Nat. bank : outlook unchangedQ1/24 results below forecast, but full-year outlook unchanged
Q1 2024 results
Q1 results modestly below expectations
Air Canada reported Q1 results this morning that were modestly below NBF
and consensus forecasts while also reiterating its guidance for 2024. For more
detail, see our Q1 results Flash (link to AC Q1/24 results Flash).
Demand still solid, but tough yield comps
Passenger yield in Q1 was down 1.6% y/y versus our forecast for a 1.0%
decline, while passenger unit revenue (RASM) was down 2.2% y/y. However,
recall that in Q1 last year, yields were strong as demand was still recovering
and capacity constrained, so the yield performance this year reflects a
normalization of market conditions. Yields were strong in Canada (+3.5%)
and on the U.S. transborder (+1.6%), but were weaker on Atlantic routes and
Other.
No change to guidance
Management's EBITDA guidance for 2024 remains $3.7-$4.2 billion versus our
forecast for $3.6 billion and the consensus of just under $3.8 billion. Nonfuel unit cost in Q1 increased 1.6% y/y (better than our forecast for a 4.1% y/y increase) and management is still guiding for 2024 CASM ex-fuel to be up 2.5-4.5%, noting that the cost guide includes an assumption for higher pilot
costs (our forecast assumes the high end of the cost guidance range).
Maintain OP; target trimmed to $30.00
We maintain our Outperform rating on Air Canada shares and have trimmed
our target to $30.00 from $31.00 previously. The market seemingly remains
concerned about the sustainability of air travel demand in Canada; however,
while AC's yields fell in Q1, most of the data continues to point to still positive
end market demand. On our updated 2024 forecast, which assumes a 2.5%
decline in passenger unit revenues and non-fuel costs towards the high end of
Air Canada's guidance range, AC shares are trading at just 2.9x EV/EBITDA and
7.1x P/E, which is below the historical average forward multiples (excluding
the pandemic years) of 4.3x EV/EBITDA and 9.0x P/E.