OTTAWA (Reuters) - Air Canada reported a quarterly net profit on Friday and said it sees signs the bottom of the recession is behind it although it does not expect a full recovery for another 12 to 18 months.
The country’s biggest airline said its results continue to be bruised by economic weakness and declines in passenger and cargo revenue, but conditions are no longer deteriorating.
“The worst of the worst seems to be behind us,” Chief Executive Calin Rovinescu said on a conference call with analysts. “Sprouts of green are coming up from the earth.”
Air Canada said its cautious outlook reflects the company’s reliance on premium, business-class travel over leisure travel to drive revenue.
Premium cabin yield sank nearly 20 percent in the third quarter from the same period in 2008 on waning corporate demand, while economy cabin yield fell 10.4 percent.
“An airline that is more reliant on business travel will take a longer time in the cycle to recovery,” Rovinescu said. “When we talk about 12 to 18 months, we are looking at a cycle of recovery for the corporate customers.”
The Montreal-based company said it still faces an “extremely challenging environment”, but a cash balance of close to C$1.5 billion ($1.4 billion) gives it the financial flexibility needed to mitigate the effects of a weak economy.
“The real focus for Air Canada is trying to ride out the storm,” said Salman Partners analyst Jayson Moss in an interview.
“I think they would be able to do it, just given the fact that they did raise ample liquidity to do so. I think it’s going to be a bumpy ride, but they’re going to be able to get through it.”
Air Canada raised C$1 billion in July from lenders, including the Canadian government, and won a temporary pension deficit payment reprieve from its labor unions. Last month, it raised C$248 million in a share issue.
It said it expects to see a C$50 million impact in 2009 from a cost-cutting and revenue growth plan it announced in August. That impact will increase to C$250 million in 2010 and the targeted C$500 million in 2011, the airline said.
Air Canada, which competes domestically against no-frills WestJet Airlines Ltd, reported net profit of C$277 million, or C$2.44 a share, for the third quarter, compared with a year-before net loss of C$132 million, or $1.32 a share.
Adjusted to remove foreign exchange gains of C$295 million and a C$1 million gain on assets, the carrier reported a loss of 19 Canadian cents a share.
Operating revenue declined 13 percent to C$2.67 billion, and operating income fell to C$68 million from C$112 million.
The company estimated a C$10 million decline in passenger revenue due to the H1N1 flu virus.
Traffic dropped 2.1 percent in the quarter on a 3.3 percent cut in capacity, resulting in a 1 percentage point improvement in passenger load factor.
“We recognize that full planes are not necessarily a sign that we are on the verge of a robust recovery,” Rovinescu said. “Our yields remain under significant pressure in the quarter.”
Passenger revenue fell by C$366 million, or 13 percent, to $2.4 billion as overall yield fell 11.2 percent.
System revenue per available seat mile fell 10.2 percent.
“I thought the quarter was half decent,” Moss said. “We were looking for pricing to actually come under a lot more pressure than it did.”
Air Canada shares rose 2 Canadian cents to C$1.16 on the Toronto Stock Exchange on Friday.
Reporting by Susan Taylor, additional reporting by Bhaswati Mukhopadhyay in Bangalore; editing by Peter Galloway