Air Canada expects Air China joint venture in the spring

(Reuters) - Air Canada's AC.TO chief executive on Friday said a joint venture with Air China 601111.SS, expected to be wrapped up this spring, would help it compete more "aggressively" in the Pacific market, after the Canadian carrier reported a better-than-expected fourth-quarter profit.

The two carriers already have agreements for passengers to use each other’s lounges and codesharing services but a full joint-venture would expand such collaboration, in a boost to Air Canada which is facing yield pressures on flights to China and Hong Kong.

“We have meetings scheduled ... in the May time frame to see whether we can put the finishing touches on it,” CEO Calin Rovinescu told analysts. “It should certainly be an assistance to us in competing more aggressively.”

Canada's biggest airline also faces competition from rival WestJet Airlines WJA.TO which is expanding international flights, as well as pressures to raise fares as fuel costs rise.

“We fully expected fuel to be bouncing around this year,” Rovinescu said. “Our sensitivity to fuel is well embedded in our pricing strategy.”

Air Canada cited growth and cost-control as drivers of a rise in operating margins to 3.5 percent in the fourth quarter from 0.5 percent a year earlier. The stock was up 2.9 percent in mid-morning trade, while the benchmark Toronto share index .GSPTSE was up 0.2 percent.

The carrier launched a new program to save C$250 million ($199.43 million) by the end of 2019. It’s not yet clear whether the program will seek to reduce staff through early retirements, but some savings will already be achieved in 2018, Rovinescu said.

“We will be looking at programs across all branches and across all initiatives,” he said.

The Montreal-based company is also expanding its lower-cost leisure carrier Rouge, as passengers seek cheaper ways to fly and WestJet gets ready to launch its own ultra-low-cost carrier in June.

Air Canada said it flew 9.9 percent more passengers in the quarter ended Dec. 31, and spent 1.3 percent less to fly each passenger. Fuel costs rose about 13.6 percent to 67.5 Canadian cents per liter.

On an adjusted basis, however, it said it expects to spend about 2 percent to 3 percent more per passenger in the first quarter of 2018, compared with the first quarter last year.

Excluding items, the company earned 22 Canadian cents per share, beating analysts’ average estimate of 14 Canadian cents, according to Thomson Reuters I/B/E/S.

($1 = C$1.25)

Reporting by Anirban Paul in Bengaluru; Editing by Andrea Ricci