- Air Canada provides full
year 2022 outlook
- Air Canada announces key
targets for 2022-2024
- Aeroplan membership growth
MONTREAL, March 30, 2022 /CNW Telbec/ - Air Canada today
announced its 2022 full-year outlook and 2022-2024 key targets in
conjunction with its 2022 Investor Day being held today from
9:00 a.m. to 1:00 p.m. ET. The event
will be webcast live for media and interested parties. The live
webcast and the replay of the event will be available at
https://www.aircanada.com/ca/en/aco/home/about/media/speeches-presentations.html
"With the pandemic receding and travel returning, Air Canada has
put in place a strategy to return to profitability and increase
long-term shareholder value. Our expectations for the long-term
success of our airline give us confidence to set out key targets
that will serve to drive continuous improvement within the company
and provide transparency for investors to track our progress," said
Michael Rousseau, President and
Chief Executive Officer of Air Canada. "Central to our efforts will
be our continuing emphasis on controlling costs while also making
strategic investments, including those to advance ESG commitments,
promote network growth, elevate the customer experience and
heighten employee engagement. Through our focus on these
priorities, propelled by our people and award-winning culture, we
aim to command a highly competitive position emerging from the
pandemic as a Canadian global champion."
Investor Day Agenda
At Air Canada's 2022 Investor Day, Mr. Rousseau will provide an
update on the airline's strategy. In addition, members of the Air
Canada executive team will detail recent and upcoming initiatives,
as follows:
- Overview of the Commercial Strategy - Our Flight
Path
Lucie Guillemette -
Executive Vice-President and Chief Commercial Officer
- Reaching New Frontiers
Mark
Galardo - Senior Vice President, Network Planning and
Revenue Management
- Elevating Customer Loyalty with Aeroplan
Mark Nasr - Senior Vice President, Products,
Marketing and eCommerce
- The Accelerated Growth of Air Canada Cargo
Jason Berry - Vice President,
Cargo
- Raising the Customer Experience and Operational
Excellence
Craig Landry -
Executive Vice President and Chief Operations Officer
- Leveraging AI and Driving Business
Transformation
Mel Crocker -
Vice President and Chief Information Officer
- The Long-Term Growth Trajectory
Amos Kazzaz - Executive Vice-President and Chief
Financial Officer
- Our ESG Value Proposition
Fireside chat with
Arielle Meloul-Wechsler - Executive
Vice President, Chief Human Resources Officer and Public Affairs,
and Marc Barbeau - Executive Vice
President and Chief Legal Officer
2022 Full Year Outlook
In addition to its key targets for 2022-2024 described further
below, Air Canada is providing the following 2022 full-year
outlook:
- Air Canada plans to increase
its full year 2022 ASM capacity by about 150 per cent from 2021 ASM
levels (or about 75 per cent of 2019 ASM levels). Air Canada will continue to adjust capacity and
take other measures as required, including so as to account for
passenger demand, public health guidelines, and travel restrictions
globally, as well as other factors, such as inflation and other
cost pressures.
- For 2022, Air Canada expects adjusted cost per available seat
mile (CASM)* to increase about 13 to 15 per cent when compared to
2019.
- For 2022, Air Canada expects an annual EBITDA margin* of about
8 to 11 per cent.
*EBITDA margin and adjusted CASM are each non-GAAP financial
measures or non-GAAP ratios. 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. Refer to the "Non-GAAP
Financial Measures" section of this news release for descriptions
of Air Canada's non-GAAP financial measures and non-GAAP ratios and
for a reconciliation to the most comparable GAAP financial
measure.
The 2022 full-year outlook provided in this news release
constitutes forward-looking statements within the meaning of
applicable securities laws, is based on a number of assumptions,
including those discussed below, and is subject to a number of
risks and uncertainties. Please see the section below entitled
"Caution Regarding Forward-Looking Information".
