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Air Canada tumbles as weak loonie to hurt Q1 core earnings


Air Canada (TSE:AC.B), the nation's largest airline, plunged in morning trade after projecting a drop in current-quarter core earnings, hurt by a weak Canadian dollar and nasty weather conditions.

Air Canada slid 20.5 percent to C$6.22, the lowest intraday level since Nov. 11, at 9:31 a.m. in Toronto.

Earnings before interest, taxes, depreciation, amortization and impairment, and aircraft rent is expected to drop by C$15 million to C$30 million in the first three months of the year from year-earlier levels, the Montreal, Quebec-based company said in a statement today.  That compared with core earnings of C$145 million in the first quarter of last year.

"We started 2014 facing challenges of extreme weather conditions at our Canadian hubs and a falling Canadian dollar," Chief Executive Officer Calin Rovinescu said in the statement. "As we forecasted weakness in the Canadian dollar as part of our annual budgeting process, although not at its current level, we had a head start looking at ways to mitigate the exposure, such as through additional cost reduction and new revenue enhancement initiatives."

For the fourth quarter, profit excluding some costs and gains was C$3 million, or 1 Canadian cent a share,  compared to an adjusted net loss of C$5 million, or 2 Canadian cents, in the year-earlier period. That lagged behind the 11-Canadian-cent-a-share average of eight estimates compiled by Bloomberg. 

Sales advanced 1.9 percent to C$2.89 billion, but missed the average projection of C$2.93 billion.

A drop in the Canadian dollar weakens Air Canada as the airline makes its major purchases, such as planes and fuel, in U.S. dollars.

Concerns about low inflation in the world's eleventh-largest economy and the possibility of an interest rate cut nudged down the loonie to a fourth-and-a-half year low against the greenback on Jan. 31.

The Canadian dollar was worth about 90.77 U.S. cents yesterday, down from about $1 a year earlier.

WestJet Airlines Ltd (TSE:WJA), Air Canada's main domestic rival, recently hiked ticket prices to make up for rising currency-related costs. The Calgary, Alberta-based airline also said it would raise prices again if the Canadian dollar depreciates further. 

Air Canada's adjusted cost per available seat mile (CASM), a key metric that measures the cost incurred to fly a single seat for a mile, dropped 2.3 percent in the October-to-December quarter.




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