Skip to main content

A passenger passes a window at Toronto’s Pearson airport on Feb. 5, 2014.

Kevin Van Paassen/The Globe and Mail

Record results that represented a "watershed year" at Air Canada weren't enough to prevent a severe chill from settling in on the airline's shares after it said poor weather and the declining Canadian dollar will hurt first-quarter results.

The airline set a record in 2013 for adjusted profit, but the effect of the decline in the Canadian dollar and the worse-than-usual winter weather took a bite out of fourth-quarter profit and will cause first-quarter results to be worse than those in the first quarter of 2013.

The fourth-quarter results – which were less than analysts' expectations – and the warning about the first quarter sent Air Canada's shares skidding. The shares tumbled 20.5 per cent to $6.22 in trading on the Toronto Stock Exchange.

Story continues below advertisement

"2013 was truly a great year for Air Canada," chief executive officer Calin Rovinescu said on a conference call. "In fact, I would say a watershed year. But there is no doubt we still have more to achieve in terms of sustainable profitability and even greater value creation for shareholders."

Nonetheless, the decline of the dollar was greater than Air Canada anticipated and more than it could offset. The severe weather has already had an effect.

First-quarter earnings before interest, taxes, depreciation, amortization and aircraft rent (EBITDAR) will be $15-million to $30-million lower than the 2013 level because of "severe weather conditions, the weaker Canadian dollar and the impact of increased capacity in certain markets," Mr. Rovinescu said in a statement.

Air Canada posted an adjusted loss of $143-million or 52 cents a share, in the three months ended March 31, 2013.

Mr. Rovinescu said he expects continued cost-cutting – in part from the arrival of new, more fuel-efficient aircraft – to help offset some of the effects from the lower Canadian dollar and the weather.

"On the opportunity side, a lower Canadian dollar can stimulate the economy," he said.

In addition, Air Canada has reduced its planned capacity expansion to between 7 per cent and 9 per cent this year from an earlier level of between 9 per cent and 11 per cent.

Story continues below advertisement

One route that is being scaled back is China, where Air Canada could not get an appropriate airport slot time and a market where capacity grew almost 28 per cent in the fourth quarter.

But costs per available set mile will also drop less than expected.

While investors lined up to exit the stock, analysts were divided.

Walter Spracklin, who follows the company for RBC Dominion Securities Inc., said there was nothing in the results that causes him to change his view on the company.

"In any major transformational change there will be choppy progress, especially when external factors such as weather and [foreign exchange] play a role that will impact the pace of this progress," Mr. Spracklin wrote in a note to clients. "Costs are still coming down at a good clip and we are encouraged by the fare increases that have kicked in a couple weeks ago."

Canaccord Genuity Corp. analyst David Tyerman said he expects Air Canada and the airline industry to bounce back from the current problems with a combination of cost cutting and measures that will generate revenue.

Story continues below advertisement

Mr. Tyerman pointed to the addition of five high-density Boeing 777 aircraft and the start of delivery of Boeing 787s later this year.

The final aircraft of the five 777 planes arrived Tuesday, Air Canada said. The 787s will be used on international routes to replace aging Boeing 767 planes that are less-efficient.

Report an error Licensing Options
About the Author
Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More


The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