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Air Canada reports 3Q adjusted net income of C$365 million

Air Canada (Montreal) today reported adjusted net income of $365 million or $1.29 per diluted share in the third quarter of 2013 compared to adjusted net income of $229 million or $0.82 per diluted share in the third quarter of 2012, an increase of 59.4 per cent. Third quarter 2013 EBITDAR amounted to $626 million compared to EBITDAR (excluding benefit plan amendments) of $551 million in the third quarter of 2012, an increase of $75 million . On a GAAP basis (which includes special items), Air Canada’s net income was $299 million or $1.05 per diluted share compared to net income of $359 million or $1.28 per diluted share in the same quarter of the previous year, during which Air Canada recorded a special operating expense reduction of $127 million in Benefit plan amendments relating to changes to the retirement age under one of its collective agreements. No comparable operating expense reduction was recorded in the third quarter of 2013.

“I am extremely pleased to report Air Canada’s best quarterly performance in the Corporation’s history, surpassing previous records for adjusted net income and EBITDAR,” said Calin Rovinescu, President and Chief Executive Officer. “Our operating leverage for the quarter was significant, as we achieved a 59.4 per cent improvement in adjusted net income based on increased total revenues of 4.6 per cent for the quarter. These results underscore the momentum that has been achieved in executing on the foundations of our transformation strategy – sustainable profitability and positioning Air Canada as a stronger national and global competitor.

“In the quarter, we announced a series of significant developments in achieving our priorities: We successfully completed the $1.4 billion refinancing of our 2010 notes, significantly lowering our cost structure, strengthening our balance sheet and improving our credit profile. We completed the transfer of all 15 Embraer 175 aircraft to Sky Regional, our Air Canada Express partner, an important step in Air Canada’s regional diversification strategy and our ongoing cost transformation program. We finished construction of a new state-of-the-art Operations Centre that is designed to significantly improve operational capabilities and efficiencies of our global network. To further develop Toronto Pearson as a truly global hub and even stronger North American gateway, we recently concluded an enhanced cooperation agreement with the Greater Toronto Airports Authority (GTAA). In addition, we implemented an expanded commercial agreement with Air China, to serve additional points in China on a codeshare basis with our Star Alliance partner.

“I am particularly pleased to see the stock market’s endorsement of the strategy that our team has developed. This was reflected in our stock price more than tripling over the past year. Moreover, our commitment as a progressive employer and investment in the well-being of our employees has also been recognized with the recent naming of Air Canada as one of Canada’s Top 100 Employers.

“Looking ahead, we will take delivery of the final three of five new Boeing 777-300ER aircraft by February 2014 , and we are actively preparing to begin integrating the first six of 37 Boeing 787 aircraft into our widebody fleet in 2014. For the summer of 2014, we announced a major European expansion as these new widebody aircraft enter Air Canada’s international fleet allowing for the transfer of current aircraft to Air Canada rougeTM in order to operate in leisure markets on a more cost competitive basis.

“Our operational performance has also shown continued improvement. On-Time Performance (OTP) for the quarter improved over 20 percentage points compared to the previous year, the third consecutive quarter of significant year-over-year gains. I would like to thank our employees for their on-going focus on taking care of our customers while operating a safe and efficient airline. Their professionalism, collaboration and dedication, combined with Air Canada’s award-winning product has once again been recognized by this year’s Ipsos Reid Business Traveller Survey, released in September, that confirmed that Canada’s frequent business travellers recognize Air Canada as their preferred airline by a growing margin – the widest margin versus our domestic competitors since 2008,” concluded Mr. Rovinescu.

Third Quarter Income Statement Highlights

Third quarter 2013 system passenger revenues were $3,177 million , an increase of $148 million or 4.9 per cent over the third quarter of 2012, on a 2.9 per cent growth in traffic and a 2.0 per cent improvement in yield. Passenger revenue per available seat mile (RASM) increased 1.8 per cent from the third quarter of 2012 on the yield growth. Air Canada reported a passenger load factor of 86.2 per cent for the third quarter of 2013, 0.1 percentage points below the third quarter 2012 record load factor. In the premium class cabin, passenger revenues increased $12 million or 2.1 per cent on yield growth of 3.8 per cent as traffic declined 1.7 per cent from the third quarter of 2012.

Operating expenses increased $160 million or 6 per cent from the third quarter of 2012. As a result of changes to the terms of the ACPA collective agreement related to retirement age, which are not subject to regulatory approval, Air Canada recorded an operating expense reduction of $127 million in Benefit plan amendments in the third quarter of 2012 related to the impact of those amendments on pension and other employee benefit liabilities. No such operating expense reduction was recorded in the third quarter of 2013.

