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Air Canada slumps on lower yield expectations

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Air Canada (TSE:AC.B), the nation's largest airline, was lower in midday trades after saying yields will continue to decline this year as it packs fuller planes.

Shares fell 6.7 percent to C$8.64 at 2:27 p.m. in Toronto.

Yield, or average fare per mile, declined 2.1 percent in the April-to-June period, the Montreal, Quebec-based company said in a statement today. Chief Executive Officer Calin Rovinescu said yields will continue to fall this year as the airline adds more economy class seats and operates longer flights with a view to boosting profit.

“We are purposely looking at having a lower yield,” Rovinescu said on a conference call, according to Bloomberg News. “That is part of the strategy here as we look to have a greater bottom line.”

The average length of flights increased 2.5 percent in the second quarter from the same period a year earlier, reducing yield by 1.5 percentage point, Air Canada said.

Net income was C$223 million, or 75 Canadian cents per share, in the April-to-June period, compared with a net loss of C$23 million, or 9 Canadian cents per share, a year earlier.

Excluding items, the airline had an adjusted profit of C$139 million, or 47 Canadian cents a share. Analyst had projected earnings of 51 Canadian cents.

Operating revenue in the quarter rose 8 percent from the same quarter last year to $3.3 billion as the airline saw revenue growth in all of its major markets. 

At the same time, its adjusted cost per available seat mile, a key metric in the airline industry, dropped by 4.7 per cent. That was slightly more than it projected three months ago. Air Canada said its low-cost vacation carrier, Rouge, has played a role in its better results. 

"The performance of Air Canada Rouge has exceeded expectations and allows Air Canada to now compete more effectively in leisure markets on a more cost effective basis," Rovinescu said in the statement.

Air Canada hopes to save $100 million a year from its cost-cutting efforts. A lower cost structure was critical to the launch of Rouge in 2013. Rouge pays its crews lower wages and benefits than its mainline counterpart — helped by an arbitration settlement that went against the pilots' union.

For the third quarter, the airline is forecasting adjusted CASM to decrease in the range of 3.5 percent to 4.5 percent and now expects adjusted CASM for the year to decline between 3.2 percent and 4.2 percent, better than its previous projection of 3 percent to 4 percent.

 

 

 

 

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