Air Canada reports second quarter results



    
    SECOND QUARTER OVERVIEW

    - Passenger revenue increased 5 per cent to $2.5 billion, due to growth
      in traffic and yield.
    - Excluding fuel expense, unit cost declined 1.7 per cent from the second
      quarter of 2007.
    - Net income of $122 million compared to net income of $155 million in
      the second quarter of 2007.
    - EBITDAR of $249 million was recorded in the quarter, a decrease of
      $50 million from the same quarter in 2007.
    - Operating income of $7 million in the second quarter of 2008 compared
      to operating income of $88 million in the second quarter of 2007.
    - Cash, cash equivalents and short-term investments of $1.5 billion at
      June 30, 2008.
    

    MONTREAL, Aug. 8 /CNW Telbec/ - Air Canada today reported net income of
$122 million in the second quarter of 2008, compared to $155 million in the
second quarter of 2007. The Corporation's operating income for the second
quarter of 2008 was $7 million, compared to $88 million in the second quarter
of 2007. Air Canada's operating income performance was achieved despite an
increase in fuel expense of $212 million in the second quarter compared to the
prior year.
    Passenger revenues increased $118 million or 5 per cent from the second
quarter of 2007. Traffic increased 2.4 per cent while yield increased 2.5 per
cent reflecting the impact of revenue generation initiatives to partially
offset the dramatic surge in the price of fuel. Due to the growth in yield,
system revenue per available seat mile (RASM) rose 2.6 per cent compared to
the second quarter of 2007.
    Unit cost, as measured by operating expense per available seat mile
(CASM), increased 6.3 per cent from the second quarter of 2007. Excluding fuel
expense, unit cost declined 1.7 per cent from the second quarter of 2007,
reflecting unit cost reductions in every major cost category, with the
exception of ownership costs and communications and information technology
expense. A stronger Canadian dollar versus the U.S. dollar, unit cost savings
associated with new Boeing 777 aircraft, and other cost reduction programs
were among the more important factors in Air Canada's overall unit cost
decrease from the second quarter of 2007. The higher unit cost of ownership
reflects Air Canada's investment in new aircraft and the aircraft interior
refurbishment program.
    Air Canada recorded net income for the second quarter of $122 million,
which included net gains on financial instruments recorded at fair value of
$176 million and net gains on foreign currency monetary items of $48 million.
This compared to net income of $155 million in the second quarter of 2007,
which included net losses on financial instruments of $6 million and net gains
on foreign currency monetary items of $160 million. Air Canada reported
earnings per share (basic and diluted) of $1.22 on an unadjusted basis. On an
adjusted basis, the airline reported earnings per share (basic and diluted) of
$0.80. Earnings per share is adjusted to remove gains on capital assets of
$5 million (after tax) and gains on foreign exchange of $37 million (after
tax) in the second quarter of 2008.
    EBITDAR amounted to $249 million, a decrease of $50 million from the
second quarter of 2007.
    "I am pleased to report solid operating results for the quarter, despite
the difficult industry environment created by unrelentingly high fuel prices,"
said Montie Brewer, President and Chief Executive Officer. "The more resilient
domestic Canada market drove sustained revenue growth in the quarter and we
achieved yield and unit growth through the successful introduction of a number
of fare increases and fuel surcharges.
    "I'm particularly proud of our employees who remained focused on our
operation as we headed into the peak summer season. Working together, the Air
Canada team achieved On Time Performance objectives for the quarter, ranking
Air Canada as having the best on-time arrivals performance compared to the
largest North American carriers.
    "We are also making progress containing controllable costs. Excluding
fuel, our unit cost was down 1.7 per cent in the quarter and our ongoing cost
reduction initiatives currently represent savings of approximately $100
million in 2008. Hedging has also helped to blunt the rising cost of fuel, and
while we have improved our fuel efficiency by operating the youngest, most
fuel efficient fleet of any North American network carrier, it is still not
enough. With a view to further reducing consumption, a cross-departmental
weight reduction task force is taking a more aggressive approach evaluating
various ways to shed weight on aircraft.
    "As the cost of travel for consumers is brought in line with the price of
fuel, we anticipate a softening in demand. We will continue to manage the
challenge through new revenue generation initiatives, sound capacity
management and continued focus on cost reduction. I am confident that Air
Canada is well positioned to compete successfully with a young, efficient
fleet, award winning revenue model, market leading product, and especially
with our employees who continue to demonstrate their professionalism and
dedication to earning our customers' loyalty," concluded Mr. Brewer.
    At June 30, 2008, Air Canada reported cash, cash equivalents and
short-term investments of $1.5 billion. Air Canada also has a secured
revolving credit facility of $400 million, which is not available to the
Corporation until and unless the Corporation and the lenders conclude
amendments satisfactory to each of them relating to a financial covenant and
other business terms. Subsequent to June 30, 2008, the Corporation and the
lenders have entered into an amending agreement pursuant to which the parties
undertake to negotiate such further amendments to the facility and the
Corporation agrees not to request any funding under the facility until such
further amendments are agreed. The outcome of the negotiations remain
uncertain such that there can be no assurance that amendments satisfactory to
the parties will be concluded, that amounts under the facility will ever be
available to the Corporation, that the Corporation will not decide to
terminate the facility, or that a replacement facility will be concluded. In
the event of termination of the credit facility, the assets previously
securing the credit facility would be expected to generate a similar level of
liquidity as they do under the credit facility. In addition, Air Canada owns
or retains equity in a wide range of aircraft related assets such as nine
Boeing 777s, 60 Embraers and inventory. These assets could permit Air Canada
to increase its liquidity by approximately $800 million.

