TD: Summary and Key Takeaways from U.S. Mainline ReportingIn our view, Q4/20 results are demonstrating that North American airlines have raised liquidity and reduced variable and fixed costs with amazing speed during the pandemic. On the other side of the pandemic, we believe that airlines will maintain higher levels of liquidity than they did prior to the pandemic, and that investments in new aircraft will be pushed out in order to facilitate balance sheet repair and liquidity requirements. This will help restore returns-on-capital, which, combined with the realization of airlines' ability to survive such an environment, should help rebuild longer-term investor confidence in the sector. We expect that this positive impact on perceived risk and multiples could be offset by an awareness that airlines are inevitably exposed to future global health risks which are beyond the control of management. Regardless, we think there will be attractive risk-adjusted upside for the sector over the next 12-months, with most coming following more wide-spread vaccinations and the easing or elimination of travel restrictions. We continue to believe that travel will return to 2019 levels in 2023, and that the potential exists for it to return by mid-2022.
Cash burn & liquidity: Cash burn rates from peak levels in 2020 have declined by 70-90% at U.S. mainlines (ex-Southwest). Expected Q1/21 cash burn as a percentage of operating revenue ranges from 30-70% (11-26% of Q1/19), and compares to our forecast for AC of approximately 100% (25% of Q1/19). Note that all cash burn rates are not calculated on exactly the same basis. Q1/21 liquidity is expected to be 33-46% of 2019 revenue compared to Air Canada at 31%.
Q1 outlook: Q1/21 capacity is expected to be down 35-50% from Q1/19 (Exhibit 1), which compares to Air Canada's planned Q1 capacity decline of 80%. Q1/21 total revenue is expected to be down 63-68% which compares to our Air Canada forecast for a 77% decline. As reflected in capacity plans, revenue expectations and cash burn, more punitive travel restrictions have negatively impacted the rate of improvement in travel demand in Canada relative to the U.S. since the start of the pandemic. We expect this to begin normalizing in Q2/21.
Unit costs ex-fuel: Delta anticipates returning to its 2019 unit cost (ex-fuel) by the end of 2021 on approximately 75% of the capacity. We forecast Air Canada's unit costs will be 100% of 2019 by 2022. Air Canada has the added benefit of the absence of the cost headwinds in 2019 related to the 737 MAX grounding.
Long-term margin: United anticipates that its 2023 EBITDAR margin will exceed 2019 primarily as a result of significant structural cost reductions, and despite the potential for lower capacity. We forecast that Air Canada's EBITDA margin in 2022 will be above 2019, a result that reflects the absence of 737 MAX cost/revenue headwinds, our view of pricing discipline across the industry, the impact of pent-up demand on travel price sensitivity, the growing benefits of in-sourcing loyalty and other structural cost differences.
Business travel: Air Canada generated approximately 18% of 2019 revenue from its business cabin, and importantly, a much greater percentage of earnings, in our view. We estimate that this declined to 15% in 2020, and that its recovery will lag the economy cabin leaving its proportion of revenue relatively unchanged by 2023. While there are plenty of anecdotal indications of business travel plans available, we believe the insights that the airlines themselves capture through surveys and booking curves are the most comprehensive. Delta noted that only 1/3 of premium seats are actually filled by business travelers. In the short-term, indications are that 50-100% of pre-COVID domestic business travel will return by the end of 2021, and up to 50% of international business travel. 40% of big corporate customers are indicating 2019 travel levels will return by the end of 2022, with 11% indicating by the end of 2023. Only 7% of big corporate customers indicated that they never plan to return to 2019 travel. Overall, U.S. airline commentaries provide an encouraging outlook for the eventual return of business travel, but one that supports our conservative view of the recovery for Canadian airlines. Our 2022 forecast implies that Air Canada's business cabin contribution to EBITDA will remain approximately 35% below our estimate of its contribution in 2019.
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