Air Canada reports record third quarter as traffic growth soars

Air Canada says its strategy to become a global carrier competing primarily in international markets is paying off after it reported a record third quarter net income of $ 1.79 billion, as traffic and passenger revenues increased and yields improved.

The airline’s profit more than doubled from $768 million, or $2.74 per share, at the same time last year to $ 1.79 billion, or $ 6.44 per share, thanks in part to an income tax recovery of $793 million. Operating revenues were bol- stered by passenger revenue increases of 9.1 per cent to a record $4.5 million, featuring strong gains in the business class sector, and a traffic increase of 8.8 per cent.

Air Canada’s growth strategy has largely focused on expanding its global capacity and turning Canadian cities into hubs for international destinations. Last month, the carrier announced several new non- stop flights featuring new international markets it hadn’t previously served, including Bucharest, Zagreb, and Porto.

Ben Smith, Air Canada’s president of passenger airlines, told analysts on a conference call Wednesday that the company has been able to take advantage of destinations not well served by carriers in North America, as well as overseas.

“What we’re seeing is ... the elimination of service from weaker carriers, such as Air Berlin and Alitalia, into North America which definitely is providing opportunity for us,” Smith said.

“Our network is so much better diversified now than it has been in the history of Air Canada. We have a lot of flexibility to move capacity and ensure that it’s deployed where the best opportunities are.”

The company’s yield — the average fare per passenger, per mile — increased by 0.4 per cent, which Smith said re- flected growth on most major domestic services and connecting traffic.

The yield increase is a positive sign for the company, according to RBC Capital Markets analyst Walter Spracklin.

“The higher yield and the implication that Air Canada was raising ticket prices despite a nine per cent growth in traffic is a strong positive as it demonstrates the favourable supply and demand fundamentals and rational pricing behaviour,” Spracklin wrote in a note to clients.

Going forward, Air Canada’s capacity growth is expected to be moderate as the company focuses on its narrowbody fleet, which includes replacing aircraft with an order for 61 Boeing 737 MAX jets and 45 CSeries aircraft. On Wednesday, Air Canada chief executive Calin Rovinescu said the carrier has the option to order more 737 Max and CSeries aircraft if there is a need, thanks to passenger growth.

In the meantime, the company is continuing its search for a financial institution to partner with as it launches plans to launch a new cobranded credit card. Air Canada announced in May it would not be renewing its agreement with Aimia Inc., the operator of the Aeroplan loyalty program, which expires in June, 2020, and will instead launch its own rewards program.

“There’s been a tremendous amount of interest from the financial community,” Rovinescu said.

The airline said its adjusted cost per available seat mile ( CASM) — an industry measure of how much an airline spends to fly a passenger — decreased by 2.1 per cent.

Air Canada’s third quarter earnings before interest, taxes, depreciation, amortization, impairment and aircraft rent (EBITDAR) of $1.4 billion, an increase of $ 140 million from the same time last year. Operating revenues grew from $ 4.5 billion last year to $4.9 billion.

The company’s stock fell 1.3 per cent on the TSE to $26 at the close in a broadly negative market, but is up 90 per cent year-to-date.