    
    Second Quarter 2008 Accomplishments

    - Introduced three Boeing 777-300ER aircraft in the quarter. Air Canada
      is the first North American carrier to operate this latest generation,
      fuel-efficient aircraft. To date, Air Canada has taken delivery of
      15 Boeing 777 aircraft of 18 scheduled to be delivered by 2009.

    - Completed over 80 per cent of the planned fleet refurbishment.
      Remaining aircraft are planned to have completed refurbishment by fall
      2008, with the exception of Airbus A330 aircraft which are expected to
      be completed by early 2009.

    - Achieved on-time arrivals performance of 86 per cent in the quarter, a
      6 percentage point increase from the previous year, ranking Air Canada
      as having the best on-time performance compared to the 10 largest U.S.
      carriers, as measured by the U.S. Department of Transportation's
      standards for the North American airline industry.

    - Paid out $6.3 million in the quarter to Air Canada employees under the
      company's 'Sharing Our Success' monthly incentive program, for a total
      of $16.7 million in the first two quarters of 2008.

    - Air Canada contributed $76 million in the quarter to funding its
      employees' defined benefit pension plans, of which $23 million
      represented funding of past service costs in accordance with the Office
      of the Superintendent of Financial Institutions (OSFI) agreement.

    - In the quarter, 49 per cent of domestic consumers chose a higher
      branded fare than the lowest Tango fare available, a 3 percentage point
      increase from the previous year.

    - Revenues from Flight Pass products increased 76 per cent over the
      previous year's quarter, and represented approximately 5.2 per cent of
      North American revenues.

    - Continued to expand the offering of Flight Passes and subscription
      payment options for both unlimited travel and fixed credit passes with
      the launch of an Executive Class Pass, as well as Ontario and Quebec
      Passes for unlimited flying this summer.

    - Web penetration for domestic Canada sales in the second quarter was
      65 per cent - an increase of two percentage points over the previous
      year's quarter. Web penetration for combined Canada and U.S.
      transborder sales was 53 per cent - an increase of three percentage
      points over the previous year's quarter.

    - 74 per cent of domestic Canada sales in the second quarter, or
      63 per cent when combined with U.S. sales, were made directly with
      Air Canada, either online or through call centres.

    - 56 per cent of Air Canada's customers used self-service check-in
      products world wide in the second quarter - an increase of one
      percentage point over the previous year's quarter.

    - Introduced self-service kiosks for baggage tagging at Paris Charles De
      Gaulle Airport, the first international location to join existing
      facilities at Toronto, Montreal and Vancouver airports.

    - Improved fleet and operational efficiencies contributed to savings of
      approximately 18 million litres in fuel on passenger traffic growth of
      2.4 per cent in the second quarter of 2008 compared to the previous
      year's quarter. This represented an avoidance in CO2 emissions of
      46,456 tonnes, the equivalent to taking 11,614 cars off the road for a
      year.

    - Since launching a carbon offset program in May 2007, Air Canada
      customers have financed the planting of more than 1,900 trees to offset
      9.5 tonnes of carbon emissions, the equivalent of taking over 2,300
      cars off the road for a year.

    - Selected as the Best Airline to Canada by the readers of Executive
      Travel magazine in their annual reader survey.
    

