By Solarina Ho
Feb 12 Air Canada said on Wednesday it
expected weakness in the Canadian dollar and adverse weather
conditions to weigh on results in the current quarter, news that
sent its shares sinking as much as 20 percent in morning
The country's largest carrier, which widely missed analysts'
expectations for the fourth quarter, said the Canadian dollar
had weakened more than it forecast when crafting its budget.
First-quarter earnings before interest, taxes, depreciation,
amortization and impairment, and aircraft rent (EBITDAR) could
fall by between C$15 million ($13.6 million) and C$30 million
from a year earlier, when it earned C$145 million.
The Montreal-based company told analysts on a conference
call on Wednesday that it would consider trimming costs and
raising prices when the timing was appropriate.
A fall in the Canadian dollar hurts Air Canada as the
airline makes its major purchases, such as planes and fuel, in
Fears about low inflation in Canada and the possibility of
an interest rate cut dragged the Canadian dollar to a
four-and-a-half year low against the greenback on Jan. 31.
The Canadian dollar was worth about 90.77 U.S. cents on
Tuesday; it was near parity a year earlier.
Air Canada said it has U.S. dollar currency derivatives of
about $1.55 billion and U.S. dollar cash reserves of $743
million, which will be available to help offset about 50 percent
of its net U.S. dollar exposure in 2014.
WestJet Airlines Ltd, Air Canada's main domestic
rival, recently raised ticket prices to make up for rising
currency-related costs. WestJet said it would raise prices again
if the Canadian dollar slid further.
Air Canada forecast adjusted cost per available seat mile
(CASM) to fall between 1 and 2 percent in the first quarter and
2.5 and 3.5 percent for the full year. CASM is a key metric that
measures the cost incurred to fly a single seat for a mile.
For the full year, the weaker Canadian dollar is expected to
hit Air Canada's CASM outlook by 1.4 percentage points.
The carrier said seat capacity will increase to between 3.5
and 4.5 percent in the current quarter compared to last year.
FOURTH QUARTER MISS
While Air Canada said it reported its best full-year
financial performance, fourth-quarter results were hit by planes
that were slightly less full than the fourth quarter of 2012 and
lower yields. Passenger revenue per available seat mile (RASM)
fell 1.7 percent.
Air Canada's CASM fell 2.3 percent in the fourth quarter
ended Dec. 31.
Adjusted CASM excludes fuel expenses, the cost of ground
packages at Air Canada Vacations and special items.
The company's net loss narrowed to C$6 million, or 2
Canadian cents per share, from C$60 million, or 22 Canadian
cents, a year earlier. Operating revenue rose to C$2.89 billion
from C$2.84 billion.
Excluding financing expenses on employee benefits and other
items, adjusted earnings were C$3 million, or 1 Canadian cent a
share, compared with a loss of C$5 million, or 2 Canadian cents
Analysts, on average, had been expecting earnings of 12
cents a share, according to Thomson Reuters I/B/E/S.
EBITDAR excluding the impact of benefit plan amendments for
the fourth quarter was C$277 million, compared with C$283
million a year ago. Air Canada estimated that EBITDAR in
December took a C$15 million hit from harsh winter weather.
Shares slumped 12.9 percent to C$6.81 in morning trading,
after earlier sinking as low as C$6.20.
In January, shares briefly reached highs not seen since
early 2008 before tumbling some 20 percent on concerns over the
impact of the Canadian dollar.