February 13, 2009 / 12:18 PM / in 9 years

UPDATE 3-Air Canada reports deep loss, shares skid

* Quarterly loss C$7.27 a share

* Looking for another C$100 mln in cost savings

* Shares fall 23 percent (Adds analyst comments, parent company results)

By Jeffrey Jones

CALGARY, Alberta, Feb 13 (Reuters) - Air Canada ACa.TO reported a worse than expected quarterly loss on Friday on waning passenger revenue and sharply higher costs, and said it aims to wrest more savings from operations to preserve cash.

Shares in Canada’s biggest airline fell 45 Canadian cents, or 23 percent, to C$1.50 on the Toronto Stock Exchange as investors fretted over its ability to ride out the recession.

Chief Executive Montie Brewer said the carrier, which announced 2,000 job cuts last year, aims to reduce costs by another C$100 million ($81 million) in 2009, while slicing its capacity by up to 3.5 percent.

It has already targeted up to C$40 million in savings by seeking concessions from its suppliers.

Sky-high fuel costs were a big factor in last year’s capacity reduction drive. Now, oil prices have skidded by more than $100 a barrel from the July record above $147.

“Although oil prices have since retreated, our tight-capacity strategy remains valid today as demand weakens given the global economic crisis,” Brewer told analysts.

The airline said last month it was laying off another 345 flight attendants.

Air Canada, which has shored up its balance sheet with C$641 million in new financing, also warned that the recession may put more pressure on its revenues in 2009. It said it has up to C$1 billion of assets it could use to increase its liquidity if needed.

But its financing efforts may not be enough, given the poor economic conditions that have battered airlines over the past year, Research Capital analyst Jacques Kavafian said.

“Even excluding fuel, costs went up dramatically. They raised their prices quite a bit as well, but even so they lost a whole lot of money, excluding the loss from their currency exposure and hedges,” Kavafian said.

He downgraded the stock to “sell” from “buy” and slashed his target share price to 25 Canadian cents from C$4, citing also the potential for labor disruptions after unionized airport and call center workers rejected a tentative deal.

In the fourth quarter, Air Canada lost C$727 million, or C$7.27 a share, down from a year-earlier profit of C$35 million, or 35 Canadian cents a share.

Excluding charges of C$527 million on foreign exchange and C$5 million on capital assets, it lost $1.95 a share.

Operating revenue fell marginally to C$2.5 billion from C$2.51 billion.

The carrier had been expected to lose C$1.53 a share, before special items, on revenue of C$2.47 billion, according to Reuters Estimates.

In the face of the economic meltdown, airlines are beginning to benefit from lower fuel costs and Air Canada said it expects that to more than offset falling revenue in 2009.

But in the quarter, lower fuel prices were overshadowed by the weaker Canadian dollar, which accounted for 40 percent of the carrier’s per-unit cost increase, it said.

Overall costs per available seat mile rose 17.4 percent, or 9.9 percent excluding fuel.

Parent company ACE Aviation Holdings ACEa.TO aims to wind up operations and distribute its 75 percent stake in the airline to shareholders after a vote set for April.

ACE reported a hefty net loss of C$633 million, including a net foreign exchange loss of C$527 million.

It also wrote down the value of its other asset, a 27.8 percent interest in aircraft maintenance firm Aveos Fleet Performance Inc, to zero.

Kavafian said that was because the business, co-owned with private equity firms, had deteriorated.

ACE shares fell 74 Canadian cents, or 9 percent, to C$7.26.

$1=1.24 Canadian Additional reporting Dhanya Ann Thoppil; Editing by Peter Galloway

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