Air Canada stock dives on currency jitters

Tue Jan 28, 2014 4:19pm EST
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By Susan Taylor

TORONTO Jan 28 (Reuters) - Air Canada shares fell sharply for a second day on Tuesday on investor worries that Canada's weakening dollar would drive up costs at the country's largest airline.

Shares of the Montreal-based carrier closed 12 percent lower at C$7.63 on the Toronto Stock Exchange after dropping as low as C$7.44 after media reports flagged comments that the carrier's chief executive officer made about the impact of the currency's depreciation.

"We have massive exposure to the U.S. dollar," the Globe and Mail newspaper quoted CEO Calin Rovinescu as saying after a speech. "The kind of precipitous (Canadian dollar) drop that we have had in the last little while is significant."

Air Canada is set to report fourth-quarter results on Feb. 12, while its smaller rival, WestJet Airlines Ltd, whose stock tumbled 4 percent on Tuesday, is set to issue year-end numbers Feb. 4.

Fears about low inflation in Canada and the possibility of an interest-rate cut helped push the Canadian dollar to a 4-1/2 year low against the greenback on Tuesday at 89.57 U.S. cents.

A falling dollar hurts Air Canada because it makes major purchases in U.S. dollars, including planes and fuel. The airline estimated that in 2012 every 1 cent change in the value of Canada's dollar had a C$33 million ($29.7 million) impact on its annual operating income.

Jet fuel, which is Air Canada's largest single expense, represents about a third of total operating costs. The airline hedges some of its fuel purchases, but that typically covers only 35 percent of the total, Rovinescu told the Globe and Mail.

In December, the airline said it would buy 61 Boeing 737 MAX planes, which would have a list price of $6.5 billion, though aircraft are typically sold below list price.   Continued...