Air Canada (TSX:AC) Earnings: A $1 Billion 4th-Quarter Loss

Air Canada (TSX:AC) just released its much-anticipated fourth-quarter report. Once again, it lost over $1 billion.

| More on:
Plane on runway, aircraft

Image source: Getty Images.

Air Canada (TSX:AC) just released its fourth-quarter and full-year earnings. And the results were about as bad as you would have expected. AC ran massive losses for both the quarter and the year. The fourth-quarter loss was larger than that posted in the third, and the total loss for 2020 grew to $4.6 billion. In this article, I’ll dig into Air Canada’s recent earnings release to highlight the most salient items for investors. We can start with the full-year 2020 results.

2020 highlights

Air Canada’s 2020 fiscal year witnessed massive losses and extreme reductions in capacity. Some highlights include the following:

  • A $4.647 billion net loss
  • $2.35 billion in operating cash outflows
  • $7.5 billion in new debt and equity issued
  • $13 million in daily cash burn

All of these figures were pretty grim. The multi-billion-dollar losses and cash outflows show a company whose performance is deteriorating, while the new debt and equity show how each share now has a smaller claim on the shrinking pie. The $13 million in daily cash burn points to what investors can expect if the company doesn’t turn things around this year.

Almost all of this damage can be attributed to the COVID-19 pandemic. Faced with travel restrictions and lower customer demand, AC and other airlines have had to cut routes to stay afloat financially. 2020 saw the company cut many jobs and otherwise reduce costs. But with enormous fixed costs, AC wasn’t able to avoid losing money, even with all the cost cutting.

Fourth-quarter highlights

For the fourth quarter, Air Canada released the following metrics:

  • $-728 million in adjusted EBITDA
  • A $1.16 billion net loss
  • A $1 billion operating loss
  • $796 million in net cash outflows
  • $8 billion in unrestricted liquidity as of December 31, 2020

Of these figures, only the last one on the list is a positive. With $8 billion in combined cash and access to credit, AC should at least be able to stay afloat financially. Note, however, all of the losses. When you’re losing $1.16 billion per quarter, you burn through cash quickly. It would only take about two years of operating the way it did in 2020 for Air Canada to run through $8 billion. So, if the COVID-19 pandemic keeps going the way it has, then Air Canada may have to issue even more debt and equity than it did in 2020.

Foolish takeaway

Since the announcement of the Pfizer vaccine in November, Air Canada stock has been doing surprisingly “OK.” Since November 1, it has rallied about 40%, though it gave up some gains earlier this year. Many people were optimistic that mass vaccinations would turn AC’s fortunes around. It stands to reason that if a large percentage of the population is vaccinated, then travel restrictions will be lifted and airlines will be able to go back as business as usual.

All of that makes sense. The problem is that vaccination is not proceeding as swiftly as people had hoped. As of the most recent reports, only about 2% of Canadians had received the COVID-19 vaccine. At this pace, the pandemic will last for at least the remainder of 2021. In light of that, we can expect Air Canada to sustain more damage this year.

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

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
Coronavirus

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
Coronavirus

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 »

Woman has an idea
Stocks for Beginners

Here’s Why Magna International Is a No-Brainer Value Stock

Magna stock (TSX:MG) has been climbing back once more, but still offers huge value for long-term minded investors.

Read more »

Aircraft wing plane
Coronavirus

1 TSX Stock Down 60% That Could Bounce Back Stronger

Air Canada (TSX:AC) stock got severely beaten down in the March 2020 COVID crash. Here's why it's probably not going…

Read more »