Travel News
Air Canada warns of higher costs from new agreement with pilots - BLOOMBERG
BY Bloomberg News
,
Air Canada shares tumbled after the airline warned it may face higher operating costs in 2024 as it works out a new labour agreement with its more than 5,000 pilots.
The adjusted cost per available seat mile — a key measure of airline expenses — may increase 2.5 per cent to 4.5 per cent in 2024, the Montreal-based carrier said in its earnings report Friday. Shares of Canada’s largest airline fell as much as 7.5 per cent in Toronto trading, the most in a year, and traded at $17.86 at 1:49 p.m.
Chief Financial Officer John Di Bert said on a conference call with analysts that the company is wrestling with cost headwinds from “lagging inflation” as well as regulatory changes and the pending deal with pilots.
“A new agreement with pilots will bring a change in wages and other cost-related items,” he said. “We have factored our best estimates into our guidance with a view of the Canadian market.” Regulatory changes in Canada over customer disruptions and higher airport fees and infrastructure costs might also boost operating costs, Air Canada said.
The Air Line Pilots Association, representing Air Canada’s aviators, is in a mediation process with Air Canada until June 1. The union has previously said it was looking to close the pay gap with large U.S. airlines, which have significantly increased their pilots’ pay in the past year. WestJet Airlines Ltd., Canada’s second-largest carrier, agreed to a contract in May that included a 24 per cent compensation bump over four years.
Pilots in the U.S. are paid 50 per cent to 300 per cent more than pilots in Canada, the union said in a statement responding to Air Canada’s earnings release.
“Air Canada is one of the most profitable airlines in North America, but has yet to recognize the value of its pilots and compensate them accordingly,” Charlene Hudy, the union’s local head, said in the statement.
Air Canada reported an adjusted loss of 12 Canadian cents per share for the fourth quarter, trailing analysts’ average estimate of profit of 1 cent per share. Operating revenue jumped 11 per cent to $5.18 billion as operated capacity grew.
“Higher capital-expansion commitments this year should mean positive but lower free cash flow year-over-year,” Citigroup Inc. analyst Stephen Trent said in a note to clients. “Although the call included more focus on 2024’s ex-fuel seat-mile costs than we had anticipated, this year’s free cash flow generation still appears to be trending well above the carrier’s average pre-pandemic historical levels.”