Am I the only one who is thinking there is something odd about the Q4 results? Occupation rate has been incredibly good, Chorus now has to accept less money to fly regional lines, maintenance costs are down, new bargains with the crews must generate new margins, seat prices are high (just have a quick look on air Canada website), they post really strong results on Q3, jet fuel prices are low. So, how come air Canada posted that kind of strangely equilibrated results for Q4? Actually, indicators are telling us that Q4 EBITDAR (282M$) should have been at least as good as Q3 EBITDAR (554M$).
I’ve been following air Canada for quite a long time now, and these results are strange to me. I’ve been talking to an air Canada pilot lately, one of those who wont get the old pension plan, and who is getting bonuses linked with the profitability of the flights… He told me the cabin crew is now doing the grooming for regional flight, allowing to 300 000$ in cost in the YUL – Toronto Island flights alone. I could find other examples like that. So what’s the explanation?
Whether Air Canada is a company totally unable to make profit under any circumstances (if that so, we should sale all the stocks we have), whether they are strategically (and legally) hiding profits.
Why would they do that? Simply because it’s obvious that the federal gov (and Flaherty in particular) is in a uncomfortable situation to extend air canada pension plan payment’s cap. With strong results from air Canada (let say 100M$ or 200M$ more credited to Q4) it would have been more difficult not to tell that air Canada is asking too much. The decision about pension plan is probably to be made in March, around the budget deposit day.
At first, this was simply an intuition, and then I decided to have a quick look on air Canada assets during the last year, trying to find a clue about a possible way to report a profit to 2013 Q1. And know what? I’m thinking I might have find out how they probably did…
If you’re tracking air canada’a asset during the last year, and why not, the year before, and focus a little on the item called “account receivable” you’ll see something unusual. Before I tell you, let’s understand the meaning of this “account receivable” : it’s likely to include all the services sold by air Canada to other airlines (seats resold, code share operated flight, airport services provided, and son on) and prebought capacity (travel agencies, corporations and government) that haven’t been paid yet…. In some case, Air Canada has to do some math to then bill the services provided. But sometimes, for a million reason, you can be late and “forced’ to delay the billing.
Now let’s get back to the amount called “account receivable”. The average declaration for the year is 700M$. It was pretty much the same during 2011. Wich mean that air Canada is usually awaiting 700M$ in pavement at the end of an average Q. But in Q4, they only expect 550M$. Would it makes sense to say that, despite the steady growth in operating revenues and the difficult economic environment, corporations are now paying Air Canada faster? I’m under the impression that Air Canada decided to report the billing of at least 150M$. That’s why I’m gone sit on my stock until the next quarter results who might be unexpectedly very strong (if Flaherty gives Air Canada what it wants)…