Mr. Michael Rousseau reports

AIR CANADA REPORTS SECOND QUARTER 2023 FINANCIAL RESULTS

Air Canada has released its second quarter 2023 financial results.

"Air Canada's second quarter results were driven by strong demand and show the effectiveness of our plan. As a result of the hard work of our people, the appeal of our growing global network, as well as our leading brand and product offering, operating revenues in the quarter reached $5.4-billion, an increase of 36 per cent from a year ago. Operating income was $802-million, a year-over-year improvement of over $1-billion, and our adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] reached $1.2-billion with an adjusted EBITDA margin of 22.5 per cent," said Michael Rousseau, president and chief executive officer of Air Canada.

"I thank the entire team for its continued dedication to serving our customers, including collaborating with our partners, who also share the responsibility of ensuring a smooth customer journey. We safely carried over 11 million customers across our global network in the quarter, a year-over-year increase of about 23 per cent. However, despite having more trained resources than last summer and improved tools, our operations in June and July were not at expected levels. We are increasing our efforts to protect the customer journey from disruption, regardless of the cause. This includes using any influence we have, in such instances as pilot attrition at our principal regional partner or global supply chain issues or working to mitigate the effects of situations beyond our control, such as disruptive storm activity in our key hubs and markets. We are confident that our efforts will generate positive outcomes.

"We are particularly pleased with our international performance, propelling nearly 70 per cent of the year-over-year increase in passenger revenues. Air Canada Vacations continued to see high demand for leisure travel packages, and Aeroplan added compelling new partners and grew its membership. Our cargo business, like others in the industry, experienced lower demand and yields than expected. Based on current passenger booking patterns, we see prevailing strength in travel demand over the second half of 2023, giving us confidence to increase the lower end of our adjusted EBITDA guidance range. We continue to focus intently on cost discipline and liquidity management. We ended the quarter with more than $9.6-billion in cash, cash equivalents and investments. This will enable us to further invest in our business, deleverage our balance sheet and ensure our company maintains the resiliency and adaptability needed for long-term success and to navigate through evolving market conditions," said Mr. Rousseau.

Second quarter 2023 financial results:

• Second quarter operating revenues of $5,427-million increased $1,446-million from the same quarter in 2022, driven by a 42-per-cent year-over-year increase in passenger revenues. Operated capacity increased 21 per cent from the second quarter of 2022, one percentage point lower than the projection provided in Air Canada's May 12, 2023, news release.
• Operating expenses of $4,625-million increased $391-million, or 9 per cent, from the second quarter of 2022, driven by increases in nearly all line items, reflecting higher operated capacity and traffic year over year, partially offset by a 31.4-per-cent decrease in jet fuel prices.
• Operating income was $802-million, with an operating margin of 14.8 per cent, an improvement of over $1-billion from an operating loss of $253-million in the second quarter of 2022.
• Adjusted EBITDA was $1.22-billion, with an adjusted EBITDA margin of 22.5 per cent, an increase of $1,066-million and an increase of 18.6 percentage points, respectively, from the second quarter of 2022.
• Net income of $838-million improved $1,224-million from the second quarter of 2022. Diluted earnings per share were $2.34, compared with a diluted loss per share of $1.60 in the second quarter of 2022.
• Adjusted net income of $664-million improved $1,119-million from the second quarter of 2022. Adjusted earnings per diluted share were $1.85, compared with an adjusted loss per diluted share of $1.12 in the second quarter of 2022, an improvement of $2.97 per diluted share.
• Adjusted CASM (adjusted cost per available seat mile) of 13.3 cents increased 1.6 per cent from the second quarter of 2022. The unit cost was impacted by higher passenger service costs due to higher traffic and higher selling costs, which are largely driven by revenues, and by a 24-per-cent increase in wages, salaries and benefits resulting from a 22-per-cent year-over-year increase in the number of average full-time-equivalent (FTE) employees. Second quarter 2023 CASM of 18.8 cents decreased 9.7 per cent from the second quarter of 2022 mainly due to lower fuel prices and higher capacity year over year.
• Net cash flows from operating activities of $1.49-billion increased $426-million from the second quarter of 2022.
• Free cash flow of $965-million increased $537-million from the second quarter of 2022.
• Net debt to adjusted EBITDA ratio was 1.7 at June 30, 2023, an improvement from 3.2 at March 30, 2023, and 5.1 at Dec. 31, 2022, due to growth in adjusted EBITDA and the reduction in net debt.

Outlook

For the third quarter of 2023, Air Canada plans to increase its ASM (available seat mile) capacity by about 11 per cent from the same quarter in 2022. Air Canada is providing an update for the full-year 2023 guidance as described in an attached table.

Major assumptions

Air Canada made assumptions in preparing its updated guidance and making forward-looking statements, including moderate Canadian GDP (gross domestic product) growth for 2023, that the Canadian dollar will trade, on average, at $1.34 per U.S. dollar for full-year 2023 and that the price of jet fuel will average $1.08 per litre for full-year 2023.

Air Canada is modifying its 2023 adjusted CASM guidance to reflect the change in full-year ASM capacity guidance as well as adjustments to various expense items related to the continuing cost environment.

The revised guidance for full-year adjusted EBITDA reflects expected earnings stemming from anticipated traffic and yield and a continued strong demand environment.

Air Canada is not updating its 2024 targets at this time and will continue evaluating them as it progresses with its plans and executes on its strategic priorities.

Second quarter 2023 conference call

Air Canada will host its quarterly analyst call on Friday, Aug. 11, 2023, at 8 a.m. ET. Michael Rousseau, Air Canada president and chief executive officer, John Di Bert, executive vice-president and chief financial officer, and Mark Galardo, executive vice-president, revenue and network planning, will present the results and be available for analyst questions. Immediately following the analyst question-and-answer session, Mr. Di Bert and Pierre Houle, vice-president and treasurer, will be available to answer questions from term loan B lenders and holders of Air Canada bonds.

Media and the public may access this call on a listen-only basis. Details are as follows.

By telephone:  1-800-715-9871 (toll-free); passcode 4637742

Please allow 10 minutes to be connected to the conference call.

About Air Canada

Air Canada is Canada's largest airline, the country's flag carrier and a founding member of Star Alliance, the world's most comprehensive air transportation network. Air Canada provides scheduled service directly to more than 180 airports in Canada, the United States and internationally on six continents. It holds a four-star ranking from Skytrax. Air Canada's Aeroplan program is Canada's premier travel loyalty program, where members can earn or redeem points on the world's largest airline partner network of 45 airlines, plus through an extensive range of merchandise, hotel and car rental rewards. Its freight division, Air Canada Cargo, provides air freight lift and connectivity to hundreds of destinations across six continents using Air Canada's passenger and freighter aircraft. Air Canada aims to achieve an ambitious net-zero emission goal from all global operations by 2050. Air Canada shares are publicly traded on the Toronto Stock Exchange in Canada and the OCTQX in the United States.

Selected financial metrics and statistics

The financial and operating highlights for Air Canada for the periods indicated are as shown in an attached table.

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