Air Canada Says Virus Impact to Linger, Major Cuts to Come

Air Canada said it expects the impact of the coronavirus pandemic to last at least three years and predicted large job cuts as it hunkers down to survive “the darkest period ever” for the industry.

The country’s biggest airline, which on Monday reported a first-quarter loss, said it expects capacity in the third quarter to be 75% below last year’s level, from a 85-90% drop in the current quarter. It is accelerating plans to retire 79 planes and continues to look for ways to reduce costs and boost liquidity, it said.

“We expect that both the overall industry and our airline will be considerably smaller for some time, which will unfortunately result in significant reductions in both fleet and employee levels,” Chief Executive Officer Calin Rovinescu said in a statement. He described the situation as “the darkest period ever in the history of commercial aviation.”

Air Canada shares fell 7% to C$17.92 at 11:01 a.m. in Toronto. They’ve lost 63% of their value this year. U.S. airline stocks also plummeted on Monday after Warren Buffett’s Berkshire Hathaway Inc. dumped its stakes in four big carriers, saying the industry’s prospects had been upended by the pandemic.

No Bailout Yet

In contrast to major competitors around the world, Canadian airlines haven’t yet received industry-specific support from the government. So far Air Canada has said it will use a 75% wage subsidy to keep or recall 36,000 employees in Canada, including 16,500 who were furloughed.

Asked about prospects for government support during a call with analysts, Rovinescu pointed out that major U.S. carriers have received about $10 billion each in wage support and loans, while some European rivals will get 10-11 billion euros ($10.9-$12 billion).

“We came into this with a very strong balance sheet so for us it was not a tomorrow morning sort of an issue, the way it was perhaps for some of the other carriers,” he said. “I know our government is looking at and considering various models from around the world.”

Prime Minister Justin Trudeau said Monday his government was ‘looking carefully’ at how to the help the sector.

Transat Deal

The Montreal-based carrier also unveiled a new safety protocol that includes infrared temperature checks and hygiene kits for travelers, as well as more space in economy class.

The company expects the domestic network—and flights to the U.S., when deemed safe—to recover first as people reunite with family and friends.

While business travel will return, “we know that people are getting comfortable with alternative facilities such as the video conferences, the Zooms of this world,” Rovinescu said. “We’re dealing with that reality and that’s why we are planning the return of our capacity in a measured way.”

The company declined to give an update on its planned purchase of smaller rival Transat A.T. Inc. until its gets regulatory approval. Transat’s stock on Monday slumped to C$8.24, down 17%, reflecting investors’ doubt that a deal will take place at the agreed price of C$18 a share.

For the first quarter, Air Canada reported an adjusted loss of C$392 million versus a profit of C$17 million last year.