Air Canada
Trumpets ‘watershed’ financial results, but demanding investors unimpressed.
It’s a tough audience.
Calin Rovinescu declared himself “very proud of these results.”
Financial 2013 “was truly a great year for Air Canada,” the airline’s president said Wednesday during a conference call. “In fact, I would even say a watershed year.”
The Montreal-based carrier posted “the best fullyear financial results in Air Canada’s 77-year history,” Rovinescu added.
Adjusted earnings for the year totalled a record $340 million, or $1.20 per share, up from $55 million in 2012. Under standard accounting, the year’s net income translates into $10 million, a vast turnaround from the $136-million loss the previous year. Revenues climbed $238 million to $12.38 billion.
And yet financial markets and analysts found nothing great about the results, much less anything to be proud of.
Several analysts rated the report “negative,” and the airline’s shares — Canada’s single-best performing stock last year, tripling in value — were battered by now-demanding investors.
Air Canada shares fell 20.46 per cent Wednesday to $6.22. Why the pasting? Dampened expectations. The airline earned $3 million in the fourth quarter, up from a loss of $5 million in the previous year’s quarter. The latest quarter’s results, though, were hit by the extreme cold of the so-called polar vortex — which virtually shut down Toronto’s Pearson airport at one point. That alone cost the airline about $15 million, Air Canada’s executive vice-president and chief financial officer, Michael Rousseau, noted. The vortex aside, the airline would presumably have earned $18 million in the latest quarter.
Analysts’ heightened expectations took little account of the improved numbers, mostly because the year’s profits came in at three cents less per share than the consensus had forecast.
Walter Spracklin, an analyst at Toronto’s RBC Dominion Securities Inc., rated the quarter’s performance as negative for that reason, adding that the average yield — the profits a flight yields — also dropped by 0.6 per cent. He had modelled for a 1.2 per cent increase.
“Yield is a closely followed indicator and may cause investor concern,” Spracklin noted.
But Rovinescu said last year’s performance, “especially the last three quarters, established a strong foundation for continued success in 2014.”
The airline’s erased $3.7-billion pension plan deficit “was treated by some investors and other stakeholders as quasi-debt, so its elimination is a potential significant value enhancement for shareholders.”
The dropping Canadian dollar has affected the airline significantly, but Rousseau said the carrier also collects about $1 billion in revenues in U.S. currency annually.
“And in fact, the lower Canadian dollar can stimulate the economy by spurring inbound traffic,” Rovinescu added.
The carrier’s new Rouge discount division is “meeting all of our business plan objectives,” he said, but did not break out the group’s financial results.
Rousseau said the airline would add between 3.5 per cent and 4.5 per cent in seating capacity in this quarter compared with the corresponding period last year.
Rovinescu later said that it would be mostly on Pacific and domestic routes, and that Air Canada has been “very disciplined” by not adding seats for sheer volume at the expense of profitability.
He added that “we don’t see any irrational behaviours” from rival airlines adding too many seats either.
“It’s all good, healthy competition — and the U.S. airline consolidation helps.”
Rovinescu took aim at Porter Airlines’ tentative and controversial plan to fly the Bombardier Inc. CSeries out of Billy Bishop Toronto City Airport. Porter has about 85 per cent of the slots — takeoffs and landings — at that facility located minutes from downtown on an island.
Porter’s plan must be approved by Toronto’s city council, which will hold an executive committee meeting on March 25.
Rovinescu urged the council to consider the proposal “properly, regardless of artificial deadlines that are tied to municipal elections” — but only if Air Canada is allowed more access to the airport.
He called Porter’s near “exclusive” use of the airport “ludicrous.”
“Here you have a public facility built at public expense that’s been handed over to a private operator.”
Air Canada has sued to gain greater access but lost in court, “something that we’ve encountered nowhere else in the country, or indeed in the world.”
“So we look at Billy Bishop as both a problem and an opportunity.”
Brad Cicero, a spokesman for Porter Airlines, countered that “the airport was built in 1939 and the current infrastructure was built by Porter, which paid for it.”
The tunnels and ferries that carry passengers swiftly downtown were paid for by airport users, he added.
“Air Canada used to fly here but was never willing to make a commitment to the airport — they basically abandoned it. They’re not fooling anybody, they’re lobbying in public. It’s the competition they fear. Our presence at the airport is in proportion to the investment we made.”
Air Canada also has a “very dominant presence at Pearson,” Cicero said.
But Rovinescu said that Torontonians are asking the airline for flights to Ottawa and New York from Billy Bishop.