Air Canada Reports Fourth Quarter and Full Year 2023 Financial Results

• Record full year operating revenues of $21.833 billion,reflecting strong demand for air travel
• Full year operating income of $2.279 billion
• 2023 adjusted EBITDA* of $3.982 billion, at the high-end of guidance range
• 2023 cash from operating activities of $4.320 billion and free cash flow* of $2.756 billion
• Leverage ratio* of 1.1 at December 31, 2023, down from 5.1 at December 31, 2022

MONTREAL, Feb. 16, 2024 /CNW/ - Air Canada today reported its fourth quarter and full year 2023 financial results.

"Air Canada produced very strong results for the fourth quarter and full year 2023, delivering on its key financial goals and strategic priorities. For the full year, we had record operating revenues of $21.8 billion, up 32 per cent from 2022 as demand for air travel remained strong. Annual operating income was $2.3 billion; a $2.5 billion improvement from the previous year. Our adjusted EBITDA was nearly $4 billion; more than twice that of full year 2022. These results stem from the effective management, hard work and customer centric approach of everyone at Air Canada. I thank the entire team for their dedication as we safely transported more than 46 million passengers in 2023. The focus on operational improvements was evident as, even with the growth in traffic and ongoing supply chain challenges, our key operational metrics and customer satisfaction improved year over year," said Michael Rousseau, President and Chief Executive Officer of Air Canada.

"We also took important steps during the year to enable ourselves to continue performing consistently as we remain firmly committed to our plan and to enhancing our level of customer service, improving our operational reliability, strategically adding to our key hubs and network and growing profitably. We strengthened our balance sheet, reduced our debt and, despite the continuing macroeconomic and structural cost pressures on our industry, our unit costs were contained within our adjusted CASM guidance. Additionally, we will continue to expand Aeroplan, a key driver of customer loyalty that has doubled its membership to eight million members over the last five years.

"Our airline remains adaptable to changing business conditions, and is poised to take advantage of opportunities, giving us every confidence for the year ahead. As we look into the future, we aim to grow, deliver on our financial objectives and create long-term value for all stakeholders."

Fourth Quarter 2023 Financial Results

The following is an overview of Air Canada's results of operations and financial position for the fourth quarter 2023 compared to the fourth quarter 2022.

• Operating revenues of $5.175 billion increased $495 million or 11 per cent on an operated capacity growth of over 9 per cent year over year, close to the guidance provided in Air Canada's news release dated October 30, 2023.
• Operating expenses of $5.096 billion increased $388 million or 8 per cent. The increase was due to higher costs in nearly all line items reflecting higher operated capacity and traffic year over year, including higher wages, salaries and benefits. The increase was partially offset by lower aircraft fuel expense on a jet fuel price decline.
• Operating income of $79 million, with an operating margin of 1.5 per cent, improved $107 million.
• Adjusted EBITDA of $521 million, with an adjusted EBITDA margin* of 10.1 per cent, improved $132 million.
• Net income of $184 million and diluted earnings per share of $0.41 compared to a net income of $168 million and diluted earnings per share of $0.41.
• Adjusted net loss* of $44 million and adjusted loss per diluted share of $0.12 compared to an adjusted net loss of $217 million and adjusted loss per diluted share of $0.61.
• Adjusted CASM* of 14.25 cents compared to 13.68 cents, an increase of 4.1 per cent driven by higher salaries, wages and benefits expenses, higher maintenance costs and general inflationary pressures on certain line items.
• Net cash flows from operating activities of $985 million increased $338 million.
• Free cash flow of $669 million increased $349 million.

Full Year 2023 Financial Results

The following is an overview of Air Canada's results of operations and financial position for the full year 2023 compared to the full year 2022.

