Friday, 6 May 2011

Air Canada cuts operating loss

 

Air Canada Inc. narrowed its quarterly operating loss as higher passenger revenue helped offset a big rise in fuel costs, sending its shares up around 4 per cent.

Canada's No. 1 airline said yesterday that higher fuel expenses were a significant drag in the first quarter, rising $120 million. For the full year, higher fuel charges are expected to add about $800 million to operating costs.

Including foreign exchange gains, Air Canada's net loss for the quarter was $19 million, or 7 cents a share, compared with a loss of $112 million, or 41 cents a share, a year earlier. On an adjusted basis, the loss was 45 Canadian cents a share.

The airline's operating loss was $66 million, compared with $136 million a year earlier. Operating revenue rose 9 per cent to $2.75 billion.

"In an environment where fuel charges increase 20 per cent quarter-over-quarter, the fact that they were actually able to reduce their loss per share ... is quite significant," said Robert Kokonis, managing director of airline consulting company AirTrav Inc.

The improved results came as a result of higher fares, fuel surcharges, flying smaller planes, and cost cuts, Air Canada Chief Executive Calin Rovinescu said in a call with analysts.

The higher fuel costs prompted Air Canada to lower its goals for capacity growth to a range of 3.5 per cent to 4.5 per cent in 2011, down from 4.5 per cent to 5.5 per cent.

Air Canada, which is in the midst of a cost-cutting program started last year, said its earnings before interest, taxes, depreciation and aircraft rent (EBITDAR), a key measure of profitability, were up 38 per cent year over year.

The company raised its EBITDAR outlook for the first half of the year to a 5 per cent increase over a year earlier. Last month, Air Canada had forecast EBITDAR to be flat through the first six months of the year.

Chris Murray, an analyst at PI Financial in Toronto, said the results came in slightly above his forecasts.

Air Canada is in talks with all five of its Canadian labor unions as all of its collective agreements expire this year. Those contract renewals, along with fuel price increases, are the main risks for the airline going forward, Murray said.

Kokonis said that the chance of a labor disruption has gone up with all of the contract talks, but added he is cautiously optimistic that Air Canada will reach deals with the unions.

Air Canada said it expects second-quarter operating expenses per available seat mile (CASM), a measure of unit costs, to fall by 0.5 to 1.5 per cent, excluding fuel costs.

The carrier said system-wide passenger revenue rose 10 per cent in the first quarter. Premium cabin revenue was up about 13 per cent, helped by higher demand. Passenger revenue per available seat mile (RASM), an industry performance benchmark, rose 2.2 per cent.

Rival WestJet Airlines Ltd (WJA.TO), Canada's No. 2 carrier, reported a 20-fold jump in quarterly earnings on Tuesday, but hinted that its second-quarter performance may be muted.

Separately, Air Canada said its April system load factor - a measure of how full its planes were - fell to 81.9 per cent from 82.4 per cent a year earlier.

WestJet said it flew slightly emptier planes in April, compared with the same month a year earlier.

Kokonis said the lower load factors may be directly related to the higher ticket prices both airlines are charging to help offset fuel costs.

Air Canada's class B shares rose 13 cents, or 3.98 per cent, to close at $2.35 on the Toronto Stock Exchange yesterday.

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