Airline CEO brushes off trade woes
“We’ve invested very heavily in the top end of our business,” says top Air Canada executive
The head of Canada’s largest airline brushed off concerns around U.S.-China trade woes and wavering stock markets, saying demand for Air Canada flights will hold firm 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 Rovinescu.
Despite a tumble in profits caused by rising fuel prices, 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 is something that helps sustain us,” Rovinescu 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. 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.
Operating revenues jumped 11 per cent to $5.42 billion from $4.88 billion a year earlier.
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.
“Fuel was the dragon slayer, the huge impact on the operating line,” said Robert Kokonis, president of Toronto-based consulting firm AirTrav Inc.
Air Canada’s per-litre fuel costs skyrocketed 40 per cent to 83 cents in the third quarter from 59.4 cents a year earlier. Though its operating cost per available seat mile — a key cost-efficiency metric — ballooned by nearly 10 per cent, that same metric adjusted to exclude fuel costs nudged up by only 1.1 per cent.
If the economy holds, so will demand, Kokonis said.
“Air travel is one of the first sectors to show that there’s going to be an economic retraction because travel is such a discretionary expense — not as much for corporate travel, but certainly leisure travel.”
Business and premium economy passengers helped Air Canada offset its fuel expense. Revenue from the business cabin 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.
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.
The quarterly results should be viewed “favourably” given “volatile” fuel prices, said Canaccord Genuity Corp. analyst Doug Taylor. Air Canada’s 3.4 per cent uptick in passenger revenue per mile contrasted sharply with WestJet’s 4.4 per cent decline, he noted.