Air Canada’s adjusted cost per available seat mile (adjusted CASM), which excludes fuel expense, the cost of ground packages at Air Canada Vacations and unusual items, decreased 3.4 per cent compared to the third quarter of 2012. The 3.4 per cent reduction in adjusted CASM was in line with the adjusted CASM decrease of 3.0 per cent to 3.5 per cent projected in Air Canada’s news release dated October 3, 2013 .

In the third quarter 2013, Air Canada recorded operating income of $416 million compared to operating income of $423 million in the same quarter in 2012. As discussed above, an operating expense reduction of $127 million was recorded in Benefit plan amendments in the third quarter of 2012 while no such operating expense reduction was recorded in the third quarter of 2013.

Financial and Capital Management Highlights

At September 30, 2013 , unrestricted liquidity (cash, short-term investments and undrawn lines of credit) improved to $2,412 million or 20 per cent of 12-month trailing revenues ( September 30, 2012 – $2,135 million or 18 per cent of 12-month trailing revenues).

Adjusted net debt amounted to $4,104 million at September 30, 2013 , a decrease of $33 million from December 31, 2012. Despite adding US$285 million of debt related to the two Boeing 777-300 ER aircraft delivered in June and August 2013 , Air Canada was able to reduce net debt by maintaining positive cash from operations.

In the third quarter of 2013, negative free cash flow of $249 million declined $96 million from the third quarter of 2012, largely due to the addition of one Boeing 777 aircraft, partly offset by an increase in cash flows from operating activities due to better operating results.

For the 12 months ended September 30, 2013 , return on invested capital (“ROIC”) was 10.8 per cent versus 7.7 per cent at December 31, 2012. Air Canada has targeted achieving an ROIC of 10 to 13 per cent by 2015.

Current Outlook

For the fourth quarter of 2013, Air Canada expects its system ASM capacity, as measured by available seat miles (ASMs), to increase in the range of 3.0 to 4.0 per cent when compared to the fourth quarter of 2012.

Air Canada expects its full year 2013 system ASM capacity and domestic ASM capacity to increase in the range of 2.0 to 2.5 per cent when compared to the same periods in 2012 (as opposed to the increase of 1.5 to 2.5 per cent disclosed in Air Canada’s news release dated October 3, 2013 ).

For the fourth quarter of 2013, Air Canada expects adjusted CASM to decrease 2.0 to 3.0 per cent when compared to the fourth quarter of 2012.

For the full year 2013, Air Canada continues to expect adjusted CASM to decrease in the range of 1.5 to 2.0 per cent from the full year 2012, consistent with the revised outlook provided with the October 3, 2013 traffic release.

Air Canada continues to expect its full year 2014 system capacity to increase by 9.0 to 11.0 per cent when compared to the full year 2013. This projected increase in capacity, which is being deployed primarily on international markets, is consistent with the fleet plan discussed in Air Canada’s Third Quarter 2013 MD&A. The projected capacity increase is due to the addition of five high-density Boeing 777-300 ER aircraft (the first two having been delivered in June and August 2013 , respectively, and the remaining three scheduled for delivery between November 2013 and February 2014 ), the scheduled arrival in 2014 of the first six Boeing 787 aircraft, and the planned growth from Air Canada rougeTM.

Air Canada’s outlook assumes Canadian GDP growth of 1.25 to 1.75 per cent for 2013 and Canadian GDP growth of 2.0 to 3.0 per cent for 2014.

Air Canada also expects that the Canadian dollar will trade, on average, at C$1.03 per U.S. dollar for the fourth quarter of 2013 and the full year 2013 and that the price of jet fuel will average 89 cents per litre for the fourth quarter of 2013 and the full year 2013.

