $0.41 compared to a net income of $168 million and diluted earnings per share of $0.41.
• Adjusted net loss* of $44 million and adjusted loss per diluted share of $0.12 compared to an adjusted net loss of $217 million and adjusted loss per diluted share of $0.61.
• Adjusted CASM* of 14.25 cents compared to 13.68 cents, an increase of 4.1 per cent driven by higher salaries, wages and benefits expenses, higher maintenance costs and general inflationary pressures on certain line items.
• Net cash flows from operating activities of $985 million increased $338 million.
• Free cash flow of $669 million increased $349 million. 

Full Year 2023 Financial Results

The following is an overview of Air Canada’s results of operations and financial position for the full year 2023 compared to the full year 2022.

• Operating revenues of $21.833 billion increased $5.277 billion or 32% on approximately a 20% growth in operated capacity. The capacity increase was in-line with the guidance provided in Air Canada’s news release dated October 30, 2023.
• Operating expenses of $19.554 billion increased $2.811 billion or 17%. The increase was primarily due to increases in all line items reflecting higher operated capacity and traffic year over year, including, higher salaries, wages and benefits. It also reflects the impact of a favourable maintenance cost adjustment of $159 million that was recorded in the first quarter of 2022.
• Operating income of $2.279 billion, with an operating margin of 10.4%, improved $2.466 billion.
• Adjusted EBITDA of $3.982 billion, with an adjusted EBITDA margin* of 18.2 per cent, improved $2.525 billion, at the high end of the guidance provided in Air Canada’s news release dated October 30, 2023.
• Net income of $2.276 billion and diluted earnings per share of $5.96 compared to a net loss of $1.7 billion and diluted loss per share of $4.75.
• Adjusted net income of $1.713 billion and adjusted earnings per diluted share of $4.56 compared to an adjusted net loss of $988 million and an adjusted loss per diluted share of $2.76.
• Adjusted CASM of 13.49 cents compared to 13.21 cents in 2022, a 2.2% increase driven by higher traffic and selling costs correlated to higher revenues, higher labour costs, a favourable maintenance cost adjustment recorded in 2022, and inflationary pressure on certain line items. This was within the guidance range provided in Air Canada’s news release dated October 30, 2023.
• Net cash flows from operating activities of $4.320 billion increased $1.952 billion.
• Free cash flow of $2.756 billion increased $1.960 billion.
• Net debt to adjusted EBITDA ratio* was 1.1 at December 31, 2023, an improvement from 5.1 as at December 31, 2022, due to the increase in adjusted EBITDA and a $2.9 billion reduction in net debt. 

Air Canada Airbus jet. AIR CANADA PHOTO

Non-GAAP Financial Measures

Below is a description of certain non-GAAP financial measures and ratios used by Air Canada to provide readers with additional information on its financial and operating performance. Such 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.

Adjusted CASM

Air Canada uses adjusted CASM to assess the operating and cost performance of its ongoing airline business without the effects of aircraft fuel expense, the cost of ground packages at Air Canada Vacations, impairment of assets and freighter costs as these items may distort the analysis of certain business trends and render comparative analysis across periods less meaningful and their exclusion generally allows for a more meaningful analysis of Air Canada’s operating expense performance and a more meaningful comparison to that of other airlines.

In calculating adjusted CASM, aircraft fuel expense is excluded from operating expense results as it fluctuates widely depending on many factors, including international market conditions, geopolitical events, jet fuel refining costs and Canada/U.S. currency exchange rates. Air Canada also incurs expenses related to ground packages at Air Canada Vacations, which some airlines, without comparable tour operator businesses, may not incur. In addition, these costs do not generate ASMs and therefore excluding these costs from operating expense results provides for a more meaningful comparison across periods when such costs may vary.

Air Canada also incurs expenses related to the operation of freighter aircraft, which some airlines, without comparable cargo businesses, may not incur. Air Canada had seven Boeing 767 dedicated freighter aircraft in its operating fleet as at December 31, 2023, compared to three Boeing 767 dedicated freighter aircraft in service as at December 31, 2022. These costs do not generate ASMs and therefore excluding these costs from operating expense results provides for a more meaningful comparison of the passenger airline business across periods.