CIBC - Q1 PreviewPublished Friday:.
We recognize that ‘revenge travelling’ is coming to an end and that some markets are subject to excess capacity. For example, TRZ noted that it has faced increased competitive pressures into the sun destination markets and it has lowered its full-year capacity expansion plans to 13% (from 19% previously). AC noted on its Q4/23 call the increasingly crowded domestic marketplace, highlighting more competition. However, at the same time, Canadian airlines have been reducing capacity. For example, Lynx filed for creditor protection on February 26 and Flair Airlines reduced its spring schedule by 600 flights, making cost-saving cuts to its domestic network on March 23.
• We maintain a positive outlook on AC’s growth through 2024 and believe that the airline will continue to benefit from the recovery in international traffic. Key to AC achieving its 2024 financial target will be the strength of the Atlantic and Pacific markets. On the former, TRZ noted previously that the booking curve of its Trans-Atlantic program is ahead of where it was last year, as are yields. On the latter, AC’s 2023 Pacific ASMs were still down 41% from the respective 2019 level and, thus, there remains an opportunity for recovery.
Fuel Prices Update—Expect 2024 Fuel Price Assumptions To Increase • In Q1/24, the NY Buckeye MOC jet fuel price averaged US$3.66/gallon and the 54 Colonial Pasadena MOC jet fuel price averaged US$3.53/gallon. While this is, on average, down 17% Y/Y and 7% Q/Q, fuel prices were climbing to exit March. As of April 5, the spot price for NY Buckeye was US$3.83/gallon and for Colonial Pasadena was US$3.69/gallon. For AC, if we use rate of change and AC’s Q4/23 fuel cost as a reference, we infer a fuel price of $1.10/litre for Q1/24. Note that AC has guided to a fuel cost of $1.00/litre for 2024.
AC—Reporting on May 2: We forecast Q1/24 revenue of $5.23B, up from $4.09B a year ago and versus consensus of $5.19B. We expect adjusted EBITDA of $474MM, up from $411MM a year ago and versus consensus of $515MM. We have tweaked our estimates to account for higher fuel costs in the quarter. We will be listening for the following on the quarterly call: 1) we expect AC to maintain its full-year 2024 adjusted EBITDA and ASM targets (adjusted EBITDA of $3.7B-$4.2B and ASM growth of 6%-8% Y/Y) but to increase its fuel cost assumption from $1.00/litre previously to $1.10/litre; 2) an update on the demand environment and booking curve and commentary on the growth of APAC; 3) comments on its labour negotiations; and, 4) comments on inflationary pressures in the system and some of the levers AC has available to maintain yields. We will be looking for an update on AC’s pilot labour negotiations and the impact of the Airline Passenger Protection Regulations (APPR).Our 2024E and 2025E EBITDA move to $3.71B (from $3.72B) and $4.17B (from $4.14B), respectively.
Target maintained at 30$