BREAKING: Air Canada (TSX:AC) Loses $1.05 BILLION in the 1st Quarter!

Air Canada (TSX:AC) has released its first-quarter earnings, and they were pretty terrible.

| More on:
Economic Turbulence

Image source: Getty Images

The numbers are finally in.

After a period that saw it cut 90% of its routes amid a global pandemic, Air Canada (TSX:AC) has released its Q1 earnings.

They’re not pretty.

In the first quarter, AC lost $1.05 billion compared to a $345 million profit in Q1 2019. The company also ended its 27-year streak of revenue growth and saw its liquidity decrease significantly. Everybody knew AC’s Q1 earnings were going to be bad, but these results were really something else. I’ll explore what they mean for investors shortly. First, let’s dig into the company’s revenue and earnings metrics in more detail.

Revenue and earnings metrics

All of Air Canada’s revenue and earnings metrics were down in Q1. Revenue declined to $3.7 billion from $4.4 billion. Net income declined to $-1.05 billion from $345 million. Operating income declined to $-433 million from $127 million. Cash from operating activities declined to a $20 million net outflow from a $3.1 billion net inflow.

It goes without saying that these are some ugly metrics. To an extent, they were expected: with 90% of its flights cancelled, how could Air Canada not lose money?

What’s really amazing, though, is that this happened when COVID-19 travel restrictions only really got underway in March. As late as mid-February, Air Canada was operating as normal. So, all the damage highlighted above was caused by just a month of cancelled flights. If travel restrictions remain in effect for all of Q2, the carnage will be really horrifying to witness.


Another sore spot in Air Canada’s Q1 report was its liquidity position. In Q1, unrestricted liquidity fell to $6.5 billion from $7 billion. Unrestricted liquidity refers to “unencumbered assets” that can be used to support financing.

That a single month of COVID-19 carnage caused a $500 million decline in liquidity is a big concern. It suggests that the company could have to start borrowing heavily in Q2 to stay afloat. This is corroborated by Warren Buffett’s recent comments on U.S. airlines: he believes they’ll end up having to borrow $10-$12 billion each or else dilute equity with share issuance.

Foolish takeaway

After months of speculation, investors have finally seen Air Canada’s first-quarter earnings. As of this writing, markets were still not open on Monday, so the reaction is as yet uncertain. But it seems like a foregone conclusion that AC shares are going to tank. Q1’s numbers were extremely bad, and Q2 will likely be worse. The second quarter is likely to see a full three months of cancelled flights compared to just a month of heavy cancellations in the first. That’s not going to end well.

And that’s not just my opinion, either. Warren Buffett recently sold his entire position in airline stocks, citing the possibility of prolonged weakness in travel. Even after COVID-19 travel restrictions are eased, it’s not clear that passengers will resume their previous travel habits. That’s bad news for airlines all over the world, including Air Canada.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned.

More on Coronavirus

tech and analysis
Stocks for Beginners

If You Invested $1,000 in WELL Health in 2019, Here is What It’s Worth Now

WELL stock (TSX:WELL) has fallen pretty dramatically from all-time highs, but what if you bought just before the rise? Should…

Read more »

Hand arranging wood block stacking as step stair with arrow up.

2 Pandemic Stocks That Are Still Rising, and 1 Offering a Major Deal

There are some pandemic stocks that crashed and burned, while others have made a massive comeback. And this one stock…

Read more »

Dad and son having fun outdoor. Healthy living concept
Dividend Stocks

1 Growth Stock Down 15.8% to Buy Right Now

A growth stock is well-positioned to resume its upward momentum in 2024 following its strong financial results and business momentum.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Stocks for Beginners

3 Things About Couche-Tard Stock Every Smart Investor Knows

Couche-tard stock (TSX:ATD) may be up 30% this year, but look at the leadership and history of the stock to…

Read more »

Plane on runway, aircraft

Can Air Canada Double in 5 Years? Here’s What it Would Take

Air Canada (TSX:AC) stock has gone nowhere since 2020. Can this change?

Read more »

Senior housing
Stocks for Beginners

Home Improvement Stocks Are Set to Fall (When They Do, Buy These Like Crazy!)

Home improvement stocks are due to drop further in the coming months. But with solid underpinnings for the sector, it…

Read more »

An airplane on a runway

Forget Boeing: Buy This Magnificent Airline Stock Instead

Boeing (NYSE:BA) stock is looking risky right now, but Air Canada (TSX:AC) stock? Much less so.

Read more »

Man considering whether to sell or buy
Stocks for Beginners

Goeasy Stock: Buy, Sell, or Hold?

When it comes to smart buys, goeasy stock (TSX:GSY) is up there as one of the smartest money can buy.…

Read more »