Air Canada narrows Q1 losses, higher fuel costs mount pressure

May 05, 2011 2:29 PM ET

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Air Canada (TSE:AC.B) has signficantly narrowed its first quarter losses, it said Thursday, despite higher fuel costs, which are increasingly adding pressure to its financial results.

The Canadian airline reported a net loss of $19 million, or 7 cents per share, compared to a net loss of $112 million, or 41 cents per share, in the year-ago period.

The latest quarter included $104 million of foreign exchange gains, compared to similar gains of $123 million a year earlier.

On an adjusted basis, losses came in at 45 cents, missing analyst estimates by one cent. Operating revenues rose to $2.75 billion from $2.52 billion in the first quarter of 2010.

The company said that during the quarter, it incurred more than $120 million in additional fuel expenses over the same period last year, and expects that higher prices will add roughly $800 million to its operating costs in 2011.

"While fully offsetting increased fuel prices poses a significant challenge for an international carrier, we are aggressively pursuing a number of initiatives including capacity adjustments, fare and fuel surcharge increases, where competitively feasible, and incremental cost reduction opportunities in an attempt to mitigate the impact on Air Canada's 2011 results," said president and CEO, Calin Rovinescu.

Passenger revenues increased 10.3% year-over-year on a 5.7% growth in traffic, and a 4.2% improvement in yield, the company said.

Yield growth was mainly a result of higher fares and fuel surcharges to offset higher fuel prices. Premium cabin revenues increased nearly 13% from a year ago as traffic improved significantly.

During the quarter, system capacity rose 7.7%, due to capacity increases implemented after last year's first quarter. Operating expenses climbed 6%, or $164 million.

Due to the higher fuel costs, Air Canada lowered its system-wide capacity growth outlook for the year to between 3.5% to 4.5% from its previous guidance of 4.5% to 5.5% announced in March.

The company has been looking at a number of options to sustain its growth, including the introduction of a discount leisure carrier, and recently unveiled Air Canada Express, a regional service between Toronto Island Airport and Montreal.

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