Air Canada Reports 39 Percent Drop in Quarterly Income

Published on: November 9, 2009

Air Canada reported a quarterly net profit and said it sees signs the bottom of the recession is behind it, although it does not expect a full recovery for another 12 to 18 months. Air Canada reported operating income of $68 million in the third quarter of 2009, compared to $112 million recorded in the third quarter of 2008, a decline of 39 percent. Operating results continued to be adversely impacted by ongoing weak economic conditions resulting in declines in passenger and cargo revenues, partially offset by the impact of lower fuel prices year over year. Passenger revenues decreased $366 million, or 13 percent, to $2.4 billion from the third quarter of 2008, due to a decrease in yield of 11.2 percent as a result of reduced traffic and competitive pricing initiatives to stimulate demand. Premium cabin revenues declined 16 percent from the third quarter of 2008, an improvement from the year-over-year decline in premium revenues of 30 percent in the second quarter results of 2009. In the third quarter of 2009, traffic dropped 2.1 percent on a 3.3 percent cut in capacity, resulting in a passenger load factor improvement of 1 percentage point compared to the same quarter in 2008. This passenger load factor improvement reflected Air Canada's disciplined approach to capacity management and the various new initiatives undertaken to stimulate traffic and generate revenues, such as the new 7 percent commission paid to Canadian travel agents since June 2009 on Tango fares.

System revenue per available seat mile (RASM) decreased 10.2 percent from the third quarter of 2008, entirely due to the yield decline. In the quarter, operating expenses declined $361 million, or 12 percent, from the third quarter of 2008, with lower fuel prices being the main factor in the year-over-year decrease. In the third quarter of 2009, a weaker Canadian dollar versus the U.S. dollar compared to the third quarter of 2008 resulted in additional expenses of $60 million in the quarter. Unit cost, as measured by operating expense per available seat mile (CASM), decreased 9.2 percent compared to the third quarter of 2008. Excluding fuel expense, CASM increased 4.5 percent year-over-year mainly due to higher aircraft maintenance expenses. The spike in aircraft maintenance costs was primarily driven by timing of airframe and engine events in 2009 compared to 2008. The weaker Canadian dollar versus the U.S. dollar was also a factor in the CASM growth (excluding fuel expense) year-over-year. These increases were partly offset by a reduction in employee benefits expense as a result of revised actuarial assumptions. For more information, visit www.aircanada.com.