AC Profit Down In Q3, But Airline Is Weathering The Fuel Storm

Bruce Parkinson, Open Jaw

Like most airlines reporting results recently, Air Canada’s Q3 numbers reflect the negative impact of sharply higher fuel prices. But CEO Calin Rovinescu says the company is still flying at high altitude.

The airline reported a profit of $645 million for the quarter, which ended 30SEPT. That's compared with a profit of $1.72 billion or $6.22 per diluted share a year ago – a number swelled by an income tax recovery of $758 million.

For Q3, AC reported operating income of $840 million compared to $976 million in last year's quarter. The airline reported third quarter adjusted pre-tax income of $793 million compared to adjusted pre-tax income of $922 million in Q3 2017.  

Rovinescu praised the results.

"I am extremely pleased with both our unit revenue performance and our adjusted CASM (cost per available seat mile) results for our all-important third quarter. Quarterly operating revenue grew 11%, exceeding $5 billion for the first time in our history,” Rovinescu said.

“Strong revenue and cost management substantially offset the challenges we faced in the quarter, principally the significant increase in fuel prices. Once again, the strength of our brand and of our people shone through in the quarter." 

Rovinescu also praised “a disciplined and efficient approach to costs” that saw adjusted CASM rise just 1.1% from the third quarter of the prior year, well below the 2-3% increase projected for the period. 

“Cost control will remain central to our strategy and we have already identified or realized two-thirds of the $250 million cost transformation program initiated early this year.” 

In the third quarter capacity was up 6.7%, more than absorbed by traffic growth of 7.5%. Yields improved by 3.4%, despite an increase in average stage length of 1.3% which the airline says had the effect of reducing system yield by 0.7 percentage points. 

In the business cabin, system passenger revenues increased $98 million or 13.0% from the third quarter of 2017 on traffic and yield growth of 8.9% and 3.7%, respectively. 

Q3 operating expenses of $4.575 billion increased $671 million or 17% from the same quarter in 2017, mainly driven by higher fuel prices year-over-year and by the increase in capacity.

Air Canada now expects positive free cash flow in the range of $500 million to $600 million in 2018, as opposed to the range of $350 million to $500 million projected in Air Canada's news release dated July 27, 2018, largely due to higher than expected cash from operations, including working capital. 

Bruce Parkinson

Bruce Parkinson Editor-in-Chief

An observer and analyst of the Canadian and international travel industries for over 25 years, Bruce uses the pre-dawn hours to prepare a daily news and information package to keep industry members up to date.

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