Air Canada loss narrows, stock slides

Thu May 6, 2010 4:24pm EDT
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By Susan Taylor

OTTAWA (Reuters) - Air Canada reported a narrower quarterly loss on Thursday, but its shares tumbled along with other airline stocks on concern that fallout from Europe's debt crisis could derail the industry's recovery.

Shares of Canada's largest airline were already down sharply late Thursday afternoon when U.S. airline stocks swooned on fears of a double-dip recession should the debt crisis spread beyond Greece. By the time markets closed, Air Canada shares had shed 7.3 percent of their value.

The company said earlier it expects to take a C$20 million ($19 million) hit in the second quarter because of flight cancellations in April after an Icelandic volcano spewed ash clouds over Europe.

Even so, Air Canada said it is well positioned to weather an uncertain economic rebound as it cuts costs from operations and sees encouraging travel trends, such as a 15 percent increase in premium travel.

"The key take-away is continued focus on non-fuel costs and wisely managing their capacity," said Robert Kokonis, managing director of airline consulting company AirTrav Inc.

Just 10 months ago, the airline was teetering on the edge of bankruptcy protection, sideswiped by the recession and a heavy debt load before reaching last-minute financing and labor deals with its unions.

Some analysts on Thursday were quick to point out that the company was still vulnerable, even without referencing the chances of a fresh economic downturn triggered by the European turmoil.

"While positive trends, particularly in premium travel demand, are encouraging, we continue to have several concerns about Air Canada, including still relatively low levels of profitability and the risk of a rise in fuel prices, among others," Versant Partners analyst Cameron Doerksen said in a note.   Continued...