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.”
| *Adjusted CASM, adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization), adjusted EBITDA margin, leverage ratio (also referred to as net debt to trailing 12-month adjusted EBITDA ratio), net debt, adjusted pre-tax income (loss), adjusted net income (loss), adjusted earnings (loss) per share, and free cash flow are referred to in this news release. Such measures are non-GAAP financial measures, non-GAAP ratios, or supplementary financial 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. Refer to the “Non-GAAP Financial Measures” section of this news release for descriptions of these measures, and for a reconciliation of Air Canada non-GAAP measures used in this news release to the most comparable GAAP financial measure. |
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:
| Metric | Full Year 2024 Guidance |
| ASM capacity | 6 to 8 per cent increase versus 2023 |
| Adjusted CASM | 2.5 to 4.5 per cent increase versus 2023 |
| Adjusted EBITDA |
$3.7 to $4.2 billion |
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 Canadahad 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:
| (Canadian dollars in millions, except where indicated) | Fourth Quarter | Full Year | ||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||
| Operating expense – GAAP | $ | 5,096 | $ | 4,708 | $ | 388 | $ | 19,554 | $ | 16,743 | $ | 2,811 |
| Adjusted for: | ||||||||||||
| Aircraft fuel | (1,391) | (1,459) | 68 | (5,318) | (5,276) | (42) | ||||||
| Ground package costs | (177) | (163) | (14) | (720) | (474) | (246) | ||||||
| Impairment of assets | – | – | – | – | (4) | 4 | ||||||
| Freighter costs (excluding fuel) | (46) | (27) | (19) | (157) | (86) | (71) | ||||||
| Operating expense, adjusted for the above-noted items |
$ | 3,482 | $ | 3,059 | $ | 423 | 13,359 | 10,903 | 2,456 | |||
| ASMs (millions) | 24,439 | 22,368 | 9.3 % | 99,012 | 82,558 | 19.9 % | ||||||
| Adjusted CASM (cents) | ¢ | 14.25 | ¢ | 13.68 | ¢ | 0.57 | ¢ | 13.49 | ¢ | 13.21 | ¢ | 0.28 |
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:
| Fourth Quarter | Full Year | |||||||||||
| (Canadian dollars in millions, except where indicated) |
2023 | 2022 | Change | 2023 | 2022 | Change | ||||||
| Operating loss – GAAP | $ | 79 | $ | (28) | $ | 107 | $ | 2,279 | $ | (187) | $ | 2,466 |
| Add back: | ||||||||||||
| Depreciation and amortization | 442 | 417 | 25 | 1,703 | 1,640 | 63 | ||||||
| EBITDA | $ | 521 | $ | 389 | $ | 132 | $ | 3,982 | $ | 1,453 | $ | 2,529 |
| Remove: | ||||||||||||
| Impairment of assets | – | – | – | – | 4 | (4) | ||||||
| Adjusted EBITDA | $ | 521 | $ | 389 | $ | 132 | $ | 3,982 | $ | 1,457 | $ | 2,525 |
| Operating revenues | $ | 5,175 | $ | 4,680 | $ | 495 | $ | 21,833 | $ | 16,556 | $ | 5,277 |
| Operating margin (%) | 1.5 | (0.6) | 2.1 pp | 10.4 | (1.1) | 11.5 pp | ||||||
| Adjusted EBITDA margin (%) | 10.1 | 8.3 | 1.8 pp | 18.2 | 8.8 | 9.4 pp | ||||||
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:
| (Canadian dollars in millions) | Fourth Quarter | Full Year | ||||||||||
| 2023 | 2022 | $ Change | 2023 | 2022 | $ Change | |||||||
| Income (loss) before income taxes – GAAP |
$ | 122 | $ | 146 | $ | (24) | $ | 2,212 | $ | (1,524) | $ | 3,736 |
| Adjusted for: | ||||||||||||
| Impairment of assets | – | – | – | – | 4 | (4) | ||||||
| Foreign exchange (gain) loss | (72) | (316) | 244 | (389) | 732 | (1,121) | ||||||
