Based on similar calculations in last few posts, here is the outlook for cost and revenue scenarios for AC.
Q3 Cost: Major operational costs are fuel, labor and maintenance.
Fuel: cost is shaping up to be at par or lower than Q2 fuel cost. It has been trending down since Jun ’22 and is now below pre Ukraine war, clearly indicating either reduction in demand and/or mitigation of supply issues because of the war. Jet fuel spread, however is higher than pre-war. My assumption is that avg fuel price is 5% lower than Q2 and I believe this conservative estimate.
Calculating fuel cost at 80% capacity (of Q3’19, forecasted by AC) by straight line estimate, fuel cost is approx. ~$1.49B.
Labor: Since in Q2’19 AC had employees close to 2019 numbers, we can safely assume same number of employees in Q3. I still bumped the labor cost to $0.765B.
Maintenance: I have bumped the maintenance cost up by 15% to account for Q3’19 trend in 2019. Cost is ~$0.225B
Other operational cost: Calculating remaining opex cost by proration based on Q2’22 and Q3’19 trends, it should be ~$2.045B. This includes amortization cost same as Q2’22.
Total operational cost: ~
4.5B Other cost (interest, etc…) impacts: Same as Q2 ’22.
Revenue: AC doesn’t indicate credit card revenues separately like US airlines. Hence, those numbers show in free cash flow. For revenue, major categories are
Passenger:
Demand: Q3 looks strong. Passenger data in Canada (
https://www.catsa-acsta.gc.ca/en/screened-passenger-data) for July and Aug came to about 83% (of 2019). @ 80% Air Canada capacity, this will translate into similar load factor to Q3’19. 7-9% capacity cut for Q3 would have bumped the load factor too. Most likely it will be higher than 2019.
Price: Q2 ’22 fare price were 14% higher than Q2’19. My assumption is that Q3’22 fares are 15% higher than Q3 ’19.
This translates into passenger revenue of ~$4.75B. (92% of Q3’19)
Cargo: Q2’22 was 170% higher than Q2’19. My assumption it will be 180% higher in Q3’22 than Q3’19. This will translate into ~$0.32B
Total revenue of $5.25B.
Operating income of ~$0.75B (Q3 is always best quarter of the year).
Net income of approx. ~0.4B (however, I haven’t checked the forex impact, which could go either way).
Free cash flow of approx. $0.7B-$1.0B (depending on how much will be spent in aircraft purchase)
Q4 (usually a weaker quarter) will really depend on fuel price and ticket demand.
Fuel price is shaping out to be 10% lesser than Q3. This could change. Keep it in mind, with mild recession, chances of higher fuel price are less. As per Air Canada (August operational update), summer peak has shifted right and Q4 demand is still strong. Last two week (Aug end and Sept first 4 days) traffic ended up at avg of 88% of 2019. This indicates stronger demand trend into Sept and likely into Q4.
With right capacity management in Q4 should also see positive free cash flow of ~$0.1B-$0.3B, depending on aircraft purchase payments.