Air Canada T.AC

RBC: Airlines pulse check

[Tempo1]

Canadian Airlines Pulse Check

Our view: In this report, we offer a snapshot of current trends and insights within the Canadian airline industry, drawing upon live data and read-throughs from sector peers. Our goal is to keep investors informed about key developments between our regular quarterly updates.

Airline Search Interest (Negative/Neutral): Canadian Airline web traffic continues to moderate with traffic down -0.3% in Q3 (Exhibit 1), with non-mainline search interest flat vs Mainline down -0.5%. Looking at the RBC Canadian GOAT index, we see the index has been below 2023 levels for most of the year, however recently inflected positively in August driven by elevated search interest across categories, namely rental cars, hotels and air travel, which we see as potentially related to consumers seeking alternative arrangements on potential job action from AC's pilots and/or deal hunting (Exhibit 2). The data continues to support our view that consumers remain stretched and are becoming increasingly discerning when it comes to their non-essential spending (as highlighted by the DIS team here).

Pricing (Negative/In line): Canadian Airfare CPI was down -2.7% Y/Y in July (most recent data point), see Exhibit 3. Similarly, the RBC Vacation Price Index was down ~1% Y/Y in July and has been below 2023 levels all year (Exhibit 4). Moreover, Transat yesterday reported yields down -9.7% in its FQ3 due to higher competition, overcapacity, and price-conscious consumers. These data points support our view that yields will remain pressured throughout the second half of the year as travel demand comes under pressure and excess capacity in the system gets worked out (but in line with Air Canada's updated 2024 guide). We also flag travel booking app Hopper airfare forecasts domestic fares in the US to be down -7% for the remainder of the year (9/24 - 12/24), with fares to Canada and Europe expected to be down high teens this fall, below 2019 levels. Moreover, management commentary from Transat's Q3 conference call noted consumer demand is expected to remain uncertain into 2025 and the company expects pricing pressure to continue into the winter travel season. We continue to see risk to pricing into 2025 as capacity expansion plans continue across the Canadian industry.

Competition (Neutral): We saw both Canadian Jetlines and Lynx fold this year, however the percentage of flights from non-mainline operators reached a high of 19%, mainly due to route expansions at Porter offsetting any losses at smaller start-ups (Exhibit 5). While we see mainline operators ultimately gaining from the rationalization of the competitive landscape, we note Porter continues to expand route offerings, becoming a notable third option for air travel among Canadians.

Labour costs (Negative): Pilot contract negotiations continue at AC, with management noting a 30% wage increase offer. The company has requested binding arbitration from the government and if an agreement is not met the company is set to wind down operations as early as September 15th for a possible work stoppage by September 18th. Exhibit 6 highlights recent pilot wage increases in the US and Canada.

Fuel costs (Positive): Fuel costs have moderated during the quarter, down ~30% on average compared to Q3/23 and continuing to reach new lows this month. ALK raised its Q3 earnings outlook partly due to lower fuel costs and UAL announced it expects realized fuel prices to be below its initial Q3 guidance range. Overall, we see lower fuel prices acting as a tailwind across the industry helping offset yield pressures and non-fuel cost inflation.

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link to RBC report please

[Tempo1]

I can't link it. I can copy only.  Usually, i copy the summary , but this one is complete, only the graph are missing.