Air Canada reports third quarter results
THIRD QUARTER OVERVIEW
- Operating income of $112 million compared to operating income of
$351 million in the third quarter of 2007.
- Fuel expense increased 49 per cent to $1.1 billion, up $348 million
from the third quarter of 2007.
- Passenger revenue increased 4 per cent to $2.8 billion from the third
quarter of 2007, due to yield growth.
- Excluding fuel expense, unit cost increased 4.3 per cent from the third
quarter of 2007.
- Net loss of $132 million compared to net income of $273 million in the
third quarter of 2007.
- EBITDAR of $355 million, a decrease of $206 million from the same
quarter in 2007.
- Cash, cash equivalents and short-term investments of $1.1 billion at
September 30, 2008.MONTREAL, Nov. 7 /CNW Telbec/ - Air Canada today reported operating
income of $112 million for the third quarter of 2008 compared to a record
operating income of $351 million in the third quarter of 2007. Fuel expense
increased $348 million in the third quarter to $1.1 billion due to record high
fuel prices, a 49 per cent increase from the third quarter of 2007. Partly
offsetting this increase was solid operating revenue growth of $121 million or
4 per cent versus the third quarter of 2007. The company recorded a net loss
of $132 million in the third quarter of 2008 compared to net income of $273
million in the third quarter of 2007.
Passenger revenues increased $106 million or 4 per cent from the third
quarter of 2007. Air Canada reduced overall capacity by 3.5 per cent in the
third quarter of 2008 compared to the third quarter of 2007. Traffic decreased
2.2 per cent on this capacity reduction resulting in a 1.0 percentage point
improvement in system passenger load factor. Yield grew by 6.2 per cent,
mainly reflecting higher fares and fuel surcharges to partially offset the
impact of higher fuel prices in the third quarter. Due to the growth in yield
and, to a lesser extent the passenger load factor improvement, system revenue
per available seat mile (RASM) rose 7.5 per cent when compared to the third
quarter of 2007.
Unit cost, as measured by operating expense per available seat mile
(CASM), increased 17.9 per cent largely due to the significant increase in
fuel expense from the third quarter of 2007. Excluding fuel expense, unit cost
increased 4.3 per cent from the third quarter of 2007, of which more than half
was attributable to ownership costs reflecting Air Canada's investment in new
aircraft and the aircraft interior refurbishment program. Unit cost savings
associated with new Boeing 777 aircraft, other cost reduction programs and, to
a lesser extent, a stronger Canadian dollar versus the U.S. dollar partially
offset Air Canada's overall unit cost increase from the third quarter of 2007.
The net loss for the third quarter of $132 million included non-cash
mark-to-market net losses of $93 million on financial instruments, consisting
primarily of fuel hedge contracts, and net losses on foreign currency monetary
items of $87 million. This compared to net income of $273 million in the third
quarter of 2007, which included net gains on foreign currency monetary items
of $104 million.
Air Canada reported a loss per share (basic and diluted) of $1.32 on an
unadjusted basis. On an adjusted basis, the airline reported a loss per share
(basic and diluted) of $0.45. Loss per share is adjusted to remove losses on
foreign currency monetary items of $87 million (after tax) in the third
quarter of 2008.
EBITDAR amounted to $355 million, a decrease of $206 million from the
third quarter of 2007.
"Against a backdrop of unprecedented fuel costs, Air Canada is one of the
few North American carriers to report a third quarter operating profit," said
Montie Brewer, President and Chief Executive Officer. "I want to thank our
employees who, for the second consecutive quarter, surpassed on-time
performance targets, achieving our best operational performance in over ten
years.
"I am pleased with the results we have achieved through our ongoing focus
on disciplined capacity management. While we produced strong unit revenue
growth and yields in the quarter, we were unable to fully offset record high
fuel prices that represented an additional cost burden of $348 million
compared to the same period last year. We continue to aggressively cut costs
through company-wide initiatives and expect to achieve the previously
announced improvement target of $100 million by year end.