2022-2024 Long-Term Targets
Air Canada is targeting:
- an annual EBITDA* margin (earnings before interest, taxes,
depreciation, and amortization, as a percentage of operating
revenue) of about 19 per cent for full year 2024,
- an annual return on invested capital (ROIC)* of about 15 per
cent by year-end 2024,
- a net debt to trailing 12-month EBITDA (leverage ratio)*
approaching 1.0 by year-end 2024,
- cumulative free cash flow* generation of about $3.5 billion for the 2022-2024 period,
- 2024 full year ASM capacity of about 95 per cent of 2019 ASM
levels,
- 2024 adjusted cost per available seat mile (CASM)* increase of
about 2 to 4 per cent when compared to 2019, and
- 40 per cent growth in the Aeroplan membership base by the end
of 2024, when compared to February
2019 levels.
*EBITDA margin, ROIC, leverage ratio, free cash flow and
adjusted CASM are each non-GAAP financial measures or non-GAAP
ratios. 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. Refer to the "Non-GAAP Financial
Measures" section of this news release for descriptions of Air
Canada's non-GAAP financial measures and non-GAAP ratios and for a
reconciliation to the most comparable GAAP financial measure.
The 2022-2024 long-term targets provided in this news release do
not constitute guidance or outlook, but rather are provided for the
purpose of assisting the reader in measuring progress toward Air
Canada's objectives. The reader is cautioned that using this
information for other purposes may be inappropriate. Air
Canada may review and revise these
targets as economic, geopolitical, market and regulatory
environments change. These targets are used as goals as Air Canada
executes on its strategic priorities, and they assume a normal
business environment. Air Canada's
ability to achieve these targets is dependent on its success in
achieving initiatives and business objectives that are described in
the Investor Day presentation and on certain major assumptions,
including those discussed below, and are subject to a number of
risks and uncertainties. Please see the section below entitled
"Caution Regarding Forward-Looking Information".
Major Assumptions
Assumptions were made by Air Canada in preparing and making
forward-looking statements.
As part of its assumptions, during the 2022 to 2024 period, Air
Canada assumes moderate Canadian GDP growth. Air Canada also assumes that the Canadian dollar
will trade, on average, at C$1.27 per U.S. dollar in
2022, and at C$1.30 per
U.S. dollar in 2023-2024, and that the price of jet fuel will
average C$1.10 per litre in 2022, while it expects to be
able to manage 2023-2024 jet fuel price volatility within a
reasonable range above the prices that existed prior to the impact
of the Ukraine-Russia conflict.
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.
EBITDA
EBITDA (earnings before interest, taxes, depreciation and
amortization) is commonly used in the airline industry and is used
by Air Canada as a means to view operating results before interest,
taxes, depreciation and amortization as these costs can vary
significantly among airlines due to differences in the way airlines
finance their aircraft and other assets. Air Canada excludes special items from EBITDA as
these items may distort the analysis of certain business trends and
render comparative analysis across periods or to other airlines
less meaningful.
EBITDA Margin
EBITDA margin (EBITDA as a percentage of operating revenue) is
commonly used in the airline industry and is used by Air Canada as
a means to measure the operating margin before interest, taxes,
depreciation and amortization as these costs can vary significantly
among airlines due to differences in the way airlines finance their
aircraft and other assets.
EBITDA is reconciled to GAAP operating income (loss) as
follows:
|
|
|
|
(Canadian dollars in
millions, except where indicated)
|
2019
|
2020
|
2021
|
GAAP operating
income (loss)
|
$
|
1,650
|
$
|
(3,776)
|
$
|
(3,049)
|
Add
back:
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
1,986
|
|
1,849
|
|
1,616
|
EBITDA (including
special items)
|
$
|
3,636
|
$
|
(1,927)
|
$
|
(1,433)
|
Remove:
|
|
|
|
|
|
|
Special
Items
|
|
-
|
|
(116)
|
|
(31)
|
EBITDA (excluding
special items)
|
$
|
3,636
|
$
|
(2,043)
|
$
|
(1,464)
|
Total operating
revenues
|
$
|
19,131
|
$
|
5,833
|
$
|
6,400
|
Operating margin
(%)
|
|
8.6%
|
|
(64.7)%
|
|
(47.6)%
|
EBITDA margin
(%)
|
|
19.0%
|
|
(35.0)%
|
|
(22.9)%
|
Free Cash Flow
Air Canada uses free cash flow
as an indicator of the financial strength and performance of its
business, indicating the amount of cash Air Canada can generate
from operations and after capital expenditures. Free cash flow is
calculated as net cash flows from operating activities minus
additions to property, equipment, and intangible assets, and is net
of proceeds from sale and leaseback transactions. The one-time
proceeds related to the acquisition of Aeroplan in 2019 were also
excluded from Air Canada's calculation of free cash flow.
