Weak currency to hurt Air Canada's first quarter, shares sink

Wed Feb 12, 2014 10:21am EST
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By Solarina Ho

(Reuters) - Air Canada ACb.TO said on Wednesday it expected weakness in the Canadian dollar and adverse weather conditions to weigh on results in the current quarter, news that sent its shares sinking as much as 20 percent in morning trading.

The country's largest carrier, which widely missed analysts' expectations for the fourth quarter, said the Canadian dollar had weakened more than it forecast when crafting its budget.

First-quarter earnings before interest, taxes, depreciation, amortization and impairment, and aircraft rent (EBITDAR) could fall by between C$15 million ($13.6 million) and C$30 million from a year earlier, when it earned C$145 million.

The Montreal-based company told analysts on a conference call on Wednesday that it would consider trimming costs and raising prices when the timing was appropriate.

A fall in the Canadian dollar hurts Air Canada as the airline makes its major purchases, such as planes and fuel, in U.S. dollars.

Fears about low inflation in Canada and the possibility of an interest rate cut dragged the Canadian dollar to a four-and-a-half year low against the greenback on January 31.

The Canadian dollar was worth about 90.77 U.S. cents on Tuesday; it was near parity a year earlier.

Air Canada said it has U.S. dollar currency derivatives of about $1.55 billion and U.S. dollar cash reserves of $743 million, which will be available to help offset about 50 percent of its net U.S. dollar exposure in 2014.   Continued...

An Air Canada plane lands in front of a United plane at the Calgary International Airport in Calgary, Alberta in this June 17, 2008 file photo. REUTERS/Todd Korol