FNB: Maintain at 29$Travel restrictions the key impediment to recovery
Q1/21 results
Q1 results
Revenue was $729 million (down 80% y/y) versus NBF at $570 million and the consensus of $885 million. Capacity was down 82% in Q1 and the load factor came in at 43.5% versus our estimate for 40.0%. Cargo revenue was $281 million (up 89% y/y) versus NBF at $231 million. The Q1 EBITDA loss was $763 million versus NBF at a loss of $652 million and the consensus for a loss of $438 million. Net cash burn in Q1 was $1.274 billion or $14 million/ day (better than prior guidance for $15-17 million/day).
Cash burn and liquidity update
At the end of Q1, Air Canada’s unrestricted liquidity stood at $6.582 billion plus the recently concluded government support package that provides a total of up to $5.9 billion in additional liquidity. Management expects the Q2 cash burn to be $1.180-$1.370 billion or $13-15 million per day, which is fairly consistent with our expectations.
Travel restrictions the primary impediment to recovery
Air Canada expects Q2 capacity to be double that of 2020, but down 84% versus 2019, which is worse than our prior forecast for Q2 capacity to be down ~80% versus 2019. Air Canada is seeing some positive booking signs for later in Q4 and into early 2022, especially for sun and other leisure destinations. However, with no real sign that the Canadian government will ease international travel restrictions anytime soon and many interprovincial restrictions still in place, we do not expect a material recovery in travel for the peak summer season. We remain comfortable with our existing view that a rebound will only begin in earnest in Q4 and through 2022.
Maintain Sector Perform and $29.00 target
The recent government financial aid package removes any lingering liquidity risks for Air Canada, and we continue to believe that air traffic will ultimately rebound strongly in Canada in much the same way U.S. airlines have experienced a spike in demand for the upcoming summer. However, we would like to have more visibility around the removal of travel restrictions before becoming more bullish on Air Canada shares at current levels. With only minor changes to our 2023 forecast, which is the basis for our valuation, our target of $29.00 is unchanged.