"Looking ahead, forward bookings are tracking in line with announced
capacity reductions. With our investments to offer customers an
industry-leading product and the youngest, most fuel efficient fleet of any
North American network carrier, we are well positioned to manage through the
challenging environment."Third Quarter 2008 Accomplishments
----------------------------------
- Achieved on-time arrivals performance of 85.4 per cent in the quarter,
a 5.3 percentage point increase from the previous year, based on Air
Canada's domestic Canada arrivals as measured by the U.S. Department of
Transportation's standards.
- Completed over 90 per cent of the planned fleet refurbishment
comprising a total of 121 narrow and widebody aircraft. The remaining
eight Airbus A330 aircraft are expected to be completed by mid-2009.
- Announced an agreement in principle with Continental Airlines for a
strategic commercial relationship that would provide expanded network
and frequent flyer benefits for customers of both airlines, in addition
to a multilateral framework agreement with Continental, United Airlines
and Lufthansa to create a transatlantic joint venture, pending
regulatory approvals.
- Concluded an agreement with Brazilian airline TAM, a future Star
Alliance partner, to expand Air Canada's network throughout Brazil on a
codeshare basis via Sao Paulo effective October 30, 2008.
- In the quarter, 44 per cent of domestic customers chose a higher
branded fare than the lowest Tango fare available, a four percentage
point increase from the previous year's quarter.
- Revenues from Flight Pass products increased 57 per cent over the
previous year's quarter, and represented approximately 6.1 per cent of
North American revenues.
- Web penetration for domestic Canada sales in the third quarter was
66 per cent - an increase of two percentage points over the previous
year's quarter. Web penetration for combined Canada and U.S.
transborder sales was 54 per cent - an increase of four percentage
points over the previous year's quarter.
- 75 per cent of domestic Canada sales in the third quarter, or 63 per
cent when combined with U.S. sales, were made directly with Air Canada,
either online or through call centres.
- 56 per cent of Air Canada's customers used self-service check-in
products world wide in the third quarter - an increase of one
percentage point over the previous year's quarter.
- Paid out $10.4 million for the quarter to Air Canada employees under
the company's 'Sharing Our Success' monthly incentive program, for a
total of $27.1 million in the first three quarters of 2008.
- Air Canada contributed $180 million in the quarter to funding its
employees' defined benefit pension plans, of which $88 million
represented funding of past service costs in accordance with the Office
of the Superintendent of Financial Institutions (OSFI) agreement.
- Improved fleet and operational efficiencies contributed to savings of
approximately 29 million litres in fuel on passenger traffic reduction
of 2.24 per cent in the third quarter of 2008 compared to the previous
year's quarter. This represented an avoidance in CO2 emissions of
74,352 tonnes, the equivalent to taking 18,588 cars off the road for a
year.
- Since launching a carbon offset program in May 2007, Air Canada
customers have financed the planting of more than 2,100 trees to offset
10,500 tonnes of carbon emissions, the equivalent of taking over 2,600
cars off the road for a year.
2008 Current Outlook
Air Canada expects its full year 2008 capacity, as measured in available
seat miles (ASM), to change between negative 1.0 and negative 1.5 per cent,
compared to the previous year (previously projected, as disclosed in Air
Canada's August 8, 2008 press release, to change between negative 1.0 and
positive 1.0 per cent compared to 2007). Full year domestic capacity is
expected to change between 0.0 and negative 0.5 per cent, compared to the
previous year (previously projected, as disclosed in Air Canada's August 8,
2008 press release, to increase by approximately 1.0 per cent compared to
2007). This reduction in projected domestic capacity growth is a result of Air
Canada's further review of its capacity plan for the fall-winter schedule. For
the fourth quarter of 2008, Air Canada expects to reduce its system ASM
capacity between negative 7.0 to 8.0 per cent compared to the previous year's
fourth quarter. For the first quarter of 2009, Air Canada expects to reduce
its system ASM capacity between 7.0 and 9.0 per cent versus the first quarter
of 2008.