Free cash flow reconciles to GAAP net cash flows from (used in)
operating activities as follows:
|
|
|
|
(Canadian dollars in
millions)
|
2019
|
2020
|
2021
|
Net cash flows from
(used in) operating activities
|
$
|
5,712
|
$
|
(2,353)
|
$
|
(1,563)
|
Additions
to property, equipment, and intangible assets,
net of proceeds from sale and leaseback
transactions
|
|
(2,025)
|
|
(717)
|
|
(1,062)
|
One-time
proceeds related to the acquisition of Aeroplan
|
|
(1,612)
|
|
-
|
|
-
|
Free cash
flow
|
$
|
2,075
|
$
|
(3,070)
|
$
|
(2,625)
|
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, freighter costs, and
special items as these items may distort the analysis of certain
business trends and render comparative analysis across periods or
to other airlines less meaningful.
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 introduced one Boeing 767
dedicated freighter to its fleet in December
2021 and expects to have a fleet of eight Boeing 767
dedicated freighters in the next 12-18 months. Prior to 2021, Air
Canada did not incur any costs related to the operation of
dedicated freighter aircraft. 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.
Excluding aircraft fuel expense, the cost of ground packages at
Air Canada Vacations, dedicated freighter expenses and special
items from operating expenses generally allows for a more
meaningful analysis of Air Canada's operating expense performance
and a more meaningful comparison to that of other airlines.
Adjusted CASM is reconciled to GAAP operating expense as
follows:
|
|
|
|
(Canadian dollars in
millions, except where indicated)
|
2019
|
2020
|
2021
|
GAAP operating
expense
|
$
|
17,481
|
$
|
9,609
|
$
|
9,449
|
Adjusted
for:
|
|
|
|
|
|
|
Aircraft
fuel
|
|
(4,347)
|
|
(1,322)
|
|
(1,576)
|
Ground
package costs
|
|
(627)
|
|
(250)
|
|
(120)
|
Special
items
|
|
-
|
|
116
|
|
31
|
Freighter
costs
|
|
-
|
|
-
|
|
(1)
|
Operating expense,
adjusted for the above-noted items
|
$
|
12,507
|
|
8,153
|
|
7,783
|
ASMs
(millions)
|
|
112,814
|
|
37,703
|
|
33,384
|
Adjusted CASM
(cents)
|
¢
|
11.09
|
¢
|
21.62
|
¢
|
23.31
|
Net Debt to Trailing 12-Month EBITDA (Leverage Ratio)
Net debt to trailing 12-month EBITDA ratio (also referred to as
"leverage ratio") is commonly used in the airline industry and is
used by Air Canada as a means to measure financial leverage.
Leverage ratio is calculated by dividing net debt by trailing
12-month EBITDA (excluding special items). As mentioned previously,
Air Canada excludes special items from EBITDA results (which are
used to determine leverage ratio) as these items may distort the
analysis of certain business trends and render comparative analysis
across periods or to other airlines less meaningful.
|
|
|
|
(Canadian dollars in
millions, except where indicated)
|
2019
|
2020
|
2021
|
EBITDA (excluding
special items)
|
$
|
3,636
|
$
|
(2,043)
|
$
|
(1,464)
|
Total long-term debt
and lease liabilities
|
|
8,024
|
|
11,201
|
|
15,511
|
Current portion of
long-term debt and lease liabilities
|
|
1,218
|
|
1,788
|
|
1,012
|
Total long-term debt
and lease liabilities (including current portion)
|
$
|
9,242
|
$
|
12,989
|
$
|
16,523
|
Remove:
|
|
|
|
|
|
|
Cash, cash
equivalents and short and long-term investments
|
|
6,401
|
|
8,013
|
|
9,403
|
Net
debt
|
$
|
2,841
|
$
|
4,976
|
$
|
7,120
|
Leverage
ratio
|
|
0.8x
|
|
(2.4)x
|
|
(4.9)x
|
Return on Invested Capital
Air Canada uses return on
invested capital ("ROIC") as a means to assess the efficiency with
which it allocates its capital to generate returns. ROIC is
calculated as the ratio between adjusted pre-tax income (loss),
excluding interest expense, and invested capital. Invested capital
includes average year-over-year long-term debt and lease
obligations, average year-over-year shareholders' equity, and the
embedded derivative on Air Canada's convertible notes. In 2020, Air
Canada issued convertible unsecured notes. Air Canada has the option to deliver cash or a
combination of cash and shares on the conversion date in lieu of
shares, giving rise to an embedded derivative that is included as
part of the definition of capital. Air Canada calculates invested capital on a book
value-based method when calculating ROIC. Due to the low book value
of equity given the impact of the COVID-19 pandemic, excess cash is
no longer removed from the calculation of invested capital.
