On the operational side, Air Canada is looking strong. Revenue is up and so are fares. So why did Air Canada report a loss last quarter? Foreign exchange losses.
The Canadian dollar is weakening and many costs are fixed in USD and EUR. When the same transactions cost more CAD than before, losses may result. In this case, enough losses to bring Air Canada from green to red during the Fourth Quarter (October – December 2018). Indeed, Air Canada racked up C$269 million in foreign exchange losses.
But despite the loss, Air Canada CEO Calin Rovinescu is bullish about the outlook for his airline:
These quarterly results showed an improvement over last year’s fourth quarter on many fronts – including passenger revenues, traffic and yield – and complete a strong fiscal year. Moreover, they demonstrate the resiliency of our business model and affirm that Air Canada has positioned itself for long-term, sustainable profitability. During the year, we successfully managed many challenges, including intensifying competition and a volatile fuel price environment which resulted in approximately $1 billion in additional costs or 30 per cent more than 2017.
Air Canada did report profit of $167 million for the full year. This despite a 29% increase in oil prices. And the good news for AC is that these foreign exchange losses can become advantageous tax deductions. This makes Rovinescu confident about the year ahead:
Despite all of the backdrop of the noise that we hear about fears of a recession and the trade wars and the rest of it, we do see a fairly strong and bullish market.
Perhaps, but Air Canada faces intense competition from Canadian budget carriers. Furthermore, WestJet is now or will soon compete head-to-head with Air Canada on many business routes to Europe with a great new business class product.
The Canadian dollar is expected to continue to weaken. These foreign exchange losses will therefore likely continue. But overall, Air Canada appears to be in good shape. If you want to see the raw data, click here.