UPDATE 2-Air Canada beats on better costs; lowers cost forecast

Tue May 12, 2015 7:59am EDT
 
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(Adds analyst comment, context)

May 12 (Reuters) - Air Canada reported better-than-expected adjusted first-quarter earnings on Tuesday as fuel costs fell and other operating costs improved, and lowered its forecast for a key cost measure.

Canada's biggest airline said it expects adjusted operating expense per available seat mile to fall between 1.5 percent and 2.5 percent for 2015. It had previously forecast a decline of 0.75 percent to 1.75 percent.

Lower costs drove the beat, said RBC Capital Markets analyst Walter Spracklin, who wrote in a note to clients that the results "should be very well received."

A slump in global crude prices since June has lowered jet fuel costs, though a fall in the Canadian dollar against the U.S. dollar has partially offset that advantage as Canadian carriers make major purchases such as planes and fuel in U.S. dollars.

On an adjusted basis, Air Canada reported a net income of 41 Canadian cents per share for the quarter ended March 31, far above the 18 Canadian cents analysts were expecting, according to Thomson Reuters I/B/E/S.

Air Canada, which has been increasing capacity, including at its low-cost vacation carrier Rouge, reaffirmed its previous forecast that available seat miles would rise between 9 and 10 percent in 2015.

Yield, or passenger revenue per revenue passenger mile, dropped 4.2 percent from a year earlier. Air Canada said the decline was "an anticipated and natural consequence" of its decision to increase long-haul and leisure flights.

Air Canada is facing rising competition from WestJet Airlines Ltd, once a no-frills domestic carrier, which is adding international routes and boosting capacity while vowing to keep fares low.   Continued...