    2008 Current Outlook

    As projected in its press release dated June 17, 2008, Air Canada
continues to expect its full year 2008 capacity, as measured in available seat
miles (ASM), to change between negative 1 and positive 1 per cent, compared to
the previous year. Full year domestic capacity is expected to increase by
approximately 1 per cent, compared to 2007 (originally projected to increase
by 2.5 per cent compared to 2007 in Air Canada's June 17, 2008 press release).
This reduction in domestic capacity growth is a result of Air Canada's further
review of its capacity plan for the fall-winter schedule. For the third
quarter, Air Canada expects ASM growth to be minus 2.5 to 3.5 per cent,
compared to the previous year's third quarter.
    Air Canada expects full year 2008 operating expense per available seat
mile (CASM), excluding fuel expense, to exceed the 2007 level by 1 to 2 per
cent, (which was previously expected to exceed up to 1 per cent as projected
in Air Canada's press release dated June 17, 2008), primarily the result of
the capacity reduction in the second half of the year. The airline is
aggressively managing the costs of all controllable parts of its operation and
continues in its efforts to mitigate the significant increase in its fuel
expense. Air Canada expects CASM, excluding fuel, in the third quarter 2008 to
increase between 4 to 5 per cent as compared to the same period in the
previous year. The increase in projected CASM, excluding fuel, for the third
quarter of 2008 compared to the third quarter of 2007 is primarily due to the
capacity reduction plan announced on June 17, 2008.
    Operating income in 2008 will be negatively impacted by an expected
increase in depreciation of between $140 million and $160 million compared to
2007, reflecting investments in new aircraft and the refurbishment of existing
ones. This will be partially offset by an expected decrease in 2008 aircraft
rent of up to 5 per cent versus 2007 (which was previously expected to
decrease approximately 5 to 10 per cent in Air Canada's press release dated
May 8, 2008).
    The above guidance reflects Air Canada's assumption that the Canadian
dollar will trade, on average, at Cdn $1.01 per U.S. dollar for the third
quarter in 2008 and for the full year 2008. Air Canada has also assumed that
growth in North America and globally will slow in 2008 and that a mild
economic recession will take place in the United States. Record high fuel
prices continue to impact the airline industry. Air Canada's outlook assumes
that the price of fuel will average 90 cents per litre for the full year 2008,
as opposed to the 93 cents per litre assumed in guidance provided in the press
release dated June 17, 2008 (net of current hedging positions). For the third
quarter 2008, Air Canada assumes the price of fuel (net of fuel hedging
positions) to be 1.00 dollar per litre. Air Canada has hedged approximately 49
 per cent of its projected fuel requirements for the remainder of 2008.
    The outlook provided constitutes forward-looking statements within the
meaning of applicable securities laws and is based on a number of assumptions
and subject to a number of risks. Please see section below entitled "Caution
Regarding Forward-Looking Information."

    (1) Non-GAAP Measures

    EBITDAR is a non-GAAP financial measure commonly used in the airline
industry to assess earnings before interest, taxes, depreciation and aircraft
rent.  EBITDAR is used to view operating results before aircraft rent,
depreciation and amortization as these costs can vary significantly among
airlines due to differences in the way airlines finance their aircraft and
other assets.  EBITDAR is not a recognized measure for financial statement
presentation under GAAP and does not have a standardized meaning and is
therefore not comparable to similar measures presented by other public
companies.
    Readers should refer to Air Canada's Second Quarter 2008 Management's
Discussion and Analysis (MD&A), which will be filed on SEDAR, and made
available on Air Canada's website at www.aircanada.com, for a reconciliation
of EBITDAR to operating income (loss).
    As a result of the deconsolidation of Jazz effective May 24, 2007, Air
Canada's consolidated results for the second quarter of 2008 are not directly
comparable to Air Canada's consolidated results for the same period of 2007.
This press release highlights the performance of Air Canada for the second
quarter of 2008 in relation to the performance of the Air Canada Services
segment for the second quarter of 2007, which excluded the consolidation of
Jazz operations. All figures are in Canadian dollars.
    For further information on Air Canada's public disclosure file, including
Air Canada's Annual Information Form dated March 28, 2008, consult SEDAR at
www.sedar.com or www.aircanada.com.

