Past woes prepare Air Canada for fuel crisis: ACE

Mon Jun 30, 2008 1:28pm EDT
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By Carole Zabbal

MONTREAL (Reuters) - Air Canada ACa.TO is in a better position to survive the fuel crisis than many rivals because it emerged from the aftermath of the Sept 11 attacks and the SARS scare a stronger carrier, Robert Milton, the chief executive of its parent company, said on Monday.

However, the industry-wide struggle with oil above $140 a barrel has muddied a decision by parent ACE Aviation Holdings Inc ACEa.TO, which has a 75 percent interest in Canada's biggest airline, on what its next move with Air Canada should be, Milton said.

"Clearly the market conditions make things more difficult, but overall our focus remains doing right by our shareholders, and that principally at this stage is having the right outcome as it relates to Air Canada," Milton told reporters after the ACE annual meeting.

ACE has been studying whether to buy back the shares in Air Canada it does not own, or float its own shares in a secondary offering. A decision has been delayed as the global airline industry has sputtered.

Canada's airlines have not suffered to the extent of their U.S. counterparts, many of which have filed for bankruptcy protection, entered into merger talks and slashed capacity to deal with soaring fuel costs and a drop in travel demand.

But they are not completely immune. Two weeks ago, Air Canada said it will cut 2,000 jobs and reduce its capacity by 7 percent as runaway fuel prices sap the profitability of many routes, especially those to U.S. destinations.

Air Canada now spends an average C$230 ($225) per passenger on fuel for a round trip, up 57 percent from 2007.

Since emerging from bankruptcy protection itself in 2004, Air Canada has updated its fleet to add more fuel-saving jets, such as Embraer (EMBR3.SA: Quote) 190s and Boeing (BA.N: Quote) 777s.   Continued...

<p>ACE Aviation Holdings Inc's president, chairman and chief executive Robert Milton speaks at a special meeting of shareholders in Montreal, October 5, 2006. REUTERS/Shaun Best</p>