The following table summarizes Air Canada’s above-mentioned outlook for the fourth quarter and full year 2013 and related major assumptions:


	Fourth Quarter 2013 versus Fourth Quarter 2012	Full Year 2013 versus Full Year 2012
Current Outlook
Available seat miles (System)	Increase 3.0% to 4.0%	Increase 2.0% to 2.5%
Available seat miles (Canada)	n/a	Increase 2.0% to 2.5%
Adjusted CASM (1)	Decrease 2.0% to 3.0%	Decrease 1.5% to 2.0%
(1) Excludes fuel expense, the cost of ground packages at Air Canada Vacations and unusual items

	Major Assumptions – Fourth Quarter 2013	Major Assumptions – Full Year 2013
Major Assumptions
Canadian dollar per U.S. dollar	1.03	1.03
Jet fuel price – CAD cents per litre	89 cents	89 cents
Canadian economy	2013 Annualized Canadian GDP growth of 1.25% to 1.75%	Canadian GDP growth of 1.25% to 1.75%

For the full year 2013, Air Canada continues to expect:

Depreciation, amortization and impairment expense to decrease by $115 million from the full year 2012.
Employee benefits expense to increase by $70 million from the full year 2012.
Aircraft maintenance expense to decrease by $40 million from the full year 2012 level, which includes a favourable maintenance return provision adjustment of $32 million in the fourth quarter of 2012.

The following table summarizes the above-mentioned projections for the full year 2013:


	Full Year 2013 versus Full Year 2012
Depreciation, amortization and impairment expense	Decrease $115 million
Employee benefits expense	Increase $70 million
Aircraft maintenance expense	Decrease $40 million

The outlook provided constitutes forward-looking statements within the meaning of applicable securities laws and is based on a number of additional assumptions and subject to a number of risks. Please see section below entitled “Caution Regarding Forward-Looking Information.”

Non-GAAP Measures

Below is a description of certain non-GAAP measures used by Air Canada to provide additional information on its financial and operating performance. Such measures are not recognized measures for financial statement presentation under Canadian GAAP and do not have standardized meanings and may not be comparable to similar measures presented by other public companies. Refer to Air Canada’s Third Quarter 2013 MD&A for reconciliation of non-GAAP financial measures.

Adjusted net income (loss) and adjusted net income (loss) per diluted share are used by Air Canada to assess its performance without the effects of foreign exchange, net financing expense on employee benefits, mark-to-market adjustments on derivatives and other financial instruments recorded at fair value and unusual items.
EBITDAR is commonly used in the airline industry and is used by Air Canada to assess earnings before interest, taxes, depreciation, amortization, impairment and aircraft rent as these costs can vary significantly among airlines due to differences in the way airlines finance their aircraft and other assets.
Adjusted CASM is used by Air Canada to assess the operating performance of its ongoing airline business without the effects of fuel expense, the cost of ground packages at Air Canada Vacations and unusual items, such as impairment charges and benefit plan amendments, as such expenses may distort the analysis of certain business trends and render comparative analyses to other airlines less meaningful.
Free cash flow is used by Air Canada as an indicator of the financial strength and performance of its business because it shows how much cash is available for such purposes as repaying debt, meeting ongoing financial obligations and reinvesting in Air Canada.
Adjusted net debt is a key component of the capital managed by Air Canada and provides a measure of the airline’s net indebtedness. Adjusted net debt is calculated as the sum of total long-term debt and finance lease obligations and capitalized operating leases less cash and cash equivalents and short-term investments.
Return on invested capital is used by Air Canada to assess the efficiency with which it allocates its capital to generate returns. Return is based on Adjusted net income (loss) (as discussed in the section above), excluding interest expense and implicit interest on operating leases. Invested capital includes average long-term debt, average finance lease obligations, the value of capitalized operating leases (calculated by multiplying annualized aircraft rent expense by 7) and the market capitalization of Air Canada’s outstanding shares.

Copyright Photo: Michael B. Ing/AirlinersGallery.com. Boeing 777-333 ER C-FRAM (msn 35250) approaches Tokyo (Narita) for landing.

Air Canada:

Air Canada reports record second quarter net income of C$115 million

Air Canada (Montreal) today reported adjusted net income of $115 million or $0.41 per diluted share in the second quarter of 2013 compared to an adjusted net loss of $7 million or $0.02 per diluted share in the second quarter of 2012. Second quarter EBITDAR amounted to $385 million compared to EBITDAR of $312 million in the second quarter of 2012, an increase of $73 million or 23 per cent. On a GAAP basis, Air Canada’s net loss was $23 million or $0.09 per diluted share compared to a net loss of $161 million or $0.59 per diluted share in the same quarter of 2012.

“Air Canada delivered its best second quarter financial performance in the Corporation’s history, with records reported in all three measures of operating income, adjusted net income and EBITDAR,” said Calin Rovinescu, President and Chief Executive Officer. “These results are a clear indication that we are gaining momentum in our transformation towards sustainable profitability at Air Canada and underscore our Company-wide efforts to achieve cost containment and continue to improve on our revenue and yield performance.

