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Air Canada 2020 Second Quarter Results

Air Canada 2020 Second Quarter Results

Old Jul 15, 20, 6:28 am
  #1  
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Air Canada 2020 Second Quarter Results

Although these won't be announced until July 29, Delta announced losses of over $7 billion yesterday with an over 90% reduction in revenue. AC was burning through $20 million a day in cash. Over 90 days that's roughly $1.8 billion. Although they have added a lot of liquidity over the last quarter, how likely is it that losses will be over $2 billion?

The stock has been hammered. They have cut routes and parked aircraft. There does not seem to be much likelihood of a return of traffic till at least 2021. With only non-industry wage programs supporting the airline (when they accessed them), how likely is it there will an approach for government aid? Can they continue to survive these losses even with the added liquidity?
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Old Jul 15, 20, 6:52 am
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Will they announce how much money they stole from customers for cancelled flights?
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Old Jul 15, 20, 7:52 am
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Well in any case, I'm having fun with AC stock today
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Old Jul 15, 20, 8:03 am
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Originally Posted by rankourabu View Post
Will they announce how much money they stole from customers for cancelled flights?
To stay on-topic (there are plenty of threads about the non-refunds already) - somehow I don't think I'll find an entry in their financial statements with those words in them. However, the credits associated with the non-refunds will appear in some entry associated with future liabilities. The non-refunded amounts will also impact the current cash position.
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Old Jul 15, 20, 8:56 am
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Originally Posted by EdmFlyBoi View Post
Although these won't be announced until July 29, Delta announced losses of over $7 billion yesterday with an over 90% reduction in revenue. AC was burning through $20 million a day in cash. Over 90 days that's roughly $1.8 billion. Although they have added a lot of liquidity over the last quarter, how likely is it that losses will be over $2 billion?

The stock has been hammered. They have cut routes and parked aircraft. There does not seem to be much likelihood of a return of traffic till at least 2021. With only non-industry wage programs supporting the airline (when they accessed them), how likely is it there will an approach for government aid? Can they continue to survive these losses even with the added liquidity?
Keep in mind that losses and cash aren't the same thing. Net income (profit/loss) is impacted by non-cash items such as writedowns on the value of investments, e.g. aircraft, takeoff/landing slots, software, etc.

Airlines are most concerned about cash at the moment. AC's most recent update was that it had pro forma liquidity at March 31, after its recent financings, of around $9 billion. So it has a lot of running room.

Originally Posted by robsaw View Post
To stay on-topic (there are plenty of threads about the non-refunds already) - somehow I don't think I'll find an entry in their financial statements with those words in them. However, the credits associated with the non-refunds will appear in some entry associated with future liabilities. The non-refunded amounts will also impact the current cash position.
Ticket sales are a liability known as "deferred revenue". When AC sells a ticket, entries get created on the balance sheet, with cash received going to cash on the asset side and an offsetting entry to "advance ticket sales" on the liability side. When a ticket is flown, the liability gets eliminated and becomes revenue on the income statement.

At Q1, advance ticket sales were $2.6 billion. That includes both refundable and non-refundable fares, flight passes, gift cards, YQ collected on Aeroplan tickets, etc. It's unclear how much of that amount is money that AC should have refunded to customers due to flight cancellations. The only thing that AC has said is that 15% of it is on refundable ticket types, which would include both Latitude / PY Flexible / Business Flexible as well international tickets in other fare classes that are refundable for a penalty.

There's really no way to estimate the amount that should have been refunded, if AC weren't violating all sorts of laws, regulations, and its own tariffs. FP credits, gift card sales, tickets that have not been affected by major changes/cancellatons, etc would not be due for refunds. Neither are flights that customers elected to cancel before AC cancelled or made major changes to any of their flights. So it could be $500MM, it could be $2B, we don't really know.
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Old Jul 15, 20, 9:50 am
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Originally Posted by Adam Smith View Post
Airlines are most concerned about cash at the moment. AC's most recent update was that it had pro forma liquidity at March 31, after its recent financings, of around $9 billion. So it has a lot of running room.
It had a lot of running room on March 31. But that was near four months ago. I will be interested to see how much of that room remains.
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Old Jul 15, 20, 3:27 pm
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Originally Posted by Symmetre View Post
It had a lot of running room on March 31. But that was near four months ago. I will be interested to see how much of that room remains.
I expect that a great many calculation and assumptions made in March went out the window in May. And then the revised numbers for June were trashed once the catastrophic events in the USA started a couple weeks ago. So, yes indeed your assessment is bang on.

