Air Canada, despite experiencing a 24% decrease in Q3 cargo revenue and cancelling an order for two Boeing (NYSE:BA) 777 freighters, continues to focus on the growth of its freighter division. The company's commitment to the freighter business was reinforced when it switched its order for two 777 widebody freighters to 787-10 passenger jets in September.
The airline's CEO, Michael Rousseau, stated that despite the weak market conditions and an excess supply from the rapid reintroduction of international passenger flights, the company remains dedicated to expanding its startup freighter division. The airline currently operates six Boeing 767-300 converted cargo aircraft, retrofitted by aftermarket aerospace firms for carrying large containers in the main cabin area. Plans are underway for Air Canada to receive three more such aircraft within the next year.
During the pandemic, Air Canada repurposed idle passenger aircraft for dedicated cargo service. Seven large aircraft had seats temporarily removed for light shipments. This strategy allows Air Canada to offer more consistent capacity and establish freight-focused routes.
To counteract the decline in cargo business, Air Canada increased its freighter operations to Central and South America and Europe. This move contributed to a better performance in Q3 cargo compared to most rivals. The freighter division's network recently expanded to include destinations like San Jose, Costa Rica; Punta Cana, Dominican Republic; Basel, Switzerland; and Liege, Belgium.
Infrastructure enhancements have also been made to support the expansion of the freighter division. Last year, Air Canada expanded its cold storage facility in Toronto and a warehouse at Frankfurt airport. The company also extended full-year passenger service on several European routes that were previously seasonal, offering shippers more consistent opportunities to move freight.
In September, Air Canada Cargo operated its first on-demand horse flights for the annual Spruce Meadows “Masters” in Calgary. Despite the challenges in the market, Air Canada reported a $1.25 billion profit versus a half-billion-dollar loss in the year-ago period as travel demand continued to surge. Passenger revenues jumped 22% while costs rose by 5% due to increased capacity and inflation.
Air Canada is looking to optimize both belly and freighter operations as recovery signs emerge but faces potential earnings pressure from ongoing negotiations with the pilots' union.
InvestingPro Insights
Air Canada, a prominent player in the Passenger Airlines industry, has seen some rough patches recently. The latest InvestingPro data reveals that the company's market cap, adjusted for the second quarter of 2023, stands at a modest 727.66M USD. The P/E ratio is calculated at 40.28, indicating a relatively high stock price compared to the company's earnings. The company's revenue for the last twelve months as of Q2 2023 was 14.95M USD, reflecting a decline of 29.62%.
Despite these challenges, there are positive indications in the company's future. InvestingPro Tips highlight that analysts expect the company's net income to grow this year, and the stock is currently in oversold territory. The company's valuation implies a strong free cash flow yield, suggesting that it may be undervalued.
InvestingPro offers additional tips and insights on Air Canada and numerous other companies. For instance, there are 14 additional tips available for Air Canada alone, providing a more comprehensive view of the company's financial health and market position. This valuable information can be accessed through InvestingPro's premium services.
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