“Our success in the quarter was not only financial – I am also especially pleased to report ongoing improvements in operational performance for the second consecutive quarter, with a 30 per cent improvement in On-Time Performance (OTP) for the quarter compared to the previous year. This is a reflection of the professionalism, collaboration and dedication of Air Canada’s 27,000 employees in taking care of our customers while operating a safe and efficient airline. Also, we were once again recognized by global travelers as the Best Airline in North America for the fourth consecutive year, a wonderful recognition of our efforts.

“Market response to the launch of our new leisure carrier, Air Canada rouge, on July 1st has been very positive and our plans are on track for growing the Air Canada rouge fleet to serve more holiday destination markets where we can now compete on a more cost effective basis. In addition, in early July, we began operating the first of five new Boeing 777-300 ER aircraft, marking the first significant growth in the mainline wide-body fleet in ten years to support continued development of our international network and Toronto hub as our North American gateway. These aircraft also debut our new Premium Economy cabin, offering customers a high-value option for enhanced comfort and service on select international routes.

“Looking ahead, our focus remains on the execution of the Corporation’s business plan led by our four core priorities: cost transformation, international growth, customer engagement and culture change to transform Air Canada into a sustainably profitable company for its shareholders and employees,” concluded Mr. Rovinescu.

Second Quarter Income Statement Highlights

Second quarter 2013 system passenger revenues were $2,757 million, an increase of $86 million or 3 per cent over the second quarter of 2012, on a 1.6 per cent growth in traffic and a 1.5 per cent improvement in yield. Passenger revenue per available seat mile (RASM) increased 0.9 per cent from the second quarter of 2012 on the yield growth. Air Canada reported a passenger load factor of 83.0 per cent for the second quarter of 2013, 0.5 percentage points below the second quarter of 2012. In the premium class cabin, passenger revenues increased $19 million or 3.3 per cent on yield and traffic growth of 2.2 per cent and 1.1 per cent, respectively, over the second quarter of 2012.

Operating expenses decreased $42 million or 1 per cent from the second quarter of 2012. Operating expense increases in wages, salaries and benefits and capacity purchase costs were more than offset by operating expense decreases in aircraft fuel and depreciation, amortization and impairment expenses.

Air Canada’s adjusted cost per available seat mile (adjusted CASM), which excludes fuel expense, the cost of ground packages at Air Canada Vacations and unusual items, decreased 1.4 per cent compared to the second quarter of 2012. The 1.4 per cent reduction in adjusted CASM was in line with the adjusted CASM decrease of 0.5 per cent to 1.5 per cent projected in Air Canada’s news release dated June 10, 2013.

In the second quarter 2013, Air Canada recorded operating income of $174 million compared to operating income of $63 million in the same quarter in 2012, an improvement of $111 million.

Liquidity Highlights

At June 30, 2013, cash and short-term investments amounted to $2,107 million or 17 per cent of 12-month trailing revenues (June 30, 2012 – $2,323 million or 20 per cent of 12-month trailing revenues).

At June 30, 2013, adjusted net debt of $3,975 million decreased $162 million from December 31, 2012, mainly reflecting the impact of an increase in cash balances.

Free cash flow of $147 million decreased $86 million from the second quarter of 2012, largely reflecting the addition of one Boeing 777 aircraft, partly offset by an increase in cash flows from operating activities due to better operating results.

Current Outlook

For the third quarter of 2013, Air Canada expects its system ASM capacity, as measured by available seat miles (ASMs), to increase in the range of 2.5 to 3.5 per cent when compared to the third quarter of 2012.

Air Canada continues to expect its full year 2013 system ASM capacity to increase in the range of 1.5 to 2.5 per cent when compared to the full year 2012. Air Canada also continues to expect its full year 2013 domestic capacity to increase in the range of 1.5 to 2.5 per cent from the full year 2012.

For the third quarter of 2013, Air Canada expects adjusted CASM to decrease 1.5 to 2.5 per cent when compared to the third quarter of 2012.

Taking into account Air Canada’s adjusted CASM result for the second quarter 2013, Air Canada now expects its full year 2013 adjusted CASM to decrease in the range of 1.0 to 2.0 per cent from the full year 2012 (as opposed to the decrease of 0.5 to 1.5 per cent projected in Air Canada news release dated June 10, 2013).

