Air Canada reports record third quarter 2017 results

victoria@aviationnews-online.com
By victoria@aviationnews-online.com October 26, 2017 16:31

Air Canada reports record third quarter 2017 results

Air Canada has reported record third quarter 2017 EBITDAR (earnings before interest, taxes, depreciation, amortization, impairment and aircraft rent) of $1.388 billion compared to the previous record third quarter 2016 EBITDAR of $1.248 billion, an increase of $140 million.  The airline recorded a record third quarter EBITDAR margin of 28.4 per cent.  On a GAAP basis, Air Canada reported record third quarter operating income of $1.004 billion compared to the previous record third quarter 2016 operating income of $896 million.

Air Canada reported record adjusted net income of $950 million or $3.43 per diluted share in the third quarter of 2017 compared to adjusted net income of $821 million or $2.93 per diluted share in the third quarter of 2016.  The airline reported record third quarter net income of $1.786 billion or $6.44 per diluted share compared to net income of $768 million or $2.74 per diluted share in the previous year’s quarter. In the third quarter of 2017, Air Canada recorded a net income tax recovery of $793 million on its consolidated statement of operations.

“I am pleased to report that Air Canada delivered its best ever third quarter financial performance,” said Calin Rovinescu, President and Chief Executive Officer. “These record results underscore the success of the multi-year transformation of our business model. This follows our September 19th Investor Day when we outlined in further detail our accomplishments and the opportunities that lie ahead which, together with more ambitious financial targets for the next three years, have been well received by the investor community.

“In the quarter, Air Canada’s financial performance was strong in all key financial measures, including margins and free cash flow, and we continued to reduce our financial leverage, further lowering the airline’s risk profile.

“Reflecting Air Canada’s on-going growth, in the quarter we increased passenger revenue by 9.1 per cent to a record $4.478 billion, including strong gains in the business cabin. Traffic increased 8.8 per cent while yield improved 0.4 per cent. This yield growth was achieved despite an increase in average stage length of 3.9 per cent versus last year’s quarter, driven by a robust revenue environment and effective revenue management.  On a stage length adjusted basis, yield improved 2.6 per cent year-over-year.  We also achieved a solid cost performance in the quarter with an adjusted CASM decrease of 2.1 per cent from the previous year’s quarter.

“I would like to thank Air Canada’s 30,000 employees for their unwavering focus on taking care of our customers in our busiest quarter ever during which we served a record 14 million passengers. And they did so with care and professionalism during a quarter marked by significant disruptions to communities and airports in Western Canada, Southern United States, Caribbean, Mexico and Central America affecting customers and employees alike. The spirit, dedication and compassion of the Air Canada team responding to these situations and making a difference to the lives of so many was a moment of pride for all,” concluded Rovinescu.

In the third quarter of 2017, on capacity growth of 9.1 per cent, record system passenger revenues of $4.478 billion increased $372 million or 9.1 per cent from the third quarter of 2016.  The increase in system passenger revenues was driven by traffic growth of 8.8 per cent and, to a lesser extent, a yield improvement of 0.4 per cent.  An increase in average stage length of 3.9 per cent had the effect of reducing system yield by 2.2 percentage points. On a stage-length adjusted basis, system yield increased 2.6 per cent year-over-year.

In the business cabin, system passenger revenues increased $90 million or 13.7 per cent from the third quarter of 2016 on traffic and yield growth of 8.3 per cent and 5.0 per cent, respectively.

In the third quarter of 2017, operating expenses of $3.876 billion increased $321 million or 9 per cent from the third quarter of 2016, mainly driven by the 9.1 per cent increase in capacity and higher fuel prices year-over-year.

Air Canada’s cost per available seat mile (CASM) decreased 0.1 per cent from the third quarter of 2016.  The airline’s adjusted CASM(1) decreased 2.1 per cent from the third quarter of 2016, in line with the 1.5 per cent to 2.5 per cent decrease projected in Air Canada’s August 1st, 2017 news release.

At September 30, 2017, unrestricted liquidity (cash, short-term investments and undrawn lines of credit) amounted to a record $4.509 billion (December 31, 2016 – $3.388 billion).

At September 30, 2017, total long-term debt and finance leases (including current portion) of $6.329 billion decreased $289 million from December 31, 2016.  In the first nine months of 2017, new borrowings of $733 million were more than offset by debt repayments of $574 million and the favourable impact of a stronger Canadian dollar of $448 million, as at September 30, 2017 compared to December 31, 2016, on Air Canada’s foreign currency denominated debt (mainly U.S. dollars).

At September 30, 2017, adjusted net debt of $5.939 billion decreased $1.151 billion from December 31, 2016, reflecting the impact of higher cash and short-term investment balances.  At September 30, 2017, the adjusted net debt to EBITDAR ratio(1) improved to 2.1 versus 2.6 as at December 31, 2016.

Record net cash flows from operating activities of $493 million improved $55 million compared to the same quarter in 2016.  Record free cash flow of $324 million in the third quarter of 2017 increased $9 million from the third quarter of 2016 as the impact of higher cash flows from operating activities versus the same quarter in 2016 was mostly offset by a higher level of net capital expenditures year-over-year.

For the 12 months ended September 30, 2017, return on invested capital (ROIC) was 14.1 per cent, in line with current guidance and significantly higher than Air Canada’s weighted average cost of capital of 8.4 per cent.

victoria@aviationnews-online.com
By victoria@aviationnews-online.com October 26, 2017 16:31