My understanding is that Air Canada had been expecting its cross border and US international travel to be recovering steadily by Q3/Q4 and it had been lobbying for a reopened border. The Memorial Day weekend idiocy dashed those hopes and the result is that the expected return of US flights isn't going to happen for months, if at all this year. Canadian sentiment is overwhelming against further reopening of the US border and to impose more restrictions. IMO, AC cannot stop the bleeding until it regains its international traffic, and its earlier projections assumed many restrictions would have been lifted by now. We are already well into summer, a peak travel period for AC and it just isn't happening.

Yes, AC can lay of flight crews, park aircraft etc, but there comes a point when it can't lay off any more personnel if it expects to maintain its operational capability. it still has debt service and its cost of maintaining infrastructure and its support systems. It most likely will be what if any money is actually available to keep the airline afloat.
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Old Jul 15, 20, 5:13 pm
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Trying to understand if the oil bounce today is what made AC fly, or people thinking the DL results were better than they should be giving AC a bounce.

Either way, shorting this puppy.
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Old Jul 15, 20, 7:40 pm
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May have had more to do with Moderna.
https://www.investors.com/news/trave...shows-promise/
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Old Jul 15, 20, 8:50 pm
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Originally Posted by Symmetre View Post
It had a lot of running room on March 31. But that was near four months ago. I will be interested to see how much of that room remains.
They were burning through about $20MM a day in late March. They've said that during and after Q2, they'll be able to cut that down. That's less than $2B a quarter. So, lots of running room.
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Old Jul 15, 20, 8:57 pm
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Originally Posted by tracon View Post
May have had more to do with Moderna.
https://www.investors.com/news/trave...shows-promise/
That and the overall oil bump.

Still shorting this, like AC shorts meals in J.
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Old Jul 15, 20, 9:22 pm
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Originally Posted by jazzsax View Post
That and the overall oil bump.

Still shorting this, like AC shorts meals in J.
What oil bump? Oil prices haven't moved meaningfully in weeks.

AC's stock should react negatively to an increase in oil prices, unless both just happened to be moving up on broader economic news, in which case oil would not be moving AC's stock.
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Old Jul 16, 20, 7:59 am
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well lets hope its only $2 billion. AC might also take this opportunity to write off lots of things to show the govt it needs more bailout money. Also it might be better to take a big hit once rather than a bit in each quarter.
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Old Jul 16, 20, 8:17 am
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Originally Posted by tshirt View Post
well lets hope its only $2 billion. AC might also take this opportunity to write off lots of things to show the govt it needs more bailout money. Also it might be better to take a big hit once rather than a bit in each quarter.
Writeoffs aren't cash. The $2 billion was a high-end estimate of the cash burn, based on AC's ~$22MM/day from March. There will likely be non-cash charges ("writeoffs", "writedowns", "impairments", whatever you want to call them) that make the net loss on the income statement bigger than that. Those don't support any request for financing as they're only on paper - if AC carries its LHR slots at, making up a number, $50MM on its balance sheet, and reduces that number to $25MM, those are just numbers on a spreadsheet. No cash went anywhere. AC's need for financing is unchanged.
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Old Jul 31, 20, 7:45 am
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Ugly quarter. Cash burn continues to be high. The ongoing quarantine requirements on return to Canada have been really damaging. They have made provisions to write down the leases on withdrawn aircraft (including the Rouge 67's). There remains good liquidity but AC added considerably to its debt. The remainder of the year is going to be a considerable challenge.
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