• Operating revenues of $21.833 billion increased $5.277 billion or 32 per cent on approximately a 20 per cent growth in operated capacity. The capacity increase was in-line with the guidance provided in Air Canada's news release dated October 30, 2023.
• Operating expenses of $19.554 billion increased $2.811 billion or 17 per cent. The increase was primarily due to increases in all line items reflecting higher operated capacity and traffic year over year, including, higher salaries, wages and benefits. It also reflects the impact of a favourable maintenance cost adjustment of $159 million that was recorded in the first quarter of 2022.
• Operating income of $2.279 billion, with an operating margin of 10.4 per cent, improved $2.466 billion.
• Adjusted EBITDA of $3.982 billion, with an adjusted EBITDA margin* of 18.2 per cent, improved $2.525 billion, at the high end of the guidance provided in Air Canada's news release dated October 30, 2023.
• Net income of $2.276 billion and diluted earnings per share of $5.96 compared to a net loss of $1.7 billion and diluted loss per share of $4.75.
• Adjusted net income of $1.713 billion and adjusted earnings per diluted share of $4.56 compared to an adjusted net loss of $988 million and an adjusted loss per diluted share of $2.76.
• Adjusted CASM of 13.49 cents compared to 13.21 cents in 2022, a 2.2 per cent increase driven by higher traffic and selling costs correlated to higher revenues, higher labour costs, a favourable maintenance cost adjustment recorded in 2022, and inflationary pressure on certain line items. This was within the guidance range provided in Air Canada's news release dated October 30, 2023.
• Net cash flows from operating activities of $4.320 billion increased $1.952 billion.
• Free cash flow of $2.756 billion increased $1.960 billion.
• Net debt to adjusted EBITDA ratio* was 1.1 at December 31, 2023, an improvement from 5.1 as at December 31, 2022, due to the increase in adjusted EBITDA and a $2.9 billion reduction in net debt.

Outlook

For the first quarter of 2024, Air Canada plans to increase its ASM capacity by about 10 per cent from the same quarter in 2023.

Air Canada is providing the following guidance for the full year 2024, replacing prior 2024 targets:

Major Assumptions

Assumptions were made by Air Canada in preparing and making forward-looking statements. As part of its assumptions, Air Canada assumes moderate Canadian GDP growth for 2024. Air Canada also assumes that the Canadian dollar will trade, on average, at C$1.33 per U.S. dollar for the full year 2024 and that the price of jet fuel will average C$1.00 per litre for the full year 2024.

Non-GAAP Financial Measures

Below is a description of certain non-GAAP financial measures and ratios used by Air Canada to provide readers with additional information on its financial and operating performance. Such measures are not recognized measures for financial statement presentation under GAAP, do not have standardized meanings, may not be comparable to similar measures presented by other entities and should not be considered a substitute for or superior to GAAP results.

Adjusted CASM

Air Canada uses adjusted CASM to assess the operating and cost performance of its ongoing airline business without the effects of aircraft fuel expense, the cost of ground packages at Air Canada Vacations, impairment of assets and freighter costs as these items may distort the analysis of certain business trends and render comparative analysis across periods less meaningful and their exclusion generally allows for a more meaningful analysis of Air Canada's operating expense performance and a more meaningful comparison to that of other airlines.

In calculating adjusted CASM, aircraft fuel expense is excluded from operating expense results as it fluctuates widely depending on many factors, including international market conditions, geopolitical events, jet fuel refining costs and Canada/U.S. currency exchange rates. Air Canada also incurs expenses related to ground packages at Air Canada Vacations, which some airlines, without comparable tour operator businesses, may not incur. In addition, these costs do not generate ASMs and therefore excluding these costs from operating expense results provides for a more meaningful comparison across periods when such costs may vary.

Air Canada also incurs expenses related to the operation of freighter aircraft, which some airlines, without comparable cargo businesses, may not incur. Air Canada had seven Boeing 767 dedicated freighter aircraft in its operating fleet as at December 31, 2023, compared to three Boeing 767 dedicated freighter aircraft in service as at December 31, 2022. These costs do not generate ASMs and therefore excluding these costs from operating expense results provides for a more meaningful comparison of the passenger airline business across periods.