As projected in its press release of August 8, 2008, Air Canada continues
to expect full year 2008 operating expense per available seat mile (CASM),
excluding fuel expense, to exceed the 2007 level by 1.0 to 2.0 per cent. Air
Canada expects CASM, excluding fuel, in the fourth quarter of 2008 to increase
between 9.0 to 10.0 per cent as compared to the same period in the previous
year. Air Canada's assumption that the Canadian dollar will trade on average
at Cdn $1.18 per U.S. dollar in the fourth quarter of 2008 and the higher unit
cost of ownership are significant factors for the projected increase in CASM,
excluding fuel, in the fourth quarter of 2008 accounting for almost three
quarters of the overall unit cost increase when compared to the fourth quarter
of 2007.
Operating income in 2008 will be negatively impacted by an expected
increase in depreciation of between $140 million and $160 million compared to
2007, reflecting investments in new aircraft and the refurbishment of existing
ones. This will be partially offset by an expected decrease in 2008 aircraft
rent of up to 2 per cent versus 2007 (lower than the up to 5 per cent decrease
previously projected in Air Canada's press release dated August 8, 2008). The
change in expected aircraft rent is largely attributable to the change in Air
Canada's foreign exchange assumption noted below.
The above guidance reflects Air Canada's assumption that the Canadian
dollar will trade, on average, at Cdn $1.18 per U.S. dollar for the fourth
quarter in 2008 and at Cdn $1.05 per U.S. dollar for the full year 2008. The
current instability in the world's financial system and the possibility that
the U.S. and global economies are currently in recession make the economic
landscape in Canada uncertain and forecasting difficult. However, in addition
to other assumptions contained in this press release, Air Canada assumes that
Canada's economy will contract in the fourth quarter of 2008 and will show no
meaningful growth in the first quarter of 2009. Air Canada's outlook assumes
that the price of fuel will average 89 cents per litre for the full year 2008
(net of current hedging positions) as opposed to the 90 cents per litre
assumed in guidance it provided in its press release dated August 8, 2008. For
the fourth quarter of 2008, Air Canada assumes the price of fuel (net of
current fuel hedging positions) will be 91 cents per litre.
The outlook provided constitutes forward-looking statements within the
meaning of applicable securities laws and is based on a number of assumptions
and subject to a number of risks. Please see section below entitled "Caution
Regarding Forward-Looking Information."
(1) Non-GAAP Measures
Air Canada uses adjusted earnings (loss) per share to assess share
performance without the effects of foreign exchange gains (losses). This
measure is not a recognized measure for financial statement presentation under
Canadian GAAP and does not have a standardized meaning and is therefore not
likely to be comparable to similar measures presented by other public
companies.
EBITDAR is a non-GAAP financial measure commonly used in the airline
industry to assess earnings before interest, taxes, depreciation, amortization
and aircraft rent. EBITDAR is used to view operating results before aircraft
rent, depreciation and amortization as these costs can vary significantly
among airlines due to differences in the way airlines finance their aircraft
and other assets. EBITDAR is not a recognized measure for financial statement
presentation under GAAP and does not have a standardized meaning and is
therefore not comparable to similar measures presented by other public
companies.
Readers should refer to Air Canada's Third Quarter 2008 Management's
Discussion and Analysis (MD&A), which will be filed on SEDAR, and made
available on Air Canada's website at www.aircanada.com, for a reconciliation
of EBITDAR to operating income (loss).
For further information on Air Canada's public disclosure file, including
Air Canada's Annual Information Form dated March 28, 2008, consult SEDAR at
www.sedar.com or www.aircanada.com.
