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TORONTO (Reuters) - Air Canada ACb.TO said on Monday it expects a wider operating loss in the first quarter, after weather-related flight cancellations, operational challenges and a sizeable impairment charge. Shares fell sharply.
Analysts said the preliminary results, which Canada's largest airline said it announced early so it could share the data with potential lenders, were weaker than they had expected and may suggest slowing revenue and earnings growth.
The Montreal-based airline's more heavily traded class B shares were down 12.7 percent at C$2.62 on the Toronto Stock Exchange, a modest recovery from an earlier fall of 18 percent.
Before the results, Air Canada stock was up some 250 percent in a year, making it vulnerable to bad news, RBC Capital Markets analyst Walter Spracklin said in a note which cut his stock price target to C$3 from C$4.
"This morning's unexpected profit warning is an example of this risk, with the lower-than-expected RASM (revenue per available seat mile) and yields certainly a cause for concern," Spracklin said.
Last week, he downgraded the stock to "sector perform" due to its lofty share price.
The airline, which is scheduled to report its results May 3, estimated first-quarter RASM growth at 1.1 percent. Spracklin said that lags his estimate of a 2.7 percent rise and suggests negative yield, versus his forecast of a 2 percent yield gain.
Air Canada, whose main domestic rival is WestJet Airlines Ltd (WJA.TO), expects a first-quarter operating loss of C$106 million ($103 million), deeper than a year-ago loss of C$91 million. The net loss is seen at C$260 million, versus a net loss of C$274 million in the same period last year.
Closely-watched EBITDAR, or earnings before interest, taxes, depreciation, amortization and impairment, and aircraft rent, missed expectations, said TD Securities analyst Tim James.
The airline's estimate of C$145 million in first-quarter EBITDAR is down from C$174 million a year earlier, while lagging TD's expectation of C$193 million and the consensus view of about C$173 million, James wrote in a note.
"The shortfall relative to our expectations was mainly due to lower passenger yield and revenue growth, partially offset by lower operating costs," he wrote.
Adjusted costs per available seat mile, excluding fuel, were up an estimated 1.4 percent, below management's previous forecast of a 3-4 percent increase. The improvement was largely due to C$15 million in favorable accrual adjustments and the timing of maintenance, the airline said.
Air Canada said it now sees full-year adjusted costs per available seat mile falling 0.5-1.5 percent, a bigger drop than its previous view of costs that would be flat to down 1 percent.
The results included several one-time charges, which muddied the overall picture.
The airline said it took a C$10 million hit due to severe weather conditions during the quarter, and unfavorable currency-related moves and a higher proportion of leisure passengers over business passengers also hurt results.
The preliminary results also include a C$24 million impairment charge on Airbus A340-300 widebody planes, which the airline subleased in 2007-2008.
The carrier, which estimates its debt at C$3.9 billion as of March 31, has said it was considering options to refinance its debt and pay for five new Boeing 777-300ER aircraft scheduled for delivery over the next two years.
An Air Canada spokesman could not say if the debt financing was aimed at existing debt, new debt, or a combination.
The airline has C$760 million in principal and interest obligations due this year, and aircraft lease payments and capital expenditure-related costs bring total 2013 obligations to C$1.69 billion.
For 2014, the airline has C$1.68 billion in total obligations, rising to C$2.40 billion in 2015 and roughly C$5.86 billion in 2016 and the years beyond.
Reporting by Susan Taylor and Euan Rocha in Toronto and Krithika Krishnamurthy in Bangalore; editing by Janet Guttsman, Matthew Lewis and Sofina Mirza-Reid