Air Canada beats profit estimates, sees higher costs in 2019

(Reuters) - Air Canada beat analysts’ estimates for quarterly profit on Friday, helped by more high-paying passengers, but the carrier forecast higher costs for 2019.

FILE PHOTO: Air Canada airplanes are pictured at Vancouver's international airport in Richmond, British Columbia, Canada, February 5, 2019. REUTERS/Ben Nelms

Canada’s largest airline said it is focused on improving margins while growing capacity on key domestic and international routes amid stiff competition from rival WestJet Airlines.

Transatlantic flights were the carrier’s best performing market during the fourth quarter ended Dec. 31, Chief Commercial Officer Lucie Guillemette told analysts.

“Despite all of the backdrop of the noise that we hear about fears of a recession and the trade wars and the rest of it, we do see a fairly strong and bullish market,” Chief Executive Calin Rovinescu said.

But rising customer service expenses stemming from this year’s expected introduction of a new Canadian passengers’ bill of rights called C49, risk eating into the company’s profits in 2019.

Air Canada shares initially dipped 3.2 percent at the start of trade, but those losses had reversed by mid morning.

Montreal-based Air Canada said it expects full-year 2019 adjusted CASM, or cost per available seat mile, to increase between 2 and 3 percent, compared with 2018, due to the new Canadian rules, Chief Financial Officer Michael Rousseau said.

Canada wants airlines to compensate passengers for lengthy delays.

An unintended consequence is that the new Canadian law would drive fares up, Rovinescu added.

Rising competition and volatile fuel prices led to about C$1 billion in additional costs in 2018 compared with 2017.

In the fourth quarter, the company’s yield - a key industry metric - rose 3.4 percent, while revenue passenger mile rose about 7.2 percent.

Last week, rival WestJet Airlines beat analysts’ estimate for profit in the fourth quarter and said it anticipates strong 2019 bookings.

Air Canada reported a loss of C$231 million ($173.87 million), or 85 Canadian cents per share, in the quarter, compared with a profit of C$8 million, or 2 Canadian cents per share, a year earlier.

Fuel costs rose nearly 25 percent in the fourth quarter, pushing operating expenses up about 12 percent to C$4.12 billion.

Excluding items, the company earned 20 Canadian cents per share, beating the average analyst estimate of 15 Canadian cents, according to IBES data from Refinitiv.

Air Canada’s operating revenue rose to C$4.25 billion from C$3.82 billion.

($1 = 1.3286 Canadian dollars)

Reporting by Shradha Singh in Bengaluru and Allison Lampert in Montreal; Editing by Shinjini Ganguli and Susan Thomas