CAUTION REGARDING FORWARD-LOOKING INFORMATION
---------------------------------------------
Air Canada's public communications may include written or oral forward
looking statements within the meaning of applicable securities laws. Such
statements are included in this press release and may be included in other
filings with regulatory authorities and securities regulators. Forward-looking
statements relate to analyses and other information that are based on
forecasts of future results and estimates of amounts not yet determinable.
These statements may involve, but are not limited to, comments relating to
strategies, expectations, planned operations or future actions. These
forward-looking statements are identified by the use of terms and phrases such
as "anticipate", "believe", "could", "estimate", "expect", "intend", "may",
"plan", "predict", "project", "will", "would", and similar terms and phrases,
including references to assumptions.
Forward-looking statements, by their nature, are based on assumptions,
including those described below, and are subject to important risks and
uncertainties. Any forecasts or forward-looking predictions or statements
cannot be relied upon due to, amongst other things, changing external events
and general uncertainties of the business. Results indicated in
forward-looking statements may differ materially from actual results due to a
number of factors, including without limitation, energy prices, general
industry, market, credit and economic conditions, currency exchange and
interest rates, competition, war, terrorist acts, epidemic diseases, insurance
issues and costs, changes in demand due to the seasonal nature of the
business, the ability to reduce operating costs, employee and labour
relations, pension issues, supply issues, changes in laws, regulatory
developments or proceedings, pending and future litigation and actions by
third parties as well as the factors identified throughout this press release
and the MD&A and, in particular, those identified in the "Risk Factors"
section of Air Canada's 2007 MD&A dated February 6, 2008 and section 13 of Air
Canada's Third Quarter 2008 MD&A dated November 7, 2008. The forward-looking
statements contained in this press release represent the Corporation's
expectations as of the date of this press release and are subject to change
after such date. However, the Corporation disclaims any intention or
obligation to update or revise any forward-looking statements whether as a
result of new information, future events or otherwise, except as required
under applicable securities regulations.
Assumptions were made by Air Canada in preparing and making
forward-looking statements. The current instability in the world's financial
system and the possibility that the U.S. and global economies are currently in
recession make the economic landscape in Canada uncertain and forecasting
difficult. However, in addition to other assumptions contained in this press
release, Air Canada assumes that Canada's economy will contract in the fourth
quarter of 2008 and will show no meaningful growth in the first quarter of
2009. Air Canada also assumes that the Canadian dollar will trade, on average,
at Cdn $1.18 per U.S. dollar in the fourth quarter of 2008 and Cdn $1.05 per
U.S. dollar for the full year 2008 and that the price of fuel will average 91
cents per litre in the fourth quarter of 2008 and 89 cents per litre for the
full year 2008 (both net of fuel hedging positions).
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Highlights
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The following table provides the reader with financial and operating
highlights for the Corporation for the periods indicated:
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Third Quarter First Nine Months(1)
(Canadian
dollars in
millions
except per
share
figures) 2008 2007 Change $ 2008 2007 Change $
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Financial
-------------------------------------------------------------------------
Operating
revenues 3,075 2,954 121 8,584 8,133 451
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Operating
income
before a
special
provision(2) 112 351 (239) 107 361 (254)
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Operating
income (loss) 112 351 (239) (18) 361 (379)
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Non-operating
expense (147) (45) (102) (126) (70) (56)
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Income (loss)
before non-
controlling
interest,
foreign
exchange and
income taxes (35) 306 (341) (144) 291 (435)
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Income (loss)
for the
period (132) 273 (405) (298) 394 (692)
