October 29, 2019 / 10:26 AM / a month ago

Air Canada sees year-end capacity up despite 737 MAX grounding, shares jump

MONTREAL (Reuters) - Air Canada said on Tuesday it expects higher capacity and revenues during the last three months of 2019, after reporting lower-than-expected third-quarter profit in the wake of the grounding of Boeing Co’s 737 MAX jets.

FILE PHOTO: An Air Canada Boeing 737 MAX 8 from San Francisco approaches for landing at Toronto Pearson International Airport over a parked Air Canada Boeing 737 MAX 8 aircraft in Toronto, Ontario, Canada, March 13, 2019. REUTERS/Chris Helgren

Canada’s largest carrier, which has 24 grounded MAX jets, forecast capacity growth of 3% during the fourth quarter, following a 2% dip during the third quarter. Air Canada shares jumped 4.46% in morning trading.

“Looking ahead to the fourth quarter, we anticipate year over year traffic and revenue growth despite the MAX grounding,” Air Canada chief commercial officer Lucie Guillemette told analysts during a call.

The fast-selling 737 MAX has been grounded worldwide since mid-March while Boeing updates flight control software at the center of two crashes in Indonesia and Ethiopia that together killed 346 people within a span of five months.

North American carriers like Air Canada, Southwest Airlines and American Airlines have canceled thousands of monthly flights of the fuel-efficient MAX as they scramble to meet demand with slimmer fleets.

Air Canada has pulled the MAX from its schedule until Feb. 14, 2020.

Air Canada warned investors in July that the grounding would weigh on third-quarter earnings.

Adjusted net income rose to C$613 million ($469.34 million), or C$2.27 per share, from C$580 million, or C$ 2.10 per share, a year earlier.

Analysts on average had expected quarterly profit of C$2.34 per share, according to IBES data from Refinitiv.

Adjusted costs per available seat mile (CASM), excluding fuel, increased 9.3%, largely due to the grounding.

Still, Montreal-based Air Canada reported a 9% rise in earnings before interest, taxes, depreciation and amortization (EBITDA) to C$1.472 billion.

Air Canada’s passenger revenue per available seat mile, the main revenue measure for airlines, rose 5.3% during the quarter, helped by higher average fares.

The carrier has taken steps to mitigate the grounding’s impact, such as by adding seats through leasing replacement aircraft.

Chief Executive Officer Calin Rovinescu said Air Canada would look to the U.S. Federal Aviation Administration’s (FAA) decision to clear the MAX before hiring additional pilots to support fleet expansion. Air Canada initially expected to operated 50 MAX jets by mid-2020.

Air Canada, which now has 400 MAX pilots, or around 10% of its 4,000 pilots, will hire up to 350 pilots incrementally for the MAX.

Rovinescu said he hopes other regulators like Transport Canada and the European Union Aviation Safety Agency (EASA) will act in tandem with the FAA.

Reporting By Allison Lampert in Montreal; additional reporting by Ankit Ajmera in Bengaluru; Editing by David Gregorio

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