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GiveLife.ca

    

PRINT EDITION
Air Canada's flight plan: More cuts to keep profit flowing
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By ERIC ATKINS
  
  

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Saturday, February 17, 2018 – Page B1

Air Canada's profit more than doubled in 2017 as the country's biggest airline opened new routes and flew a record number of passengers amid a sustained industry boom.

The company added 30 routes globally last year, and its expanded international push helped it carry a record 48 million travellers while boosting passenger revenue by 10 per cent.

Fourth quarter results released on Friday showed that in the final three months of 2017, profit was $8-million or 2 cents a share, compared with a net loss of $179-million, or 66 cents a share, in the yearearlier quarter. For the full year, profit was $2.04billion, or $7.34 a share, compared with $876-million, or $3.10 a share, in 2016. On an adjusted basis, earnings were steady at $1.14-billion.

Shares of Air Canada rose more than 1 per cent on the Toronto Stock Exchange on Friday as investors applauded the results.

The strong performance follows several moves in recent years by the Montreal-based carrier to safeguard its business against the boom and bust cycles of an industry marked by high costs and exposure to economic downturns.

Air Canada emerged from creditor protection in 2004 and narrowly avoided going belly up after the 2009 global recession, when Calin Rovinescu became chief executive.

He embarked on several years of reforms aimed at making the company sustainably profitable, including reducing costs, reaching long-term labour agreements and launching low-cost carrier Rouge to compete with WestJet Airlines Ltd. and other upstarts.

Over the past five years, investors have watched their shares soar from around $2 to nearly $25.

In a conference call with analysts on Friday, Mr. Rovinescu said "2017 was a record year for Air Canada."

With the bulk of the company's transformative moves in the past, Air Canada must now show it can keep profits flowing as industry competition heats up.

The airline is seeking to cut costs by $250million by the end of 2019, and will examine all areas of the company to find "real and sustainable" reductions in overhead. "We've shown we can take out costs in bad times, now we need to show we can take out costs in good times," Mr. Rovinescu said. This year, the airline will take delivery of new narrow-body aircraft that are less expensive to operate.

Fadi Chamoun, a stock analyst at Bank of Montreal, said Air Canada's fourth-quarter results were better than he expected. He said the 2018 forecast for costs per available seat mile, a closely watched industry gauge, is higher than expected. But rising revenues per seat mile and projected profit margins, before some costs, of 17 per cent to 20 per cent are reassuring, he said in a note to clients.

Air Canada shares have risen by about 80 per cent in the past 12 months, but fallen by about 10 per cent from a high reached in October.

The share price "has been under pressure largely due to concern that growth [in revenue per available seat mile] might not be strong enough to offset rising fuel costs. These results and guidance should alleviate these concerns," Mr. Chamoun said.

Air Canada's international expansion included flights from Montreal to Shanghai, Toronto to Mumbai, and Vancouver to Melbourne. Mr. Rovinescu said the company expects to form a joint venture soon with Air China that will allow it to expand its sales in the region.

Benjamin Smith, Air Canada's president of passenger airlines, said the addition of seven new U.S. routes in early 2018 will build on the company's domestic revenue growth.

"Our traffic increase was driven by strong demand on services within Canada as well as higher productivity from our hubs to the United States and international destinations," Mr. Smith said. "We continue to be pleased with our performance in the triangle of Toronto, Montreal and Ottawa."

Walter Spracklin, a stock analyst with Royal Bank of Canada, said the fourth-quarter results topped his expectations for a range of measures, including traffic, capacity and pricing.

"Over all, we liked what we saw in the [fourth-quarter] results," Mr. Spracklin said.

"Beating on all measures, particularly yield, was impressive."

AIR CANADA (AC) CLOSE: $24.64, UP 31¢

Associated Graphic

Travellers pick up their luggage at a baggage carousel at the Ottawa airport in May, 2017. Air Canada shares have risen by about 80 per cent in the past 12 months.

JUSTIN TANG/THE CANADIAN PRESS


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