Air Canada Jumps Most Since 2009 on Profit Beat

Air Canada (AC/B) surged the most in more than four years after it reported second-quarter profit that topped analysts’ estimates as fuel costs dropped, and said spending this year will decline more than forecast.

The Class B shares jumped 25 percent to C$2.65 at the close in Toronto, the biggest one-day gain since May 7, 2009. The stock rose 51 percent this year while Canada’s benchmark Standard & Poor’s/TSX Composite Index was down 0.2 percent.

Excluding some costs and gains, net income was C$115 million ($110.4 million), or 41 cents a share, beating the 13-cent average of seven analyst estimates compiled by Bloomberg. On that basis, the loss a year earlier was C$7 million, or 2 cents, the Montreal-based airline said today in a statement.

Earnings were “nothing short of spectacular,” marking “a true turnaround in the most despised sector of the market,” Bob Decker, a fund manager in Toronto at Aurion Capital Management, said by e-mail. He holds stock in Air Canada, the country’s biggest airline, among the C$6 billion in assets he helps manage.

Chief Executive Officer Calin Rovinescu is working to reduce costs by about 15 percent in the medium term with the help of higher-density aircraft, new maintenance agreements and the July start of the Rouge leisure unit. Air Canada said today that seat costs per mile flown will shrink by 1 percent to 2 percent in 2013, exceeding an April 22 forecast that called for a reduction of 0.5 percent to 1.5 percent.

Cost Forecast

Costs in the quarter excluding fuel declined 1.4 percent from a year earlier, in line with a forecast calling for a drop of a much as 1.5 percent. Spending on that basis in the three months through September will fall 1.5 percent to 2.5 percent, the carrier said.

The results “are a clear indication that we are gaining momentum in our transformation towards sustainable profitability at Air Canada (AC/A) and underscore our companywide efforts to achieve cost containment and continue to improve on our revenue and yield performance,” Rovinescu said in the statement.

Air Canada spent C$831 million on aircraft fuel in the second quarter, 6 percent less than in the 2012 period. Depreciation, amortization and impairment costs tumbled 22 percent to C$130 million, the company said in a filing.

Operating revenue climbed 2.3 percent from a year earlier to C$3.06 billion, topping the C$3.02 billion average estimate. Passenger revenue per mile flown rose 0.9 percent. Including a foreign-exchange cost of C$74 million because of a declining Canadian dollar, the net loss narrowed to C$23 million, or 9 cents a share, from C$161 million, or 59 cents, a year earlier.

Capacity Plans

Available seat miles will increase by 1.5 percent to 2.5 percent this year, Air Canada said today, reiterating an earlier forecast. Capacity will jump 9 percent to 11 percent next year with the addition of five Boeing Co. (BA) 777 airliners and six Boeing 787s, with most of the growth coming on international routes, the carrier said.

“Overall, it was a decent quarter operationally in which Air Canada did a solid job in managing controllable costs while shoring up its underlying business,” Walter Spracklin, an analyst at RBC Capital Markets in Toronto, said in a report to clients. Air Canada’s “capacity growth plans in international markets make sense, and it is encouraging to see the cost controls continuing.”

Cash and short-term investments as of June 30 amounted to C$2.11 billion, or 17 percent of 12-month trailing revenue. That’s down from the C$2.32 billion posted a year earlier, which represented 20 percent of 12-month sales. Long-term debt widened to about C$3.4 billion as of June 30 from C$3.26 billion on Dec. 31. Pension and benefit liabilities declined to about C$4.56 billion from C$4.69 billion.

To contact the reporter on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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