Adjusted CASM is reconciled to GAAP operating expense as follows:

EBITDA and Adjusted EBITDA

EBITDA (earnings before interest, taxes, depreciation and amortization) is commonly used in the airline industry and is used by Air Canada as a means to view operating results before interest, taxes, depreciation and amortization as these costs can vary significantly among airlines due to differences in the way airlines finance their aircraft and other assets. In adjusted EBITDA, Air Canada excludes the effect of impairment of assets as it may distort the analysis of certain business trends and render comparative analysis across periods or to other airlines less meaningful.

Adjusted EBITDA Margin

Adjusted EBITDA margin (adjusted EBITDA as a percentage of operating revenues) is commonly used in the airline industry and is used by Air Canada as a means to measure the operating margin before interest, taxes, depreciation and amortization as these costs can vary significantly among airlines due to differences in the way airlines finance their aircraft and other assets. Further, the effects of impairment of assets are also removed in computing adjusted EBITDA margin as it may distort the analysis of certain business trends and render comparative analysis across periods or to other airlines less meaningful.

EBITDA, adjusted EBITDA and adjusted EBITDA margin are reconciled to GAAP operating income (loss) as follows:

Adjusted Pre-tax Income (Loss)

Adjusted pre-tax income (loss) is used by Air Canada to assess the overall pre-tax financial performance of its business without the effects of impairment of assets, foreign exchange gains or losses, net interest relating to employee benefits, gains or losses on financial instruments recorded at fair value, gains or losses on sale and leaseback of assets, gains or losses on disposal of assets, gains or losses on debt settlements and modifications, as these items may distort the analysis of certain business trends and render comparative analysis across periods or to other airlines less meaningful.

Adjusted pre-tax income (loss) is reconciled to GAAP income (loss) before income taxes as follows:

Adjusted Net Income (Loss) and Adjusted Earnings (Loss) per Share – Diluted

Air Canada uses adjusted net income (loss) and adjusted earnings (loss) per share – diluted as a means to assess the overall financial performance of its business without the after-tax effects of impairment of assets, foreign exchange gains or losses, net financing expense relating to employee benefits, gains or losses on financial instruments recorded at fair value, gains or losses on sale and leaseback of assets, gains or losses on debt settlements and modifications, gains or losses on disposal of assets as these items may distort the analysis of certain business trends and render comparative analysis to other airlines less meaningful.

Adjusted net income (loss) and adjusted earnings (loss) per share are reconciled to GAAP net income as follows:

Free Cash Flow

Air Canada uses free cash flow as an indicator of the financial strength and performance of its business, indicating the amount of cash Air Canada can generate from operations and after capital expenditures. Free cash flow is calculated as net cash flows from operating activities minus additions to property, equipment, and intangible assets, and is net of proceeds from sale and leaseback transactions.

The table below reconciles free cash flow to net cash flows from (used in) operating activities for the periods indicated.

Net Debt

Net debt is a capital management measure and a key component of the capital managed by Air Canada and provides management with a measure of its net indebtedness. It refers to total long-term debt and lease liabilities (including current portion) less cash, cash equivalents and short- and long-term investments.

Net Debt to Trailing 12-Month Adjusted EBITDA (Leverage Ratio)

Net debt to trailing 12-month adjusted EBITDA ratio (also referred to as "leverage ratio") is commonly used in the airline industry and is used by Air Canada as a means to measure financial leverage. Leverage ratio is calculated by dividing net debt by trailing 12-month adjusted EBITDA.

For further information on Air Canada's public disclosure file, including Air Canada's 2022 Annual Information Form dated February 25, 2023, consult SEDAR+ at www.sedarplus.com.