Air Canada continues to expect its full year 2014 system capacity to increase by 9.0 to 11.0 per cent when compared to the full year 2013. This projected increase in capacity, expected to be deployed primarily on international markets, is consistent with the fleet plan discussed in Air Canada’s Second Quarter 2013 MD&A and is due to the addition of five high-density Boeing 777-300 ER aircraft, the first having been delivered in June 2013 and the remainder scheduled for delivery between August 2013 and February 2014, the scheduled arrival in 2014 of the first six Boeing 787 aircraft, and the planned growth from Air Canada rouge.

Air Canada’s outlook assumes Canadian GDP growth of 1.25 to 1.75 per cent for 2013 and Canadian GDP growth of 2.0 to 3.0 per cent for 2014.

Air Canada also expects that the Canadian dollar will trade, on average, at C$1.04 per U.S. dollar for the third quarter of 2013 and C$1.03 per U.S. dollar for the full year 2013 and that the price of jet fuel will average 87 cents per litre for the third quarter of 2013 and the full year 2013.

Copyright Photo: Ole Simon/AirlinersGallery.com. Formerly painted in the special Vancouver 2010 livery, Boeing 777-333 ER C-FIVS (msn 35784) gracefully climbs away from Frankfurt.

Air Canada:

Air Canada reports a first quarter net loss of approximately C$260 million

Air Canada (Montreal) today provided preliminary results for the first quarter of 2013:

Adjusted net loss of approximately $143 million versus an adjusted net loss of $162 million in the first quarter of 2012
Net loss of approximately $260 million versus a net loss of $274 million in the first quarter of 2012
Operating loss of approximately $106 million versus an operating loss of $91 million in the first quarter of 2012
EBITDAR (earnings before interest, taxes, depreciation, amortization and impairment, and aircraft rent) of approximately $145 million versus $174 million in the first quarter of 2012

In the first quarter of 2013, Air Canada’s financial results were negatively impacted by an estimated $10 million due to flight cancellations caused by severe weather conditions and operational challenges at the airline’s major Canadian airport hubs, as well as aircraft deicing service delays at Toronto Pearson International Airport. A higher proportion of leisure passengers versus business passengers, in part due to a shift of the Easter holiday, and an unfavourable foreign currency impact on passenger revenues also contributed to the lower operating results year-over-year. In addition, Air Canada expects to record an impairment charge of $24 million related to Airbus A340-300 aircraft (none of which are operated by Air Canada) which is reflected in Air Canada’s preliminary operating loss and net loss results.

Air Canada estimates that its passenger revenue per available seat mile (“RASM”) in the first quarter of 2013, on a system-wide basis, increased by approximately 1.1 per cent as compared to the first quarter of 2012, due to passenger load factor improvements partly offset by lower yields. Air Canada also estimates that, in the first quarter of 2013, its adjusted cost per available seat mile (“adjusted CASM”), which excludes fuel expense, the cost of ground packages at Air Canada Vacations and unusual items (such as impairment charges) increased approximately 1.4 per cent compared to the first quarter of 2012, a more favourable outcome than the range of the 3 to 4 per cent increase previously projected in its February 7, 2013 news release. The result was better than forecasted due largely to Air Canada having recorded favourable accrual adjustments of $15 million which had not been previously projected, and to timing of certain maintenance events.

Adjusted net debt is estimated to be $3,987 million at March 31, 2013, a decrease of $246 million from March 31, 2012, with cash and short-term investments estimated to represent 17 per cent of 12-month trailing operating revenues at the end of the first quarter of 2013.

Air Canada’s system capacity, as measured by available seat miles (“ASMs”), in the first quarter of 2013 was 1.1 per cent lower than the first quarter of 2012, within the range of the 0 to 1.5 per cent decrease previously projected in its February 7, 2013 news release.

All figures reported above with respect to the first quarter of 2013 are preliminary, have not been reviewed by Air Canada’s auditors and are subject to change as Air Canada’s first quarter 2013 financial results are finalized. The outlook and preliminary estimates provided in this news release constitute forward-looking statements within the meaning of applicable securities laws, are based on a number of assumptions and are subject to a number of risks and uncertainties.

Air Canada continues to expect full year 2013 system ASM capacity to increase in the range of 1.5 to 2.5 per cent when compared to the full year 2012. Air Canada also continues to expect its full year 2013 domestic capacity to increase in the range of 0.5 to 1.5 per cent from the full year 2012. Taking into account the better than expected adjusted CASM result in the first quarter of 2013, Air Canada now expects its full year 2013 adjusted CASM to decrease in the range of 0.5 to 1.5 per cent from the full year 2012 (as opposed to the 0 to 1.0 per cent decrease projected in Air Canada’s February 7, 2013 news release).

