August 5, 2010 / 6:22 PM / 7 years ago

UPDATE 2-Air Canada operating performance improves

* Q2 loss C$0.72/shr vs EPS C$1.55 yr ago

* Unfavorable foreign exchange bites into results

* Operating revenue rose 13 pct

* Shares down 1.7 percent at C$2.26 on the TSX

By John McCrank

TORONTO, Aug 5 (Reuters) - Air Canada ACa.TO ACb.TO posted a quarterly net loss on Thursday, hurt by foreign exchange, but operating results improved as a rebounding economy boosted high-end business travel.

Passenger revenue per available seat mile (RASM), an industry performance benchmark, increased 6.6 percent.

That helped Canada’s largest airline turn in second-quarter operating income of C$75 million, compared with an operating loss of C$113 million a year earlier.

“Gradually improving economic conditions, and the airline’s efforts to enhance the quality of its revenues, contributed to the passenger revenue increase,” said Calin Rovinescu, chief executive of the Montreal-based company.

But the relative strength of the Canadian dollar had an unflattering impact on the bottom line, pushing the company to a second-quarter net loss of C$203 million ($199.6 million), or 72 Canadian cents a share.

In addition to foreign exchange losses of C$156 million, the loss reflected a charge of C$54 million in interest expenses.

A year earlier, when foreign exchange worked in Air Canada’s favor, it showed net income of C$155 million, or C$1.55 a share

Adjusted for the currency impact, the loss in the latest quarter came to 26 Canadian cents a share.

“Overall, I think the Q2 results showed some pretty good improvement year-over-year, and they appear to be on the right track,” said Cameron Doerksen, an analyst at Versant Partners in Montreal.

Several items included in the results don’t reflect on the company’s operating performance, including foreign exchange, debt repayment and higher fuel costs.

“If you wanted to back some of those items out ... it looks like it was a little below break-even on an earnings per share basis,” said Doerksen.

Earnings before interest, taxes, depreciation, amortization and rent, a measure of operating cash flow, more than doubled in the quarter, to C$333 million from C$135 million. That was in line with a range provided by Air Canada last month.

Overall, the increase in business travel had positive impact. Passenger revenue rose 12 percent while use of premium cabin seats climbed 31 percent, the country’s largest airline said.

“Almost half of (that) was due to revenue growth in the premium cabin,” Rovinescu said on a conference call with analysts..

Capacity growth rose 5.3 percent year-over-year as U.S. trans-border and international flying picked up, driving growth at Air Canada’s main hub in Toronto, as well as in Vancouver and Montreal.

“We’ve seen a doubling in the absolute numbers of connecting passengers ... particularly to and from the U.S. from Asia and Europe,” Ben Smith, an executive vice president at the airline, said on the call. “We’re very pleased with that, particularly the U.S. Northeast to Asia has been very promising.”

Air Canada said it plans on doubling its capacity between Toronto and China this autumn with introduction of daily flights year-round to Shanghai, Beijing and Hong Kong.

The company on Thursday also released its July load factor numbers, measuring the percentage of its available seats that were full. It reached nearly 92 percent for its Pacific routes, something Doerksen said was “almost unheard of in the airline business.”

He said that shows that the momentum has carried into the third quarter, which is seasonally the airline’s strongest period.

On Thursday, Air Canada’s shares ebbed 4 Canadian cents to C$2.26 on the Toronto Stock Exchange.

$1=$1.02 Canadian Reporting by John McCrank in Toronto and Bhaswati Mukhopadhyay in Bangalore

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