Fourth Quarter and Full Year 2023 Conference Call

Air Canada will host its quarterly analysts' call today, Friday, February 16, 2024, at 8:00 a.m. ET. Michael Rousseau, President and Chief Executive Officer, John Di Bert, Executive Vice President and Chief Financial Officer, and Mark Galardo, Executive Vice President, Revenue and Network Planning, will present the results and be available for analysts' questions. Immediately following the analysts' Q&A session, Mr. Di Bert and Pierre Houle, Vice President and Treasurer, will be available to answer questions from term loan B lenders and holders of Air Canada bonds.

Media and the public may access this call on a listen-in basis. Details are as follows:

CAUTION REGARDING FORWARD-LOOKING INFORMATION

This news release includes forward-looking statements within the meaning of applicable securities laws. Forward-looking statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements may involve, but are not limited to, comments relating to guidance, strategies, expectations, planned operations or future actions. Forward-looking statements are identified using terms and phrases such as "preliminary", "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "predict", "project", "will", "would", and similar terms and phrases, including references to assumptions.

Forward-looking statements, by their nature, are based on assumptions including those described herein and are subject to important risks and uncertainties. Forward-looking statements cannot be relied upon due to, among other things, changing external events and general uncertainties of the business of Air Canada. Actual results may differ materially from results indicated in forward-looking statements due to a number of factors, including those discussed below.

Factors that may cause results to differ materially from results indicated in forward-looking statements include economic conditions as well as geopolitical conditions such as the military conflicts in the Middle East and between Russia and Ukraine, Air Canada's ability to successfully achieve or sustain positive net profitability, industry and market conditions and the demand environment, competition, Air Canada's dependence on technology, cybersecurity risks, interruptions of service, climate change and environmental factors (including weather systems and other natural phenomena and factors arising from anthropogenic sources), Air Canada's dependence on key suppliers (including government agencies and other stakeholders supporting airport and airline operations), employee and labour relations and costs, Air Canada's ability to successfully implement appropriate strategic and other important initiatives (including Air Canada's ability to manage operating costs), energy prices, Air Canada's ability to pay its indebtedness and maintain or increase liquidity, Air Canada's dependence on regional and other carriers, Air Canada's ability to attract and retain required personnel, epidemic diseases, changes in laws, regulatory developments or proceedings, terrorist acts, war, Air Canada's ability to successfully operate its loyalty program, casualty losses, Air Canada's dependence on Star Alliance® and joint ventures, Air Canada's ability to preserve and grow its brand, pending and future litigation and actions by third parties, currency exchange fluctuations, limitations due to restrictive covenants, insurance issues and costs, and pension plan obligations as well as the factors identified in Air Canada's public disclosure file available at www.sedarplus.com and, in particular, those identified in section 18 "Risk Factors" of Air Canada's 2023 MD&A dated February 16, 2024.

The forward-looking statements contained or incorporated by reference in this news release represent Air Canada's expectations as of the date of this news release (or as of the date they are otherwise stated to be made) and are subject to change after such date. However, Air Canada disclaims any intention or obligation to update or revise any forward-looking statements whether because of new information, future events or otherwise, except as required under applicable securities regulations.

About Air Canada

Air Canada is Canada's largest airline, the country's flag carrier and a founding member of Star Alliance, the world's most comprehensive air transportation network. Air Canada provides scheduled service directly to more than 180 airports in Canada, the United States and Internationally on six continents. It holds a Four-Star ranking from Skytrax. Air Canada's Aeroplan program is Canada's premier travel loyalty program, where members can earn or redeem points on the world's largest airline partner network of 45 airlines, plus through an extensive range of merchandise, hotel and car rental partners. Its freight division, Air Canada Cargo, provides air freight lift and connectivity to hundreds of destinations across six continents using Air Canada's passenger and freighter aircraft. Air Canada aims to achieve an ambitious net zero emissions goal from all global operations by 2050. Air Canada shares are publicly traded on the TSX in Canada and the OTCQX in the US.

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Selected Financial Metrics and Statistics

The financial and operating highlights for Air Canada for the periods indicated are as follows:

SOURCE Air Canada

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