RE:RE:Q2 progress1. Fuel price impact: Q1 pax volume was at 45% (All Canadian traffic) and load factor of 66% for AC. Quick check throughout the day (Jan-Feb-March), showed following airplanes in air
Jan: low 40s to 60s
Feb: low 40s to high 70s
March: 60s to 80s
Number of planes in air grew as passenger travel grew esp after Feb 15th. It means that AC did manage the capacity well and limited number of flights. And as luck would have it, oil price increased since 15th Feb because of Ukraine war. But most of the fuel is purchased 3-6 weeks in advance. So Q2 will take the impact of $100+ oil price.
Q2 pax volume was at 74% (All Canadian traffic) and my assumption is that load factor is (-5%) of Q2 2019. It is because April was ramping up and we saw full impact in 2nd half of May and June. Load factor of ~ 77-78%.
My calc for fuel cost is based on following: Using Q2 '19 capacity and oil consumption (litres) as base, improve fuel consumption (conservative: fleet improvements) and use average fuel price per litres. It come at about 160-180% of Q1 or ~140% of Q2 '19.
Also the non fuel cost is higher too. You can use US airlines as guideline to include the cost of mayhem. My assumption is much higher than that. Though, I have seen some smooth YYZ operations in my personal travel where security line up cleared in few mins and bag was at the carosuel in time during the day time.
2. Ticket price impact: Most of the Q2/summer ticket purchasing started post 15th Feb. Precovid a large amount of summer seats were purchased during the winter prior. But this year, major purchasing started after 15th Feb (shorter cycle) giving airlines enough time to raise fares (as fuel price increased). After that, it purely became a demand play. With demand through the roof, airlines are charging a lot more. In my last post I did share a link (market analyst) which indicates 25%+ in fare in May. One can expect similar trend for remaining Q2. Q3 should be even higher. I also expect trend to continue well into Q4 as some of the fares are much higher throughout the year: e.g. Canada-India fares are 50-60% higher throughout 2022.
Oil price is now hovering around $100 and Q4 purchasing is happening now.
And yes, I support the thesis from airlineinvestor.
thinkyourmoney wrote: Trying to sort our where AC stands with earnings coming up next week is a quite a challenge. R 10, you do a great job of estimating with the information available. I see a lot of mayhem in the works and I think that stuff makes people uneasy. Here are a few of these items.
Fuel prices...This challenge is top of the list for the "sky is falling" believers. As you point out this is mitigated that AC has very new airplanes that are very fuel efficent. They have 14% fewer airplanes that carry the same number of people. The burn less fuel with no one on them. Seeing as how Q1 numbers were accomplished with a very similar number of airplanes with a 45% load factor and that only 10% of the airplane is payload, then doubling the load factor should only increase the fllying weight of the airplane by 5%. If fuel is double in price, the cost of flight fuel used should only be 5% more than in Q1. That may be rediculous but it won't be double what it was in Q1 but revenue might be??
Ticket prices...I am hearing a lot of people sort of wingeing about ticket prices. However, mostly they just want to go somewhere. That saved cash and saved credits are there and they want to travel. I see that a lot of prices have doubled. If you book early you get the old rate but as you get closer to departure time the prices climb drastically. Business class prices are as high as I have seen them since 2006. And people are bidding to take any that are left over right up until the auctions close.
Then there is the cost of the Mayhem.
One item I missed addressing in my previous installment on this topic is that one of the sources of delays and cancellations is that there is a shortage of ATC agents in America. It may be due to Covid lingering. One thing folks don't address is that a lot of senior folks at ATC and everywhere else in the airline world took retirement packages. The millenials branded Covid as "Boomer Remover". If it didn't kill you it got you to retire finally. You may have the same number of staff but every facet of the airline industry lost huge amount of "job knowledge and experience". I always found the oldest and grumpiest employees were the ones I approached when I really wanted something solved.
It will take years to work through this generational transition.
Added costs are being incurred for lost luggage, compenstion and wasted time and equipment. It will cost a lot in overtime pay. The interesting thing is that it is cheaper to pay overtime than it is to bring in more new employees and then lay them off when the dust settles.
And now we will be having a recession??? I took Economics in the late 70's. That was the era when the economy faced Stagflation. That was a generational thing as well. That's when the boomers took over. The thing is that it is all about too much money chasing too few goods. The central banks have stopped printing money and are raising interest rates to where they should be to suck up this extra money.
There is a lot of it. The bank just sent me a note saying there will be 1 trilliion dollars being transferred from the Boomers to the next generation over the next 5 years in Canada. Boomers have everything they need...almost. The next generation will have no trouble spending that money. This economy will carry on with hardly a blip with that kind of transfer to the generation that will buy trips, houses, cars and all the other consumer items available...and actually pay for them cash...dare to dream. Maybe even they will save some.
So in additon to R 10 and airlineinvestor's perspectives, my macroeconomic view of the prospects for AC are positive. Add the Cargo contribution, the growth of Aeroplan, the fact AC is servicing more and more American long distance fliers to a positive forcast for the Canadian market, it looks like airlineinvestor's projection for the long term pricing of Air Canada shares could be acheivable.