Rising fuel costs pummel Air Canada’s profits, but revenue is on the rise
MONTREAL The head of Canada’s largest airline brushed off concerns around trade woes and wavering stock markets, saying demand for Air Canada flights will stay strong in the near term.
“The trade dispute, the softening of the economy, the bumpy equity markets the last few weeks — despite that, in our markets we continue to see strong demand,” said chief executive Calin Rovinsescu Wednesday on a conference call.
Despite a tumble in profits, the Montreal-based carrier saw premium fare classes and ancillary fees propel it to better yields in the third quarter, with a healthy outlook for the fourth.
“We’ve invested very heavily in the top end of our business, and we think that that is something that helps sustain us,” he told analysts.
Air Canada’s net income fell 63 per cent year-over-year to $645 million — or $6.22 per diluted share — in the quarter ended Sept. 30, due largely to higher fuel costs, he said. That compared with $1.72 billion, or $6.22 per diluted share a year ago — when the company benefited from an income-tax recovery of $758 million.
Excluding one-time items, adjusted earnings decreased 39 per cent to $561 million or $2.03 per diluted share, from $922 million or $3.33 per share a year earlier.
Analysts on average had expected an adjusted profit of $2.09 per share for the quarter, according to Thomson Reuters Eikon.
Air Canada’s operating revenues jumped 11 per cent to $5.42 billion from $4.88 billion a year earlier.
Revenue from business-class passengers rose by $98 million, a 13-per-cent bump, said chief commercial officer Lucie Guillemette. Premium fares helped produce a 4.2-per-cent increase in passenger revenue per available seat mile — a key industry metric to determine efficiency.
Ancillary revenues, meanwhile, shot up by 14 per cent over the past nine months compared to the same period last year, driven by baggage fees, upgrades and seat selection.
Carriers have been adding fees for a decade and now charge more for seats with leg room, early boarding, meals and beverages, entertainment and wireless access. Air Canada earned more than $1 billion from these payments last year while WestJet Airlines Ltd. collected about $440 million.
Capacity — measured by available seat miles — in the quarter rose 6.7 per cent from a year ago, while traffic — measured by revenue passenger miles — in the quarter increased 7.5 per cent.
Air Canada’s shares gained $1.57 or 6.7 per cent at $24.98 in Wednesday trading.