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Will Passenger Revenues Aid Air Canada's (ACDVF) Q4 Earnings?

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Air Canada (ACDVF - Free Report) is scheduled to report fourth-quarter 2023 results on Feb 16.

Akin to the past few quarters, upbeat passenger revenues are likely to have aided the carrier’s performance in the to-be-reported quarter. With people again taking to the skies in the post-COVID world, air travel demand is buoyant.

Driven by the concept of ‘revenge travel,’ a term emanating from the prolonged periods of lockdown, people remain eager to undertake a flight despite headwinds like flight disruptions caused by labor shortages. Revenge travel highlights a strong desire to travel in response to the monotony and exhaustion of life caused by the COVID-19-induced lockdown.

However, high fuel costs, driven by the northward movement in oil prices, are likely to have hurt ACDVF’s bottom-line performance in the to-be-reported quarter. Labor costs are also likely to have been high due to elevated salaries, wages and benefits expenses following higher staffing levels. Passenger service costs are also likely to have increased due to higher traffic and higher selling costs. Inflationary woes are also likely to get reflected in ACDVF’s impending quarterly results.

High Labor Costs: Bane for the Entire Industry

Labor shortage and the corresponding buoyant air-travel demand in the post-COVID scenario have increased the bargaining power of most labor groups. As a result, high labor costs are prevalent throughout the industry.

For example, at JetBlue Airways (JBLU - Free Report) , non-fuel unit costs increased 7.6% in fourth-quarter 2023, mainly due to high labor costs. The metric is expected to rise 9-11% in first-quarter 2024. JBLU presently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

At Delta Air Lines (DAL - Free Report) , salaries and related costs increased 23% to $3.77 billion in fourth-quarter 2023. The increase was due to higher wages arising from the contract with pilots that was ratified in March 2023. Mainly due to high labor costs, non-fuel unit costs at DAL are likely to increase 3% in first-quarter 2024. DAL, too, currently carries a Zacks Rank #3. 

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