Air Canada strikes a positive tone, despite 1Q losses and margin pressure, and its valuation holds

Premium Analysis

Although Air Canada recorded a 1Q2017 loss, posted a decline in operating margins and continued to suffer from yield pressure, markets have been forgiving of those results after the airline’s EBITDAR margin for the quarter beat previous forecasts. During the past couple of years Air Canada has been steering investors toward its performance in metrics, including EBITDAR, ROIC and leverage ratios. For 2017, the company should meet its targeted expectations in two of those metrics – EBITDAR and ROIC.

Air Canada’s multi year decline in yields should continue in 2017, driven by now familiar factors that the airline has enumerated as it fleshes out its international network: a higher percentage of leisure markets, increased stage length and lower yielding traffic from US transborder sixth freedom traffic flows.

But Air Canada cites positive developments in its geographical entities, including improved pricing in the trans-Atlantic, stable domestic trends and better US transborder results in the typically stronger periods of 2Q and 3Q. However, conditions remain challenging for Air Canada in its trans-Pacific markets.

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