Nat bank: target at 30$ (unchanged)Q2 EBITDA below forecast, but very strong FCF performance
Q2 results
Revenue was $3,981 million (up 376% y/y) versus NBF at $3,812 million and consensus at $3,981 million. Capacity was up 408% y/y in Q2 and the load factor came in at 80.5% versus our estimate of 78.0%. Q2 adjusted EBITDA was $154 million versus NBF at $193 million and consensus of $200 million. Free cash flow came in at $452 million versus our forecast of $9 million. At the end of Q2, Air Canada’s unrestricted liquidity stood at $10.5 billion.
Outlook remains positive
Bookings were strong in Q2 with advance ticket sales at 94% of the Q2/19 level (reaching a new record of $4.6 billion), while passenger revenues came in at 80% of 2019 levels despite ASMs at only 73%. June was notably strong with average airfares up 13% versus 2019. Air Canada notes that booked load factors in future quarters are similar to 2019 levels and management is not seeing any signs of slowing demand for air travel. Operational challenges at airports continue to be a significant issue, but management believes these to be temporary (we concur).
Guidance adjustments
Air Canada expects Q3 capacity to be up 131% versus last year and at ~79% of Q3 2019 levels. Our prior forecast was for Q3 capacity to be at ~77% versus 2019 levels. For full-year 2022, management is targeting an ASM increase of 150% y/y (74% of full-year 2019 versus our prior forecast for 72% of 2019), Adjusted CASM is now expected to be 15-17% higher than in 2019, up from a 13-15% increase expected previously. However, the 2022 adjusted EBITDA margin of 8-11% was reaffirmed.
Maintain Outperform and $30.00 target
We have made modest adjustments to our forecast following Q2 results. We believe the underlying driver for Air Canada shares in the near term will be improving sentiment around an air travel recovery, which appears to be on track. We keep our Outperform rating and $30.00 target.