Air Canada Rises as CEO Takes Upbeat Tone on Government Aid

(Bloomberg) -- Air Canada’s top executive is growing more optimistic about the chances of a government aid package, as a prolonged travel slump forces the Montreal-based airline to further cut capacity.

Canada’s biggest carrier said it expects to burn as much as C$17 million ($13.4 million) in net cash per day this quarter and reported fourth-quarter revenue that trailed analysts’ estimates. Yet outgoing Chief Executive Officer Calin Rovinescu, who has criticized the government of Justin Trudeau for not supporting the industry, struck a more positive tone this time.

Rovinescu said in a statement he’s “very encouraged by the constructive nature of discussions” with the government over a sector-specific package over the last weeks. “While there is no assurance at this stage that we will arrive at a definitive agreement on sector support, I am more optimistic on this front for the first time.”

The improvement may be connected to the new measures announced by Trudeau last month, which toughened quarantine rules and led airlines to suspend flights to the Caribbean and Mexico. With already stringent policies in place since March, air travel in Canada hasn’t even begun to bounce back from the Covid-19 crisis.

Air Canada shares rose 5.2% to C$22.31 as of 10:50 a.m. in Toronto.

Frosty Trudeau, Empty Airports Await Incoming Air Canada CEO

Passenger traffic at airport checkpoints in January was just 13% of last year’s levels, versus 38% in the U.S., according to data from the countries’ transportation authorities.

In the first week of February, it has slipped below 9%. Air Canada has taken advantage of federal wage subsidies, for a net benefit of C$554 million last year, the airline said Friday. But unlike the U.S. and most other developed economies, there has been no dedicated aid package to help airlines withstand the crisis.

“Canada remains the lone G-7 country that has thus far not provided any sector specific support to aviation, thereby threatening the long term competitiveness” of Canada’s airline industry, Rovinescu told analysts on a conference call.

During the call, Chief Financial Officer Michael Rousseau, who’s taking over as CEO on Monday, indicated the airline would like Canada to do its own version of the U.S. bailout plan, which provided a mix of grants and loans to be used for payroll costs, as well as a separate loan program.

If a Canadian aid package is agreed, it needs to take into account all the measures Canadian airlines had to take in almost a year to preserve liquidity, Rovinescu added.

E-Commerce Plan

Air Canada said it plans to reduce capacity by 85% in the first quarter compared with 2019, more than the 80% expected just a month ago, due to the government’s latest restrictions. It said net cash burn will be between C$15 million and C$17 million in the current quarter, from C$15 million a day the fourth quarter, in parts because of lower advance ticket sales and higher capital expenditures.

To boost revenue, it’s planning to build up its cargo business and an e-commerce delivery business. The company also said it’s well placed to take advantage of the recovery, with a modernized narrow-body fleet and hubs in Montreal and Toronto, home to a multicultural population keen to visit friends and family overseas.

“Air Canada’s largest roadblock is now the Canadian government’s severe travel restrictions,” Helane Becker, an analyst at Cowen & Co., said in a note.

“Once the government opens its borders, we believe there will be a rush to the exit. There is significant pent-up demand among Canada’s citizens, who have been locked down for almost a year,” Becker said.

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