Air Canada operating profit drops on fuel costs

Fri Nov 4, 2011 1:48pm EDT
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By Allison Martell

TORONTO (Reuters) - Surging fuel prices contributed to a sharp drop in operating profits at Air Canada and the airline posted a net loss for the third quarter on Friday.

The slide in operating profit came even though Canada's largest airline completed its cost-reduction program in the quarter, reaching C$530 million in annual savings.

"We experienced a strong revenue performance in the quarter, however the revenue growth did not keep pace with the increase in operating costs, given a higher price of fuel," said Chief Executive Calin Rovinescu on a conference call.

Operating profit dropped to C$270 million ($266.6 million) from C$306 million a year earlier. Operating revenue rose 7 percent to C$3.24 billion, but operating expenses rose 9 percent, thanks to a 47 percent increase in fuel prices.

"All and all I'd call it an in-line quarter, with reasonable expectations to move forward," said PI Financial analyst Chris Murray in an interview. Murray highlighted the cost-cutting program, calling the savings "substantial."

Independent airline consultant Robert Kokonis was also positive about cost-cutting, and said it means Air Canada is better about to handle a possible economic downturn.

For 2011, the Montreal-based airline said it expected system capacity to increase by 4.0 to 4.5 percent, but citing the economic environment, also said it will aim to raise capacity no more than 1.5 percent in 2012.

Air Canada's net loss came in at C$124 million, or 45 Canadian cents a share, compared with a net profit of C$317 million, or C$1.10. Adjusted for foreign exchange losses, it earned 55 Canadian cents a share.   Continued...

<p>A man checks into an Air Canada flight at the Toronto Pearson International Airport in Toronto, September 20, 2011. REUTERS/Mark Blinch</p>