    CAUTION REGARDING FORWARD-LOOKING INFORMATION

    Air Canada's public communications may include written or oral forward
looking statements within the meaning of applicable securities laws. Such
statements are included in this press release and may be included in other
filings with regulatory authorities and securities regulators. Forward-looking
statements relate to analyses and other information that are based on
forecasts of future results and estimates of amounts not yet determinable.
These statements may involve, but are not limited to, comments relating to
strategies, expectations, planned operations or future actions. These
forward-looking statements are identified by the use of terms and phrases such
as "anticipate", "believe", "could", "estimate", "expect", "intend", "may",
"plan", "predict", "project", "will", "would", and similar terms and phrases,
including references to assumptions.
    Forward-looking statements, by their nature, are based on assumptions,
including those described below, and are subject to important risks and
uncertainties. Any forecasts or forward-looking predictions or statements
cannot be relied upon due to, amongst other things, changing external events
and general uncertainties of the business. Results indicated in
forward-looking statements may differ materially from actual results due to a
number of factors, including without limitation, energy prices, general
industry, market and economic conditions, currency exchange and interest rates
, competition, war, terrorist acts, epidemic diseases, insurance issues and
costs, changes in demand due to the seasonal nature of the business, the
ability to reduce operating costs, employee and labour relations, pension
issues, supply issues, changes in laws, regulatory developments or
proceedings, pending and future litigation and actions by third parties as
well as the factors identified throughout this press release and the MD&A and,
in particular, those identified in the "Risk Factors" section of Air Canada's
2007 MD&A dated February 6, 2008 and section 13 of Air Canada's Second Quarter
2008 MD&A dated August 8, 2008. The forward-looking statements contained in
this press release represent the Corporation's expectations as of the date of
this press release and are subject to change after such date. However, the
Corporation disclaims any intention or obligation to update or revise any
forward-looking statements whether as a result of new information, future
events or otherwise, except as required under applicable securities
regulations.
    Additional assumptions were made by Air Canada in preparing and making
forward-looking statements. In addition to other assumptions contained in this
press release, Air Canada has assumed that growth in North America and
globally will slow in 2008 and that a mild economic recession will take place
in the United States. Air Canada has also assumed that the Canadian dollar
will trade, on average, at Cdn $1.01 per US dollar for the third quarter of
2008, and for the full year 2008 and that the price of fuel will average 1.00
dollar per litre in the third quarter and 90 cents per litre for the full year
2008 (both net of current hedging positions).

    
    -------------------------------------------------------------------------
    Highlights
    -------------------------------------------------------------------------

    Prior to May 24, 2007, Air Canada had two reportable segments: Air Canada
Services (which is now referred to as Air Canada) and Jazz Air LP ("Jazz").
The following table provides the reader with financial and operating
highlights for Air Canada for the second quarter of 2008 and for the first six
months of 2008 and the financial and operating highlights for the Air Canada
Services segment, which excluded the consolidation of Jazz, for the second
quarter of 2007 and for the first six months of 2007.

                        -----------------------------------------------------
                             Second Quarter           First Six Months
    (Canadian dollars
     in millions except
     per share
     figures)             2008    2007  Change $    2008     2007  Change $
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Financial
    -------------------------------------------------------------------------
    Operating revenues   2,782   2,639     143     5,509    5,179     330
    -------------------------------------------------------------------------
    Operating income
     (loss) before a
     special
     provision(1)            7      88     (81)       (5)      10     (15)
    -------------------------------------------------------------------------
    Operating income
     (loss)                  7      88     (81)     (130)      10    (140)
    -------------------------------------------------------------------------
    Non-operating income
     (expense)             128     (33)    161        21      (25)     46
    -------------------------------------------------------------------------
    Income (loss) before
     non-controlling
     interest, foreign
     exchange and income
     taxes                 135      55      80      (109)     (15)    (94)
    -------------------------------------------------------------------------
    Income (loss) for
     the period            122     155     (33)     (166)     121    (287)
    -------------------------------------------------------------------------
    Operating margin
     before a special
     provision %(1)        0.3%    3.3%   (3.0) pp  -0.1%     0.2%   (0.3) pp
    -------------------------------------------------------------------------
    Operating margin %     0.3%    3.3%   (3.0) pp  -2.4%     0.2%   (2.6) pp
    -------------------------------------------------------------------------
    EBITDAR before
     a special
     provision(1)(2)       249     299     (50)      471      428      43
    -------------------------------------------------------------------------
    EBITDAR(2)             249     299     (50)      346      428     (82)
    -------------------------------------------------------------------------
    EBITDAR margin
     before a special
     provision %(1)(2)     9.0%   11.3%   (2.3) pp   8.5%     8.3%    0.2  pp
    -------------------------------------------------------------------------
    EBITDAR margin %(2)    9.0%   11.3%   (2.3) pp   6.3%     8.3%   (2.0) pp
    -------------------------------------------------------------------------
    Cash, cash
     equivalents and
     short-term
     investments         1,497   1,751    (254)    1,497    1,751    (254)
    -------------------------------------------------------------------------
    Free cash flow         (11)   (621)    610      (184)    (807)    623
    -------------------------------------------------------------------------
    Adjusted
     debt/equity
     ratio                65.9%   68.2%   (2.3) pp  65.9%    68.2%   (2.3) pp
    -------------------------------------------------------------------------
    Earnings (loss)
     per share -
     basic and
     diluted(3)          $1.22   $1.55  ($0.33)   ($1.66)   $1.21  ($2.87)
    -------------------------------------------------------------------------

