Air Canada profits soar past elevated expectations

ALICJA SIEKIERSKA

Increased passenger traffic and lower operating costs are driving profitability at Canadian airlines, with Air Canada reporting a record second-quarter profit that blew past elevated expectations.

Air Canada’s net income hit $300 million, or $1.08 per diluted share, in the three-month period ending June 30, an increase from $186 million, or $0.66 per diluted share, from the same time in 2016.

Shares in the airline soared 10 per cent to $21.82 by midday.

Passenger revenues climbed by $374 million to $3.52 billion, an increase of 11.9 per cent from last year, which was largely driven by traffic growth of 13.6 per cent.

Meanwhile, Air Canada’s adjusted cost per available seat mile, a measure of how much an airline spends to fly passengers, decreased 3.5 per cent from the same time last year, driven by lower than anticipated aircraft maintenance expenses.

“Demand continues to be robust in a stable fuel and pricing environment as we move into what has historically been our most important quarter given the travel demands and patterns of our North American customers,” chief executive Calin Rovinescu said in a statement.

Air Canada issued a press release in early July that it had set a record for passengers flown in one day, and that its earnings before interest, taxes, depreciation, amortization, impairment and aircraft rent (EBITDAR) would “significantly exceed” analyst expectations of $475 million. The company’s second quarter EBITDAR came in at $670 million, surpassing last year’s record second-quarter results of $605 million. Air Canada adjusted its EBITDAR guidance, and now expects to achieve an annual margin of 17 to 19 per cent, up from the previously anticipated 15 to 18 per cent.

In a note to clients, RBC Capital Markets analyst Walter Spracklin said the results were “significantly better than ‘significantly better.’ ”

“The company exceeded expectations that were already revised higher on Q2; it indicated that the demand environment remains robust into Q3; and it provided material increases to its guidance in virtually all metrics,” Spracklin wrote.

“Combine this with what we view as a significantly undervalued stock that is trading well below peers, and a key potential catalyst to come in the form of the September Investor Day, we continue to see AC as the stock to own in our coverage universe.”

WestJet Airlines also reported a solid second quarter, with net earnings increasing by 32 per cent to $48.4 million or $0.41 cents per diluted share, while revenues hit $1 billion, up 11.1 per cent from last year.

The company flew a record 5.9 million passengers, while revenue per available seat mile increased 4.6 per cent from the same time last year to 13.95 cents.