Adjusted Pre-tax Income (Loss)
Adjusted pre-tax income (loss) is used by Air Canada to assess
the overall pre-tax financial performance of its business without
the effects of foreign exchange gains or losses, net financing
expense relating to employee benefits, gains or losses on financial
instruments recorded at fair value, gains or losses on sale and
leaseback of assets, gains or losses on disposal of assets, gains
or losses on debt settlements and modifications, and special items
as these items may distort the analysis of certain business trends
and render comparative analysis across periods or to other airlines
less meaningful.
Return on invested capital is reconciled to GAAP income (loss)
before income taxes as follows:
|
|
|
|
(Canadian dollars in
millions, except where indicated)
|
2019
|
2020
|
2021
|
Income (loss) before
income taxes
|
$
|
1,775
|
$
|
(4,853)
|
$
|
(3,981)
|
Adjusted
for:
|
|
|
|
|
|
|
Special
items
|
|
-
|
|
(116)
|
|
(31)
|
(Gain) loss foreign
exchange
|
|
(499)
|
|
293
|
|
52
|
Net financing expense
relating to employee benefits
|
|
39
|
|
27
|
|
8
|
(Gain) loss on
financial instruments recorded at fair value
|
|
(23)
|
|
242
|
|
55
|
(Gain) loss on debt
settlements and modifications
|
|
(6)
|
|
-
|
|
129
|
Gain on sale and
leaseback of assets
|
|
-
|
|
(18)
|
|
-
|
Gain on disposal of
assets
|
|
(13)
|
|
-
|
|
-
|
Adjusted pre-tax
income (loss)
|
$
|
1,273
|
$
|
(4,425)
|
$
|
(3,768)
|
Adjusted
for:
|
|
|
|
|
|
|
Interest
expense
|
|
515
|
|
656
|
|
749
|
Adjusted pre-tax
income (loss) before interest
|
$
|
1,788
|
$
|
(3,769)
|
$
|
(3,019)
|
Average long-term debt
and lease liabilities (including current portion)
|
|
9,582
|
|
11,116
|
|
14,756
|
Embedded derivative on
convertible notes
|
|
-
|
|
534
|
|
579
|
Average shareholder
equity
|
|
3,839
|
|
3,058
|
|
862
|
Invested
capital
|
$
|
13,421
|
$
|
14,708
|
$
|
16,197
|
Return on invested
capital
|
|
13.3%
|
|
(25.6)%
|
|
(18.6)%
|
CAUTION REGARDING FORWARD-LOOKING
INFORMATION
This news release includes forward-looking statements within
the meaning of applicable securities laws. Forward-looking
statements relate to analyses and other information that are based
on forecasts of future results and estimates of amounts not yet
determinable. These statements may involve, but are not limited to,
comments relating to guidance, strategies, expectations, planned
operations or future actions. Forward-looking statements are
identified using terms and phrases such as "preliminary",
"anticipate", "believe", "could", "estimate", "expect", "intend",
"may", "plan", "predict", "project", "will", "would", and similar
terms and phrases, including references to assumptions.
Forward-looking statements, by their nature, are based on
assumptions including those described in this news release and the
documents incorporated by reference herein and are subject to
important risks and uncertainties. Forward-looking statements
cannot be relied upon due to, among other things, changing external
events and general uncertainties of the business of Air Canada.
Actual results may differ materially from results indicated in
forward-looking statements due to a number of factors, including
those discussed below.
