May 6, 2019 / 10:30 AM / 6 months ago

Air Canada posts surprise profit despite MAX grounding; shares jump

MONTREAL/TORONTO (Reuters) - Air Canada on Monday reported a surprise quarterly profit that sent shares up more than 5 percent in earlier trading, helped by flying more passengers and its purchase of a loyalty program, despite pressures from the grounding of Boeing’s 737 MAX jets.

FILE PHOTO: An Air Canada Airbus A320-200 airplane prepares to land at Vancouver's international airport in Richmond, British Columbia, Canada, February 5, 2019. REUTERS/Ben Nelms/File Photo

Canada’s largest carrier said it sees strong demand ahead of summer, and expects second-quarter results in line with forecasts made before the global grounding of Boeing Co’s 737 MAX in March, following two fatal crashes involving the aircraft model.

The grounding, which hit 20 percent of the carrier’s mainline narrowbody fleet “stress tested us and we passed,” Air Canada Chief Executive Officer Calin Rovinescu told analysts.

North American operators of the MAX wrestled during the first quarter with harsh weather and the plane’s grounding, while facing pressure from rising jet fuel costs.

Air Canada is awaiting the green light from regulators, but will also conduct its own safety assessment before returning the plane to service, Rovinescu said.

He said Air Canada’s training requirements may exceed those of Boeing and the U.S. Federal Aviation Administration (FAA).

Boeing was not immediately available for comment.

Canada has said the country’s pilots must receive simulator training for Boeing’s new 737 MAX software fix, going beyond an FAA-appointed board which has proposed additional training without requiring a simulator.

Air Canada, currently the only North American carrier with the MAX simulator, has trained its pilots on “some of the scenarios” that occurred during recent Lion Air and Ethiopian Airlines crashes, Rovinescu said.

“By having a MAX simulator we are in a better position to actually see what went on with the other accidents,” Rovinescu told Reuters on the sidelines of the company’s annual general meeting in Toronto.

He did not specify the differences between simulators for the MAX and the older 737 NG model.

Southwest Airlines has one MAX simulator on order and expects it to be operational sometime in the third quarter.

American Airlines expects delivery of the MAX simulator during the last three months of the year.

U.S. airlines have said they expect the MAX to return to service this summer, although a date is unclear.

Travel demand between Canada and China was also hit during the quarter amid trade tensions between the two countries as well as the December arrest of a Huawei Technologies Co executive.

Rovinescu said demand was “stable now.”

Revenue from Air Canada’s acquisition of the Aeroplan loyalty program, along with a 4.2 percent rise in traffic, drove a nearly 5 percent increase in passenger yield, the company said. Cost per available seat mile (CASM) - a measure of how much an airline spends to fly a passenger - climbed 3.8 percent.

Air Canada reported adjusted net income of C$17 million, or 6 Canadian cents per share, in the first quarter ended March 31, compared to a loss of C$26 million, or 10 Canadian cents per share, a year earlier.

Analysts’ on average had expected a loss of 18 Canadian cents, according to IBES data from Refinitiv.

Air Canada shares rose 4.28 percent to C$35.06 in midday trading in Toronto.

Reporting by Allison Lampert in Montreal and Allison Martell in Toronto; additional reporting by Shanti S Nair in Bengaluru and Tracy Rucinski in Chicago; editing by Sriraj Kalluvila, Bill Trott and G Crosse

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