Air Canada Reports Third Quarter 2012 Results

MONTREAL, Nov. 8, 2012 /CNW Telbec/ – Air Canada reported earnings before interest, taxes, depreciation, amortization and impairment, and aircraft rent (EBITDAR), before the impact of certain benefit plan amendments, of $554 million in the third quarter of 2012 compared to EBITDAR of $535 million in the third quarter of 2011, an increase of $19 million. Including the favourable impact of benefit plan amendments, EBITDAR was $678 million for the third quarter of 2012. Adjusted net income (1) of $230 million increased $37 million from the third quarter of 2011. Adjusted net income per diluted share (1) was $0.82 in the third quarter of 2012 compared to adjusted net income per diluted share of $0.68 in the same quarter in 2011. On a GAAP basis, Air Canada reported net income of $429 million or $1.54 per diluted share for the third quarter of 2012 compared to a net loss of $124 million or $0.45 per diluted share for the same period last year. This improvement in net income was driven in large part by favourable foreign exchange gains quarter-over-quarter.

“I am extremely pleased with Air Canada’s strong financial performance in the third quarter especially given the economic environment we are operating in,” said Calin Rovinescu, President and Chief Executive Officer. "We recorded EBITDAR of $554 million, or $678 million including benefit plan amendments, and adjusted net income of $230 million. We achieved passenger revenue growth of 3.1 per cent from both yield improvement and traffic growth. Our disciplined approach to capacity management allowed us to produce a record load factor of 86.3 per cent in the quarter. Our Pacific performance continued to be particularly strong with a revenue increase of 13.9 per cent year-over-year.

“Moreover, in the first nine months of 2012, consistent with our priority of improving our balance sheet, adjusted net debt was reduced by $308 million, and our cash levels remained strong at approximately $2.2 billion.

“We continued to focus on pursuing international growth opportunities and on the ongoing transformation of our cost structure. In addition, we have announced a number of planned fleet realignment initiatives: the transfer of 15 regional Embraer 175 aircraft to one of our Air Canada Express operators, Sky Regional Airlines, subject to certain conditions; the deployment of new Bombardier Q400s by another of our Air Canada Express operators, Jazz, on key Western Canada markets; and the introduction of two new Boeing 777 aircraft in the mainline fleet next year.

“We are forming an integrated leisure group by combining the activities of our tour operator business with our new leisure airline. Our commercial team is currently focused on the 2013 launch of the leisure carrier and we look forward to providing further details in the coming weeks. Another recent positive development is the agreement reached with Canada’s Commissioner of Competition that will allow us to finalize and implement a Canada-U.S. transborder joint venture with United Airlines, our longstanding alliance partner, in this important aviation market.

“These initiatives, combined with our on-going focus on cost transformation, are aimed at ensuring Air Canada’s global competitiveness and long-term success.

“For the third consecutive year, Air Canada has been named as the Best International Airline in North America in Skytrax’s industry benchmark survey of international air travelers. I thank our employees for their ongoing commitment to excellence and share their pride in this great honour during the airline’s 75th anniversary year,” concluded Mr. Rovinescu.

Air Canada has entered into discussions with the federal government with respect to an extension of pension deficit funding relief given that the Air Canada special funding regulations expire in January 2014. Air Canada’s Canadian-based unions support the extension request. This is in addition to various changes to Air Canada’s pension plans that were made during the last round of labour negotiations, which remain subject to regulatory approval.

Income Statement Highlights

System passenger revenues increased $92 million or 3.1 per cent, on a 1.6 per cent improvement in yield and a 0.8 per cent growth in traffic. Passenger revenue per available seat mile (RASM) increased 2.2 per cent from the third quarter of 2011 due to the yield increase and a 0.5 percentage point improvement in passenger load factor.

Excluding the impact of certain benefit plan amendments described below, fuel expense and the cost of ground packages at Air Canada Vacations, CASM increased 1.6 per cent from the third quarter of 2011. This 1.6 per cent CASM increase was in line with the 1.0 per cent to 2.0 per cent third quarter increase projected in Air Canada’s news release dated August 8, 2012.

In the third quarter of 2012, operating expenses decreased $65 million or 2 per cent from the corresponding quarter in 2011. Included in operating expenses in the third quarter of 2012 was an expense reduction of $124 million related to changes made to the terms of the new collective agreement with pilots pertaining to retirement age. This reduction is reflected under “Benefit plan amendments” on Air Canada’s consolidated statement of operations.

In the quarter, operating income of $421 million, which included the favourable impact of the benefit plan amendments, increased $151 million from the third quarter of 2011.

Liquidity Highlights

At September 30, 2012, Air Canada’s cash and short-term investments amounted to $2,196 million, $17 million higher than Air Canada’s cash and short-term investments balance at September 30, 2011, and represented 18 per cent of 12-month trailing operating revenues

At September 30, 2012, adjusted net debt of $4,268 million decreased $308 million from December 31, 2011, reflecting the impact of net debt repayments, as well as the favourable impact of a stronger Canadian dollar.

Current Outlook

In the fourth 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 fourth quarter of 2011.

Taking into account reported ASM capacity for the first nine months of 2012, Air Canada now expects its full year 2012 system capacity to increase in the range of 0.75 to 1.25 per cent when compared to the full year 2011 (as opposed to the 0.5 to 1.5 per cent ASM increase projected in Air Canada’s news release dated August 8, 2012) and expects its full year 2012 domestic capacity to increase in the range of 0.5 to 1.0 per cent from the full year 2011 (as opposed to the 0.5 to 1.5 per cent ASM increase projected in Air Canada’s news release dated August 8, 2012).

For the fourth quarter of 2012, Air Canada expects adjusted CASM (1) to decrease by 2.0 to 3.0 per cent as compared to the fourth quarter of 2011. Taking into account reported operating expense results for the first nine months of 2012, Air Canada now expects adjusted CASM for the full year 2012 to increase by 0.75 to 1.25 per cent from the full year 2011 level (as opposed to the 0.5 to 1.5 per cent increase projected in Air Canada’s news release dated August 8, 2012).

In addition, Air Canada plans to increase its full year 2013 system capacity by 1.5 to 3.0 per cent when compared to the full year 2012. This projection includes all carriers operating under the Air Canada Express banner and the expected impacts of the new leisure group and the two Boeing 777 aircraft scheduled for delivery in June and August 2013.

Air Canada’s above-mentioned outlook assumes Canadian GDP growth of between 1.5 to 2.0 per cent for 2012 and 2013. In addition, Air Canada expects that the Canadian dollar will trade, on average, at C$0.99 per U.S. dollar in the fourth 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 88 cents per litre in the fourth quarter of 2012 and 89 cents per litre for the full year 2012.