Air Canada, along with the
rest of the global airline industry, continued to face
significantly lower traffic, as compared to the year 2019, and a
corresponding decline in revenue and cash flows as a result of the
COVID-19 pandemic and the travel restrictions imposed in many
countries around the world, including in Canada. While there are signs of improvement
and travel restrictions have been easing, Air Canada cannot predict
the full impact or the timing for when conditions will return to
pre-pandemic levels. The COVID-19 pandemic has also had and may
continue to have significant economic impacts, including on
business and consumer spending and behaviour, which may in turn
significantly impact demand for travel. The return of business
travel to pre-pandemic levels may be challenged by the evolving
nature of business models and remote-work practices in light of the
impacts of the COVID-19 pandemic, including the growth and
continued use of videoconferencing and other remote-work
technologies as well as tendencies towards less environmentally
impactful business and consumer behaviour. Air Canada is actively monitoring the situation
and will respond as the impact of the COVID-19 pandemic evolves,
which will depend on a number of factors including the course of
the virus including its variants, effective testing, vaccinations
and treatments for the virus, government actions including health
measures and other restrictions, and passenger reaction, the
complexities of restarting an industry whose many stakeholders must
act in coordination with each other as well as timing and extent of
recovery in international and business travel which are important
segments of Air Canada's market, none of which can be predicted
with certainty.
Other factors that may cause results to differ materially
from results indicated in forward-looking statements include
economic and geopolitical conditions such as the military conflict
between Ukraine and Russia, Air Canada's ability to successfully
achieve or sustain positive net profitability, industry and market
conditions and the demand environment, Air Canada's ability to pay
its indebtedness and maintain or increase liquidity, competition,
Air Canada's dependence on technology, cybersecurity risks, energy
prices, Air Canada's ability to successfully implement appropriate
strategic and other important initiatives (including Air Canada's
ability to manage operating costs), other epidemic diseases,
terrorist acts, war, Air Canada's dependence on key suppliers, Air
Canada's ability to successfully operate its loyalty program,
interruptions of service, Air Canada's ability to attract and
retain required personnel, the availability of Air Canada's
workforce, casualty losses, changes in laws, regulatory
developments or proceedings, climate change and environmental
factors (including weather systems and other natural phenomena and
factors arising from man-made sources), Air Canada's dependence on
regional and other carriers, Air Canada's ability to preserve and
grow its brand, employee and labour relations and costs, Air
Canada's dependence on Star Alliance® and joint ventures, pending
and future litigation and actions by third parties, currency
exchange, limitations due to restrictive covenants, insurance
issues and costs, pension plans, as well as the factors identified
in Air Canada's public disclosure file available at
www.sedar.com and, in particular, those identified
in section 18 "Risk Factors" in Air Canada's 2021 MD&A. The
forward-looking statements contained or incorporated by reference
in this news release represent Air Canada's expectations as of the
date of this news release (or as of the date they are otherwise
stated to be made) and are subject to change after such date.
However, Air Canada disclaims any intention or obligation to update
or revise any forward-looking statements whether because of new
information, future events or otherwise, except as required under
applicable securities regulations.
About Air Canada
Air Canada is Canada's largest domestic and international
airline, the country's flag carrier and a founding member of
Star Alliance, the world's most
comprehensive air transportation network. Air Canada is the only international network
carrier in North America to
receive a Four-Star ranking from the independent U.K. research firm
Skytrax, which in 2021 also named Air Canada as having the Best
Airline Staff in North America,
Best Airline Staff in Canada, Best
Business Class Lounge in North
America, as well as an Excellence award for its handling of
COVID-19. Also in 2021, Air Canada was named Global Traveler's Best
Airline in North America for the
third straight year. In January 2021,
Air Canada received APEX's Diamond Status Certification for the Air
Canada CleanCare+ biosafety program for managing COVID-19, the only
airline in Canada to attain the
highest APEX ranking. Air Canada
has also committed to a net zero emissions goal from all global
operations by 2050. For more information, please visit:
aircanada.com/media, follow Air Canada on Twitter and
LinkedIn, and join Air Canada on Facebook.
Internet: aircanada.com/media
SOURCE Air Canada