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Operating
margin
before a
special pro-
vision %(2) 3.6% 11.9% (8.3) pp 1.2% 4.4% (3.2) pp
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Operating
margin % 3.6% 11.9% (8.3) pp -0.2% 4.4% (4.6) pp
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EBITDAR
before a
special pro-
vision(2)(3) 355 561 (206) 826 989 (163)
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EBITDAR(2) 355 561 (206) 701 989 (288)
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EBITDAR
margin
before a
special
provi-
sion %(2)(3) 11.5% 19.0% (7.5) pp 9.6% 12.2% (2.6) pp
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EBITDAR
margin %(3) 11.5% 19.0% (7.5) pp 8.2% 12.2% (4.0) pp
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Cash, cash
equivalents
and short-
term
investments 1,114 1,502 (388) 1,114 1,502 (388)
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Free cash
flow (373) (534) 161 (557) (1,341) 784
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Adjusted
debt/equity
ratio 72.0% 66.9% 5.1 pp 72.0% 66.9% 5.1 pp
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Earnings
(loss) per
share -
basic and
diluted ($1.32) $2.73 ($4.05) ($2.98) $3.94 ($6.92)
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Operating
Statistics Change % Change %
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Revenue
passenger
miles
(millions)
(RPM) 14,458 14,789 (2.2) 39,674 39,183 1.3
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Available
seat miles
(millions)
(ASM) 17,515 18,144 (3.5) 48,503 48,099 0.8
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Passenger
load factor 82.5% 81.5% 1.0 pp 81.8% 81.5% 0.3 pp
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Passenger
revenue
per RPM
(cents)(4) 19.0 17.9 6.2 18.9 18.2 3.8
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Passenger
revenue
per ASM
(cents)(4) 15.7 14.6 7.5 15.5 14.8 4.2
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Operating
revenue
per ASM
(cents)(4) 17.6 16.3 7.8 17.7 17.0 4.3
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Operating
expense
per ASM
("CASM")
(cents) 16.9 14.3 17.9 17.5 16.2 8.2
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CASM,
excluding
fuel expense
(cents) 10.8 10.4 4.3 12.1 12.1 (0.6)
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Average
number of
full-time
equivalent
(FTE)
employees
(thousands) 24.5 24.1 1.6 24.4 23.9 2.0
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Aircraft in
operating
fleet at
period
end(5) 341 338 0.9 341 338 0.9
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Average fleet
utilization
(hours per
day)(6) 10.2 10.7 (4.7) 9.9 10.0 (1.0)
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Average
aircraft
flight
length
(miles)(6) 894 911 (1.9) 873 881 (0.9)
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Fuel price
per litre
(cents)(7) 101.0 64.7 56.1 88.9 65.0 36.8
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Fuel litres
(millions) 1,048 1,102 (4.9) 2,941 2,968 (0.9)
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(1) Reflects the financial and operating highlights for Air Canada for
the first nine months of 2008 and the financial and operating
highlights for the Air Canada Services segment, which excluded the
consolidation of Jazz, for the first nine months of 2007. Refer to
section 2 of Air Canada's Third Quarter 2008 MD&A for additional
information.
(2) A provision for cargo investigations of $125 million was recorded in
the first quarter of 2008. Refer to section 13 of Air Canada's Third
Quarter 2008 MD&A for additional information.
(3) See section 15 "Non-GAAP Financial Measures" of Air Canada Third
Quarter 2008 MD&A for a reconciliation of EBITDAR before the
provision for cargo investigations to operating income (loss) and
EBITDAR to operating income (loss).
(4) A revenue adjustment of $26 million relating to a change in
accounting estimates was recorded in the fourth quarter of 2007 of
which $29 million pertained to the first quarter of 2007. For
comparative purposes, yield and RASM percentage changes were adjusted
to include the impact of adding back $29 million to the first quarter
of 2007.
(5) Excludes chartered freighters in 2008 and 2007. Includes Jazz
aircraft covered under the Jazz CPA.
(6) Excludes third party carriers operating under capacity purchase
arrangements. Includes Jazz aircraft covered under the Jazz CPA.
(7) Includes fuel handling and is net of fuel hedging results.%SEDAR: 00001324EF
For further information:
For further information: Isabelle Arthur, (Montréal), (514) 422-5788; Peter Fitzpatrick, (Toronto), (416) 263-5576; Angela Mah, (Vancouver), (604) 270-5741; aircanada.com