Nat Bank Fin: Maintain at 29$Maintain Outperform as travel rebound coming in faster than forecast
Q3 results well ahead of forecast
Revenue was $5,322 million (up 153% y/y), ahead of both NBF at $4,904 million and consensus at $5,009 million. Capacity was up 130% y/y in Q3 and the load factor came in at 86.5% versus our estimate of 84.0%. Q3 adjusted EBITDA was $1,057 million versus NBF at $763 million and consensus of $837 million. Air Canada had a net loss of $508 million but this includes a noncash F/X loss of $951 million – excluding this and net income would have been positive $443 million. Air Canada ended Q3 with unrestricted liquidity totaling $10.2 billion.
Recovery coming faster than expected
Passenger revenues were strong, at 94% of Q3/19 levels on 79% of Q3/19 capacity, showing ongoing strong demand. Booking trends remained strong through Q3, with advance ticket sales attaining 95% of Q3/19 levels. Profitability is also coming in better than expected with a Q3 EBITDA margin of 19.9% versus our forecast for 15.6%.
No signs of yield softening
Average system yield in Q3 was up 18% compared to 2019 with strength in all markets, including domestic Canada where yield was up 12.0% versus 2019 despite new low-cost competition. Management noted that there was no indication that travel demand was slowing or that yields (pricing) were softening in Q4.
Maintain Outperform and $29.00 target
We maintain our Outperform rating on Air Canada shares as we expect the strong travel recovery to continue which will drive ongoing improvements in earnings and free cash flow. Based on the better recovery pace, our estimates for Q4/22, 2023 and 2024 move modestly higher, but this is offset in our valuation by higher absolute debt levels due to the translation of USD debt to CAD. Our target of $29.00 is therefore unchanged.