| Net interest relating to employee benefits | (7) | (7) | – | (25) | (24) | (1) | ||||||
| Gain on financial instruments recorded at fair value |
(91) | (44) | (47) | (115) | (133) | 18 | ||||||
| Loss on debt settlements and modifications | 1 | 31 | (30) | 10 | 14 | (4) | ||||||
| Gain on disposal of assets | – | (21) | 21 | – | (21) | 21 | ||||||
| Adjusted pre-tax income (loss) | $ | (47) | $ | (211) | $ | 164 | $ | 1,693 | $ | (952) | $ | 2,645 |
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:
| (Canadian dollars in millions) | Fourth Quarter | Full Year | ||||||||||
| 2023 | 2022 | $ Change | 2023 | 2022 | $ Change | |||||||
| Net income (loss) – GAAP | $ | 184 | $ | 168 | $ | 16 | $ | 2,276 | $ | (1,700) | $ | 3,976 |
| Adjusted for: | ||||||||||||
| Impairment of assets | – | – | – | – | 4 | (4) | ||||||
| Foreign exchange (gain) loss | (72) | (316) | 244 | (389) | 732 | (1,121) | ||||||
| Net interest relating to employee benefits | (7) | (7) | – | (25) | (24) | (1) | ||||||
| Gain on financial instruments recorded at fair value |
(91) | (44) | (47) | (115) | (133) | 18 | ||||||
| Loss on debt settlements and modifications | 1 | 31 | (30) | 10 | 14 | (4) | ||||||
| Gain on disposal of assets | – | (21) | 21 | – | (21) | 21 | ||||||
| Income tax, including for above reconciling items (1) |
(59) | (28) | (31) | (44) | 140 | (184) | ||||||
| Adjusted net income (loss) | $ | (44) | $ | (217) | $ | 173 | $ | 1,713 | $ | (988) | $ | 2,701 |
| Weighted average number of outstanding shares used in computing diluted income per share (in millions) |
358 | 358 | – | 376 | 358 | 18 | ||||||
| Adjusted loss per share – diluted | $ | (0.12) | $ | (0.61) | $ | 0.49 | $ | 4.56 | $ | (2.76) | $ | 7.32 |
| (1) | In 2023, the deferred income tax expense recorded in other comprehensive income related to remeasurements on employee benefit liabilities is offset by a deferred income tax recovery, which was recorded through Air Canada’s consolidated statement of operations. This recovery is removed from adjusted net income for the year 2023. In comparison, a deferred income tax expense was removed from adjusted net loss for the year 2022. |
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.
| Fourth Quarter | Full Year | |||||||||||
| (Canadian dollars in millions) | 2023 | 2022 | $ Change | 2023 | 2022 | $ Change | ||||||
| Net cash flows from operating activities | $ | 985 | $ | 647 | $ | 338 | $ | 4,320 | $ | 2,368 | $ | 1,952 |
| Additions to property, equipment, and intangible assets |
(316) | (327) | 11 | (1,564) | (1,572) | 8 | ||||||
| Free cash flow | $ | 669 | $ | 320 | $ | 349 | $ | 2,756 | $ | 796 | $ | 1,960 |
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.
| (Canadian dollars in millions) | December 31, 2023 |
December 31, 2022 |
Change | |||
| Total long-term debt and lease liabilities | $ | 12,996 | $ | 15,043 | $ | (2,047) |
| Current portion of long-term debt and lease liabilities | 866 | 1,263 | (397) | |||
| Total long-term debt and lease liabilities (including current portion) |
13,862 | 16,306 | (2,444) | |||
| Less cash, cash equivalents and short and long-term investments |
(9,295) | (8,811) | (484) | |||
| Net debt | $ | 4,567 | $ | 7,495 | $ | (2,928) |
| Adjusted EBITDA (trailing 12 months) | $ | 3,982 | 1,457 | 2,525 | ||
| Net debt to adjusted EBITDA ratio | 1.1 | 5.1 | (4.0) | |||
Air Canada aircraft photo gallery:
