UPDATE 2-Air Canada has Q2 profit but falling yields hit shares

Thu Aug 7, 2014 1:20pm EDT
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(Recasts; adds impact of longer flights on yields, market reaction, analyst and conference call comments)

By Solarina Ho

Aug 7 (Reuters) - Air Canada notched a higher operating profit on Thursday but its push into new overseas routes, with longer flights and lower margins, took a toll and sent its stock down nearly 7 percent.

Canada's largest carrier said yields, or passenger revenue per available seat mile, a key measure of revenue, fell in the quarter. Besides adding new routes, the carrier also boosted the number of flights and added more seats to major European destinations.

Chief Executive Calin Rovinescu said he expected third-quarter yields to be little changed from the second quarter.

"The yield is affected by both the stage length and the fact that we are, you know, investing ... more in the economy class here through the additional density," Rovinescu told analysts on a conference call.

Air Canada shares fell as much as 6.7 percent to C$8.62 on the Toronto Stock Exchange, the lowest since May 28.

BMO Capital Markets analyst Fadi Chamoun said in a note to clients that the results were "a mixed bag."

Air Canada has reported losses in 18 of the last 25 quarters as it struggles with labor disputes, pension bills, increasing competition and the collapse of its Aveos maintenance unit.   Continued...