Air Canada Reports First Quarter 2013 Results
Operating loss of $106 million versus an operating loss of $91 million in the first quarter of 2012
MONTREAL - Consistent with the news release issued on April 22, 2013 disclosing preliminary results for the first quarter of 2013, Air Canada today reported an adjusted net loss of $143 million or $0.52 per diluted share compared to an adjusted net loss of $162 million or $0.58 per diluted share in the first quarter of 2012. On a GAAP basis, Air Canada's net loss was $260 million or $0.95 per diluted share compared to a net loss of $274 million or $0.99 per diluted share in the same quarter in 2012. First quarter EBITDAR amounted to $145 million compared to EBITDAR of $174 million in the first quarter of 2012.
"In the quarter we made progress towards the sustainable transformation of Air Canada by narrowing our net loss as compared to the previous year. In addition, we reached an important agreement with the Government of Canada on extending Air Canada's pension funding arrangements to January 30, 2021. This was then followed last week by the launch and pricing of a private offering of enhanced equipment trust certificates (EETCs) -- a first for a Canadian airline," said Calin Rovinescu, President and Chief Executive Officer.
"I would especially like to express our gratitude to the Government of Canada and certain provincial governments for implementing the so-called Cape Town Convention effective April 1, 2013, which helps level the playing field for Canadian airlines by facilitating their access to debt capital markets for financing their aircraft acquisitions on more favourable terms. Significant work over many years was undertaken by Government officials, in conjunction with our legal and finance teams, to permit adoption of the Cape Town Convention in the most optimal way, and I want to recognize these individuals for their outstanding work.
"While the first quarter's loss was narrowed compared to the previous year, the quarter fell short of our expectations, in part due to a decline in premium travel demand. We are encouraged to see an improvement in second quarter economy and premium class cabin booking trends which are running above last year's levels, although the yield environment remains challenging. We remain focused on executing on our plan to increase value for our stakeholders and to continue to reduce our cost structure with the upcoming deliveries of five additional Boeing 777 aircraft, the launch of our leisure carrier Air Canada rouge, the transfer of Embraer 175 regional aircraft to Sky Regional, and the development of our international network with Toronto Pearson as its North American gateway airport. Along with ongoing initiatives for revenue generation and cost control, we are confident of continued improvements and a successful performance for the year ahead. I thank our 27,000 employees for their commitment to taking care of our customers and their dedication to helping ensure Air Canada's long term success."
First Quarter Income Statement Highlights
First quarter 2013 system passenger revenues were $2.527 billion, an increase of $3 million, on a 1.1 per cent growth in traffic and a 1.1 per cent decline in yield. Passenger revenue per available seat mile (RASM) increased 1.1 per cent from the first quarter of 2012 on a 1.8 percentage point improvement in passenger load factor. Air Canada reported a record passenger load factor of 81.0% for the first quarter of 2013, reflecting an effective approach to capacity management. The overall yield decline versus last year's quarter was due to a number of factors including: relatively more leisure versus business passengers in part due to a shift of the Easter holiday from the first week of April in 2012 to the last week of March in 2013, flight cancellations due to severe weather and de-icing service delays at Toronto Pearson International airport which adversely impacted business travel demand, increased industry capacity and competitive pricing activities in certain markets, an unfavourable foreign currency impact, and having one less calendar day in February 2013 than in February 2012 on account of the leap year. In the premium class cabin, passenger revenues decreased $38 million or 6.7 per cent on an 8.4 per cent decline in traffic, partly offset by a yield improvement of 1.8 per cent.
Operating expenses increased $6 million from the first quarter of 2012, reflecting decreases in all major line categories with the exception of wages, salaries and benefits, capacity purchase agreements and the category of "other" operating expenses. In the first quarter of 2013, Air Canada recorded a non-cash impairment charge of $24 million related to Airbus A340-300 aircraft (none of which are operated by Air Canada) in depreciation, amortization and impairment expense.
Air Canada's adjusted cost per available seat mile ("adjusted CASM"), which excludes fuel expense, the cost of ground packages at Air Canada Vacations and unusual items (such as impairment charges) increased 1.4 per cent compared to the first quarter of 2012.
In the first quarter 2013, Air Canada recorded an operating loss of $106 million compared to an operating loss of $91 million in the same quarter in 2012, a deterioration of $15 million. The deterioration in Air Canada's operating results was in large part due to flight cancellations caused by severe weather conditions and aircraft deicing service delays at Toronto Pearson International Airport. Air Canada estimates that these events resulted in a $10 million unfavourable net impact on its financial results in the first quarter of 2013.
At March 31, 2013, cash and short-term investments amounted to $2,056 million, or 17 per cent of 12-month trailing revenues (March 31, 2012 - $2,185 million, or 18 per cent of 12-month trailing revenues).
At March 31, 2013, adjusted net debt of $3,987 million decreased $246 million from March 31, 2012, reflecting the impact of lower debt balances, a decrease in capitalized operating leases, partially offset by a decrease in cash balances.
Free cash flow of $147 million increased $7 million from the first quarter of 2012.
In the second quarter of 2013, Air Canada expects its system ASM capacity, as measured by available seat miles (ASMs), to increase in the range of 2.0 to 3.0 per cent when compared to the second quarter of 2012.
Air Canada continues to expect full year 2013 system ASM capacity to increase in the range of 1.5 to 2.5 per cent when compared to the full year 2012. Air Canada also continues to expect its full year 2013 domestic capacity to increase in the range of 0.5 to 1.5 per cent from the full year 2012.
For the second quarter of 2013, Air Canada expects adjusted CASM to be in the range of a decrease of 0.5 per cent to an increase of 0.5 per cent when compared to the second quarter of 2012.
Taking into account the better than expected adjusted CASM result in the first quarter of 2013, Air Canada now expects its full year 2013 adjusted CASM to decrease in the range of 0.5 to 1.5 per cent from the full year 2012.
Air Canada's outlook assumes Canadian GDP growth of 1.25 to 1.75 per cent for 2013. In addition, Air Canada expects that the Canadian dollar will trade, on average, at C$1.02 per U.S. dollar for the second quarter of 2013 and for the full year 2013 and that the price of jet fuel will average 85 cents per litre in the second quarter of 2013 and 86 cents per litre for the full year 2013.