    Operating Statistics                Change %                   Change %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Revenue passenger
     miles
     (millions) (RPM)   12,884  12,580     2.4    25,215   24,394     3.4
    -------------------------------------------------------------------------
    Available
     seat miles
     (millions) (ASM)   15,581  15,220     2.4    30,988   29,955     3.4
    -------------------------------------------------------------------------
    Passenger
     load factor          82.7%   82.7%      -      81.4%    81.4%      -
    -------------------------------------------------------------------------
    Passenger revenue
     per RPM
     (cents)(4)           19.0    18.5     2.5      18.8     18.4     2.4
    -------------------------------------------------------------------------
    Passenger revenue
     per ASM
     (cents)(4)           15.7    15.3     2.6      15.3     15.0     2.3
    -------------------------------------------------------------------------
    Operating revenue
     per ASM
     (cents)(4)           17.9    17.3     3.0      17.8     17.4     2.2
    -------------------------------------------------------------------------
    Operating expense
     per ASM ("CASM")
     (cents)              17.8    16.8     6.3      17.8     17.3     3.1
    -------------------------------------------------------------------------
    CASM, excluding
     fuel expense
     (cents)              12.4    12.6    (1.7)     12.8     13.2    (3.3)
    -------------------------------------------------------------------------
    Average number of
     full-time
     equivalent (FTE)
     employees
     (thousands)          24.6    24.3     1.5      24.3     23.8     2.1
    -------------------------------------------------------------------------
    Aircraft in
     operating fleet
     at period end(5)      343     329     4.3       343      329     4.3
    -------------------------------------------------------------------------
    Average fleet
     utilization
     (hours per day)(6)    9.5     9.6    (1.3)      9.7      9.6     0.6
    -------------------------------------------------------------------------
    Average aircraft
     flight length
     (miles)(6)            847     855    (1.0)      862      865    (0.3)
    -------------------------------------------------------------------------
    Fuel price per
     litre (cents)(7)     89.2    67.2    32.6      82.2     65.1    26.2
    -------------------------------------------------------------------------
    Fuel litres
     (millions)            946     941     0.5     1,893    1,866     1.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) A provision for cargo investigations of $125 million was recorded in
        the first quarter of 2008.
    (2) See section 15 "Non-GAAP Financial Measures" in Air Canada's Second
        Quarter 2008 MD&A dated August 8, 2008 for a reconciliation of
        EBITDAR before the provision for cargo investigations to operating
        income (loss) and EBITDAR to operating income (loss).
    (3) Earnings (loss) per share - basic and diluted are the consolidated
        Air Canada figures as reported under GAAP.
    (4) A revenue adjustment of $26 million relating to a change in
        accounting estimates was recorded in the fourth quarter of 2007 of
        which $29 million pertained to the first quarter of 2007. For
        comparative purposes, yield and RASM percentage changes were adjusted
        to include the impact of adding back $29 million to the first quarter
        of 2007.
    (5) Excludes chartered freighters in 2008 and 2007. Includes Jazz
        aircraft covered under the Jazz CPA.
    (6) Excludes third party carriers operating under capacity purchase
        arrangements. Includes Jazz aircraft covered under the Jazz CPA.
    (7) Includes fuel handling and is net of fuel hedging results.
    
    %SEDAR: 00001324EF




For further information:

For further information: Isabelle Arthur (Montréal), (514) 422-5788;
Peter Fitzpatrick (Toronto), (416) 263-5576; Angela Mah (Vancouver), (604)
270-5741; aircanada.com


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890