Air Canada shares drop as fare revenues stoke concern

Wed Aug 12, 2015 12:29pm EDT
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By Allison Martell

TORONTO (Reuters) - Air Canada (AC.TO: Quote) shares fell sharply on Wednesday after Canada's biggest airline reported a drop in some closely watched revenue numbers in the second quarter, raising fears that tough competition is weighing on fares.

Macquarie Securities analyst Konark Gupta said a 5 percent decline in yield, a measure of the average per-mile fare paid by passengers, was worse than expected.

"The pricing was quite weak in the second quarter," he said. "I think the market is reading that pricing will likely remain weak."

Shares dropped 6.7 percent to C$12.03, the third-largest percentage fall on the Toronto Stock Exchange's S&P/TSX index.

Despite the yield drop, Air Canada has become consistently profitable after years of losses, bringing operating costs under control. On Wednesday it reported quarterly earnings slightly above expectations, helped by lower oil prices, which may continue to lift profits in the months ahead.

But the airline faces rising competition from rival WestJet Airlines Ltd (WJA.TO: Quote). Once a low-cost carrier focused on domestic markets, WestJet is expanding internationally and wooing business travelers.

Air Canada has also added capacity, which has weighed on some of its financial results.

"I'll address the elephant in the room - our capacity growth," Chief Executive Calin Rovinescu said on a call with analysts and investors.   Continued...

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