Air Canada slumps in biggest drop since March on flight cuts

Air Canada shares dropped the most in almost three months after the company said that it will make “meaningful” reductions to its summer flight schedule in order to quickly bring passenger volumes down to a manageable level.

Canada’s largest air carrier slumped as much as 8.8%, the most since early March, as investors balked at its post-pandemic operational disruptions. Air Canada said it plans to cut 154 flights per day, on average, for the next two months; the carrier operates about 1,000 daily flights. 

“This surge in travel has created unprecedented and unforeseen strains on all aspects of the global aviation system,” Michael Rousseau, Chief Executive Officer of Air Canada, said in an email to customers Tuesday night.

The changes will primarily reduce the frequency of smaller flights in the evening and late at night on domestic and US routes. But the airline will also suspend flights between Montreal and three cities—Pittsburgh, Baltimore, and Kelowna— and between Toronto and Fort McMurray. 

The Toronto and Montreal hubs will be the most affected, while international flights will remain mostly unchanged. 

Scotiabank analyst Konark Gupta said that unlike US carriers, the key factor behind Air Canada’s cancellations is not a labor shortage, but instead is the result of a lack of airport workers, including security and customs officers. He reduced his third quarter estimates slightly for the carrier, but said that airlines should still benefit from robust demand for international travel.

Air Canada “is not the only airline facing these issues, which are already well known to the market given the U.S. airlines had been canceling flights, while raising revenue guidance,” Gupta said in a note to clients.

Airlines around the world have been struggling with the return to pre-pandemic levels of travel, as they face a series of problems such as Covid travel restrictions, labor shortages, and restricted supply chains that lead to flight delays. 

Air Canada said it has increased investments in hiring, aircraft, and equipment, but changes are necessary to restore “operational stability.” 

Air Canada shares have plunged 25% this year, more than twice the S&P TSX Composite Index’s 12% slump. US airlines also took a deep dive, with the S&P Supercomposite Airlines Industry Index falling as much as 4.8% as JetBlue Airways Corp., American Airlines Group Inc., United Airlines Holdings, Inc. and Delta Air Lines Inc. led losses.