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Air Canada Q1 loss soars on high fuel prices, Aveos and labour disputes

Canadian airline Air Canada (TSE:AC.B) said Friday that surging fuel prices, labour disruptions and the demise of its former maintenance unit Aveos contributed to a sharp drop in first-quarter profits.

For the quarter that ended March 31, the airline reported a loss of $210-million, or 76 cents a share, compared with a loss of $19-million, or seven cents a share, during the same period last year.

Adjusted loss came in at 64 cents per share, up from 45 cents a year earlier, but ahead of analyst estimates for a loss of 79 cents, according to Bloomberg.

The company said net loss included foreign exchange gains of $87 million, a non-cash loss on investments of $65 million relating to the bankruptcy of Aveos, as well as a liability and corresponding loss from discontinued operations of $55 million.

"In the first quarter, despite several challenges, Air Canada reported continued progress in a number of key areas," said Air Canada president and chief executive officer, Calin Rovinescu.

"Revenue performance was strong, particularly in the premium cabin driven by traffic growth. We improved our balance sheet by reducing adjusted net debt by more than $200 million in the quarter."

But Air Canada’s loss from continuing operations rose to $93 million from $66 million in the first quarter of 2011, due to the impact of increasingly higher fuel prices and labour disruptions.

Cash reserves at Canada's largest airline were still $135 million higher than a year earlier — rising to $2.25 billion.

Air Canada said it benefited from higher operating revenue, which rose to $2.96 billion in the quarter — up from $2.75 biilion in the same time last year.

"The quarter was marked by a challenging environment, with persistently high fuel prices and volatility which resulted in a significant increase in fuel expense of $147 million, or 20 per cent, from the previous year's quarter,” said Rovinescu.

"In addition, our operations were disrupted by job action by a number of unionized employees, which resulted in a decline in bookings for travel originating in Canada in the immediate aftermath of these incidents.

"Since then, we have seen an improvement in advance booking trends," he added.
Air Canada's third-quarter operating expenses were up eight percent from a year earlier to $236 million, mainly due to higher fuel prices.

It said unit cost, measured by operating expense per available seat mile (CASM), was up 5.2 percent during the quarter.

System passenger revenues for the period increased $213 million or 9.2 percent from the first quarter a year ago on a 4.8 percent growth in traffic and a 3.3 percent improvement in yield.

System capacity grew 3.1 percent from a year earlier.

Passenger revenue per available seat mile (RASM), a key metric in the industry, increased five percent from the first quarter of 2011, on improvements in all markets.

In premium cabin, first quarter passenger revenues increased 10.8 percent from the same quarter in 2011, driven by an 11.8 percent increase in traffic.

Looking ahead, Air Canada said it continues to expect its full year 2012 system capacity to increase in the range of zero to 1.5 percent from the full year 2011.

The airline also projects its depreciation, amortization and impairment expense to decrease by $70 million from 2011, while employee benefits expenses are expected to increase by $30 million.

For the second quarter of 2012, the company said it expects CASM, excluding fuel expense and the cost of ground packages at Air Canada Vacations, to increase by four to five percent from the second quarter of 2011.

The company said it expects that the price of jet fuel will average 91 cents per litre for the second quarter and for the full year 2012.

"We remained focused on maintaining strong liquidity levels and the on-going implementation of cost reduction initiatives, primarily through improved business processes," said Rovinescu.

He also noted that the company is undergoing negotiations with the last two major unions that are without new contracts.

"We are focused on maintaining the confidence of our customers and on continuing to work with all stakeholders to ensure Air Canada is competitively positioned for sustainable, long term growth," he concluded.