Second Quarter 2012 EBITDAR of $314 million
Cash and short-term investments of $2.383 billion at June 30, 2012
Air Canada recorded earnings before interest, taxes, depreciation, amortization and impairment, and aircraft rent (EBITDAR) of $314 million in the second quarter of 2012 compared to EBITDAR of $338 million in the second quarter of 2011. Operating income of $63 million decreased $10 million from the same quarter in 2011.
“We reported passenger revenue growth of 3.3 per cent in the quarter on traffic growth and an overall yield improvement. Our Pacific performance was especially strong, with a revenue increase of 18.5 per cent year-over-year,” said Calin Rovinescu, President and Chief Executive Officer. “We continued to effectively manage capacity with a load factor of 83.5 per cent in the quarter. Our liquidity position remained strong with cash and cash equivalents of almost $2.4 billion at the end of June, an increase of $124 million from the previous year. We also made ongoing progress in improving our balance sheet and reduced adjusted net debt by $353 million in the first six months of the year.
“As previously reported, Air Canada’s operations were adversely impacted by labour disruptions in March and April of 2012 which resulted in a decline in bookings for travel originating in Canada in the immediate aftermath. Our brand is resilient and we were encouraged to see booking trends return to normal levels by the end of the second quarter of 2012. Capacity and, as a result, passenger revenues were also negatively affected by aircraft scheduling changes due to the closure by Aveos of its maintenance, repair and overhaul (MRO) facilities in Canada. We estimate that the combined impact of the labour disruptions and the slight reduction in capacity stemming from the Aveos closure resulted in a reduction of $0.12 to $0.17 to earnings per diluted share in the second quarter 2012.
“New collective agreements have now been finalized with the International Association of Machinists and Aerospace Workers (IAMAW) and the Air Canada Pilots Association (ACPA) through binding arbitration. Both the arbitrators in the IAMAW and ACPA arbitrations concluded that an extension of funding relief regulations is essential to the viability of Air Canada’s pension plans. We plan to pursue such an extension for the benefit of all stakeholders. The conclusion of these last two collective agreements brings finality to what has been a challenging collective bargaining process with our large Canadian-based unions. We will now be able to more closely focus on our four priorities which are key to our transformation, namely leveraging our international network, cost transformation, engaging our customers, and culture change.
“In July 2012, the airline was named the ‘Best International Airline in North America’ following a worldwide survey of more than 18 million air travellers at the Skytrax World Airline Awards. It is an honour to be recognized with this award for the third consecutive year and a testament to the skill and professionalism of Air Canada’s employees. I want to thank our employees for taking care of our customers and delivering them safely to their destinations throughout the challenges of this past quarter,” said Mr. Rovinescu.
Following Aveos’ CCAA filing, Air Canada agreed to arrangements to assist Aveos to find potential purchasers for its engine and component business and Aveos and Air Canada entered into an exclusive contract until 2018 for engine maintenance at current market rates of certain engine types used by Air Canada. This new contract would become effective upon assignment by Aveos to a purchaser that is among five parties identified by Air Canada to be equally acceptable in terms of operational requirements. Air Canada continues to work diligently through an RFP process to secure an experienced, cost competitive MRO supplier for its components. Air Canada is also concluding terms with independent and experienced service providers to perform airframe maintenance on its fleet of aircraft.
Income Statement Highlights
On a system capacity growth of 0.6 per cent, system passenger revenues increased $85 million or 3.3 per cent in the second quarter of 2012, on a 1.4 per cent growth in traffic and a 1.2 per cent improvement in yield. Passenger revenue per available seat mile (RASM) increased 2.0 per cent from the second quarter of 2011. In the premium cabin, second quarter 2012 passenger revenues increased $21 million or 3.7 per cent from the same quarter in 2011, driven by a 2.1 per cent improvement in yield and a 1.6 per cent growth in traffic.
In the second quarter of 2012, operating expenses increased $81 million or 3 per cent from the second quarter of 2011, primarily due to increases in wages, salaries and benefits, aircraft maintenance, capacity purchase costs and other expenses. Partially offsetting these increases was a reduction in depreciation, amortization and impairment expense. Unit cost, as measured by operating expense per available seat mile (CASM), increased 2.3 per cent from the second quarter of 2011. Excluding fuel expense and the cost of ground packages at Air Canada Vacations, CASM increased 3.6 per cent from the second quarter of 2011. The 3.6 per cent increase in CASM, excluding fuel expense and excluding the cost of ground packages at Air Canada Vacations, was less than the 4.0 per cent to 5.0 per cent increase projected in Air Canada’s news release dated May 4, 2012, as a number of cost categories were slightly below what Air Canada had previously anticipated.
Air Canada reported an operating income of $63 million in the second quarter of 2012, a decline of $10 million from the second quarter of 2011.
Air Canada reported a net loss of $96 million or $0.35 per diluted share in the second quarter of 2012 compared to a net loss of $46 million or $0.17 per diluted share in the second quarter of 2011. On an adjusted basis, net loss per diluted share was $0.05 in the second quarter of 2012 compared to a net loss per diluted share of $0.01 in the second quarter of 2011. Removing the impact of the labour disruptions and the capacity impact related to the Aveos closure, the adjusted income per diluted share would have been $0.07 to $0.12, an improvement over the same quarter in 2011.
Liquidity Highlights
At June 30, 2012, Air Canada’s cash and short-term investments amounted to $2,383 million, $124 million higher than Air Canada’s cash and short-term investments balance at June 30, 2011, and represented 20 per cent of 12-month trailing operating revenues.
At June 30, 2012, adjusted net debt of $4,223 million decreased $353 million from December 31, 2011. This reduction in adjusted net debt included the impact of lower debt balances and the impact of an increase in cash and short-term investments of $284 million from December 31, 2011, which was mainly due to positive free cash flow of $368 million in the first six months of 2012.
Current Outlook
In the third quarter of 2012, Air Canada expects its system ASM capacity, as measured by available seat miles (ASMs), to increase in the range of 0 to 1.0 per cent when compared to the third quarter of 2011.
Taking into account reported ASM capacity for the first six months of 2012, Air Canada expects its full year 2012 system capacity to increase in the range of 0.5 to 1.5 per cent when compared to the full year 2011 (as opposed to the 0 to 1.5 per cent ASM increase projected in Air Canada’s news release dated May 4, 2012) and expects its full year 2012 domestic capacity to increase in the range of 0.5 to 1.5 per cent from the full year 2011 (as opposed to the 0 to 1.5 per cent ASM increase projected in Air Canada’s news release dated May 4, 2012).
For the third quarter of 2012, Air Canada expects CASM, excluding fuel expense and excluding the cost of ground packages at Air Canada Vacations, to increase by 1.0 per cent to 2.0 per cent from the third quarter of 2011.
Air Canada continues to expect its full year 2012 CASM, excluding fuel expense and excluding the cost of ground packages at Air Canada Vacations, to increase by 0.5 per cent to 1.5 per cent from the full year 2011 level.
Air Canada’s above-mentioned outlook assumes Canadian GDP growth of 1.5 per cent to 2.0 per cent in 2012. In addition, Air Canada expects that the Canadian dollar will trade, on average, at C$1.01 per U.S. dollar in the third quarter of 2012 and for the full year 2012 and that the price of jet fuel will average 85 cents per litre for the third quarter of 2012 and 88 cents per litre for the full year 2012.
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