Air Canada Reports First Quarter 2012 Results

Air Canada recorded earnings before interest, taxes, depreciation, amortization and impairment, and aircraft rent (“EBITDAR”) of $175 million in the first quarter of 2012 compared to EBITDAR of $207 million in the first quarter of 2011. Air Canada’s EBITDAR of $175 million was in line with the range of $170 million to $180 million projected in the airline’s news release dated April 26, 2012. Air Canada reported an operating loss of $93 million in the first quarter of 2012 compared to an operating loss of $66 million in the first quarter of 2011.
“In the first quarter, despite several challenges, Air Canada reported continued progress in a number of key areas,” said Calin Rovinescu, President and Chief Executive Officer. “Revenue performance was strong, particularly in the premium cabin driven by traffic growth. We ended the quarter with $2.25 billion in cash and cash equivalents representing an increase of $135 million from the previous year. We improved our balance sheet by reducing adjusted net debt by more than $200 million in the quarter.
“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. 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. We remained focused on maintaining strong liquidity levels and the on-going implementation of cost reduction initiatives, primarily through improved business processes.
“We are currently engaged in a formal process under Bill C-33, Protecting Air Service Act, to conclude the remaining collective agreements, thereby achieving labour stability. On May 2, 2012, Air Canada announced that it had been advised by the Federal Minister of Labour, the Honourable Lisa Raitt, of the appointment of arbitrators in accordance with Bill C-33, Protecting Air Service Act, to resolve the outstanding collective agreements with each of ACPA, representing Air Canada’s pilots, and the IAMAW, representing Air Canada’s mechanics, baggage handlers and cargo agents.
“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,” concluded Mr. Rovinescu.
Income Statement Highlights
On a system capacity growth of 3.1 per cent, system passenger revenues increased $213 million or 9.2 per cent in the first quarter of 2012 from the first quarter of 2011, on a 4.8 per cent growth in traffic and a 3.3 per cent improvement in yield. Passenger revenue per available seat mile (“RASM”) increased 5.0 per cent from the first quarter of 2011, and reflected improvements in all markets. In the premium cabin, first quarter 2012 passenger revenues increased $54 million or 10.8 per cent from the same quarter in 2011, driven by an 11.8 per cent increase in traffic.
In the first quarter of 2012, operating expenses increased $236 million or 8 per cent from the first quarter of 2011, primarily due to higher fuel expenses which increased by $147 million from the first quarter of 2011. Unit cost in the first quarter of 2012, as measured by operating expense per available seat mile (“CASM”), increased 5.2 per cent compared to the first quarter of 2011. Excluding fuel expense and excluding the cost of ground packages at Air Canada Vacations, CASM increased 1.0 per cent in the first quarter of 2012 from the first quarter of 2011. The 1.0 per cent increase in CASM, excluding fuel expense and excluding the cost of ground packages at Air Canada Vacations, was better than the 4.0 per cent to 5.0 per cent increase projected in Air Canada’s news release dated February 9, 2012. The better than expected performance was mainly due to lower than projected aircraft maintenance expense, largely due to timing of maintenance events, as well as lower sales and distribution costs compared to what Air Canada had previously anticipated.
Air Canada reported an operating loss of $93 million in the first quarter of 2012 compared to an operating loss of $66 million in the first quarter of 2011. Air Canada also reported a net loss of $210 million in the first quarter of 2012 compared to a net loss of $19 million in the first quarter of 2011. In the first quarter of 2012, the net loss included foreign exchange gains of $87 million, a non-cash loss on investments of $65 million relating to the 2010 restructuring of Aveos, as well as a liability and corresponding loss from discontinued operations of $55 million related to Air Canada’s commitment under an employee separation program pursuant to the January 2011 Canadian Industrial Relations Board ruling which recognized separate bargaining units for Aveos and Air Canada unionized employees. In the first quarter of 2011, the net loss included foreign exchange gains of $104 million.
Adjusted net loss per diluted share was $0.64 in the first quarter of 2012 compared to an adjusted net loss per diluted share of $0.45 in the first quarter of 2011.
Liquidity HighlightsAt March 31, 2012, Air Canada’s cash and short-term investments amounted to $2,249 million (which is in line with the cash levels projected in Air Canada’s news release dated April 26, 2012). This is $135 million higher than Air Canada’s cash and short-term investments balance at March 31, 2011, and represented 19 per cent of 12-month trailing operating revenues.
At March 31, 2012, adjusted net debt of $4,375 million decreased $201 million from December 31, 2011. This reduction in adjusted net debt included the impact of lower debt balances and the impact of an increase in cash, cash equivalents and short-term investments of $150 million from December 31, 2011, which was mainly due to positive free cash flow of $129 million in the first quarter of 2012.
Current Outlook
In the second quarter of 2012, Air Canada expects its system ASM capacity, as measured by available seat miles (ASMs), to increase in the range of 0 to 1.0 per cent when compared to the second quarter of 2011.
Air Canada continues to expect its full year 2012 system capacity to increase in the range of 0 to 1.5 per cent when compared to the full year 2011 and its full year 2012 domestic capacity to increase in the range of 0 to 1.5 per cent from the full year 2011.
For the second quarter of 2012, Air Canada expects CASM, excluding fuel expense and excluding the cost of ground packages at Air Canada Vacations, to increase by 4.0 per cent to 5.0 per cent from the second quarter of 2011.
Largely as a result of Air Canada recording better than expected CASM, excluding fuel expense and excluding the cost of ground packages at Air Canada Vacations, in the first quarter of 2012, Air Canada now expects its full year 2012 CASM, excluding fuel expense and excluding the cost of ground packages at Air Canada Vacations, to increase by 0.5 per cent to 1.5 per cent from the full year 2011 level (as opposed to the 1.0 per cent to 2.0 per cent CASM increase, excluding fuel expense and excluding the cost of ground packages at Air Canada Vacations, projected in Air Canada’s news release dated February 9, 2012).
Air Canada’s above-mentioned outlook assumes that the Canadian economy will continue to recover and assumes Canadian GDP growth of 1.5 per cent to 2.0 per cent in 2012. In addition, Air Canada expects that the Canadian dollar will trade, on average, at C$0.99 per U.S. dollar in the second quarter of 2012 and C$1.00 per U.S. dollar for the full year 2012 and that the price of jet fuel will average 91 cents per litre for the second quarter of 2012 and for the full year 2012.
Source: Air Canada

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