Air Canada will cut capacity by 50 per cent in the second quarter as it deals with the fallout of the COVID-19 pandemic that’s resulted in travel restrictions and mass cancellations for airlines around the world.
Canada’s largest airline announced Monday that it will seek to save $500 million in cash by cutting costs and deferring capital spending. It also suspended its fibioreportscial guidance for 2020 and 2021.
The cost-cutting measures will include workplace reductions, but Air Canada did not elaborate on how many layoffs it expects. WestJet Airlines Ltd., Canada’s second largest airline, is expecting to lay off as many as half of its flight attendants during the slowdown.
The unions that represent Air Canada’s pilots and flight attendants say they’re in close contact with Air Canada but as of Monday morning did not have any information on potential layoffs.
Air Canada stock was down 30.5 per cent to $17.62 per share, after the federal government said it’s restricting international flights to certain airports and boosting efforts to screen passengers for COVID-19.
The measures announced Monday, including redirecting flights from Europe, Asia and Africa to only four Canadian airports, follow a weekend of disarray at many airports, where many travellers reported customs officials were not routinely providing direction to new arrivals.
Prime Minister Justin Trudeau said the moves, which also include banning most non-Canadians from entering the country as well as anyone showing symptoms of COVID-19, follow the latest advice of public-health officials and are aimed at better managing the spread of the illness.
Transport Minister Marc Garneau said the new restrictions on international flights will come into effect one minute after midnight on Wednesday morning and will see the vast majority of planes sent to airports in Vancouver, Montreal, Toronto and Calgary.
Flights from the U.S., Mexico and parts of the Caribbean will not be affected.
In a statement, Air Canada chief executive Calin Rovinescu said he’s confident the airline can navigate the crisis thanks to its strong fibioreportscial position with $7.3 billion in liquidity. It has more than enough funds to coverall pension obligations and does not have any material debt maturities this year.
Still, Air Canada is requesting government assistance through forbearance of taxes, landing fees and other charges. Countries including the United States, Germany, France and Italy are considering similar measures.
“The crisis facing our industry is worsening as countries around the world adopt increasingly severe measures, national lockdowns and travel restrictions,” Rovinescu said.
“However, we are not awaiting any decision on these measures before implementing our mitigation plan as we believe decisive action is the best course to follow.”
Air Canada expects to mitigate between 50 and 60 per cent of its revenue loss in the second quarter due to lower jet fuel prices, workplace reductions and other cost savings from variable operating expenses.
Cheaper fuel is expected to help for the remainder of the year as Air Canada has no outstanding fuel hedge positions and expects to pay 47 cents per litre for the second quarter and 50 cents per litre for the rest of the year.
Air Canada still expects 17 Airbus A220 and six Boeing 737 Max deliveries in 2020 for a total cost of $1.2 billion. But it will look into delaying deliveries depending how the pandemic unfolds.
Earlier Monday, Air Canada was one of nearly 60 airlines around the world to collectively call on governments to help the global airline industry during the unprecedented slowdown that’s expected to erase more than US$100 billion in revenue.
Star Alliance, of which Air Canada is a member, SkyTeam and Oneworld released a joint letter asking regulators to suspend slot usage rules that require airlines to use airport space or lose it, airports to re-evaluate landing fees and governments to look at “all possible means” to assist airlines.
“The unprecedented circumstances triggered by the coronavirus outbreak pose an existential threat not only to the airline industry but more generally to global trade and commerce, and social connectivity,” Star Alliance chief executive Jeffrey Goh said in a statement.
“As airlines stretch their limits to manage the crisis, it is equally critical for governments and stakeholders to avoid further burdens and step up with measures, as some have, that will ensure the future of the travel industry.”
The three alliances represent almost 60 airlines and more than half of global airline capacity. The members, including Delta Air Lines, British Airways and Cathay Pacific, have already taken “very significant” capacity reductions and cost-saving initiatives, the letter stated.
The International Air Transport Association estimated at least $113 billion in revenue will evaporate in a worst-case scenario, but that was before the U.S. cut off travel from 26 European countries. That market alone is worth another $20 billion.