Air Canada’s above-mentioned outlook assumes Canadian GDP growth of 1.25 to 1.75 per cent for 2013. In addition, Air Canada expects that the Canadian dollar will trade, on average, at C$1.02 per U.S. dollar for the full year 2013 and that the price of jet fuel will average 86 cents per litre for the full year 2013.

Air Canada:

Air Canada to add five additional Boeing 777-300 ERs, is profitable for the 4Q and 2012

Air Canada (Montreal) has announced it will introduce a new International Premium Economy cabin for customers seeking enhanced comfort and service on international flights as it continues to modernize its widebody fleet with the addition of five new Boeing 777-300 ER aircraft.

Complementing its Economy and Executive First options on international flights, Air Canada’s new Premium Economy cabin will offer customers a wide range of benefits including a dedicated cabin featuring larger seats that are wider, providing more recline, with seven more inches of legroom than Economy and are never more than one seat from the aisle (due to a 2-4-2 configuration). Customers will also be offered premium meals with complimentary bar service and priority check-in and baggage delivery at the airport. More information on Air Canada’s new Premium Economy cabin is available at www.aircanada.com/premiumeconomy.

Air Canada’s Premium Economy cabin will be introduced on Air Canada’s Montreal-Paris flights effective July 11 , 2013. Additional routes offering Premium Economy will be added over time as new aircraft enter the carrier’s mainline fleet.

Air Canada will expand and modernize its international widebody fleet with the addition of five new Boeing 777-300 ER aircraft. In addition to two Boeing 777-300 ER aircraft previously announced that will be delivered in June and August 2013 , Air Canada today announced that it will add three new Boeing 777-300 ER aircraft to be delivered in November and December 2013 and February 2014. With the addition of these five aircraft, Air Canada’s Boeing 777 fleet will consist of 23 aircraft comprising the latest generation of 300 ER and 200 LR models.

Air Canada’s five new Boeing 777-300 ER aircraft will be the first aircraft configured with the carrier’s new Premium Economy cabin prior to the arrival of Boeing 787 aircraft scheduled to begin delivery in 2014. The five Boeing 777-300 ER aircraft will also offer a larger Economy cabin as Air Canada will strategically deploy these aircraft on select international markets with high volume demand for economy travel.

The five Boeing 777-300 ER aircraft that will begin delivery in June 2013 will be configured with a larger Economy cabin with 398 new “slimline” leather seats providing 31-inch legroom consistent with the comfort of Air Canada’s current Economy cabin, while the dedicated Premium Economy cabin of 24 leather seats will provide 38-inch legroom along with other enhanced comfort features. Air Canada’s Executive First cabin will offer 36 seats that convert into 180-degree lie-flat beds in a staggered configuration of one or two, to allow customers traveling alone or with a companion to choose their preferred seating and sleeping options. Customers in all three cabins of service will enjoy an enhanced individual seat back in-flight entertainment system with hundreds of hours of complimentary audio visual entertainment options featuring larger screens and customer-friendly technology by Panasonic.

In addition to the introduction of Premium Economy, new seats and a leading edge entertainment system, Air Canada’s five new Boeing 777-300 ER aircraft will provide customers with a refreshed interior colour palette in modern, neutral tones unique to these aircraft pending the official launch of Air Canada’s future in-flight product and cabin design that will be made in conjunction with the introduction of Boeing 787 aircraft into its fleet.

Air Canada’s 37 Boeing 787 aircraft will feature a brand new, enhanced version of Air Canada’s award-winning Executive First lie-flat beds and product that has yet to be announced, in addition to Premium Economy and Economy options. The Boeing 787 fleet will be deployed on the carrier’s current and future high premium demand international routes.

On the financial side, Air Canada reported full year and fourth quarter earnings before interest, taxes, depreciation, amortization and impairment, and aircraft rent (“EBITDAR”) of $1.451 billion (or $1.327 billion before the impact of benefit plan amendments) compared to EBITDAR of $1.242 billion in 2011. Including the favourable impact of benefit plan amendments, EBITDAR of $1.451 billion increased $209 million year-over-year (or $85 million before the impact of benefit plan amendments). On a GAAP basis, in 2012, net income was $131 million or $0.45 per diluted share compared to a net loss of $249 million or $0.92 per diluted share in 2011. On an adjusted basis, net income was $53 million or $0.19 per diluted share compared to a net loss of $122 million or $0.44 per diluted share in 2011.

For the fourth quarter of 2012, Air Canada reported EBITDAR of $284 million compared to EBITDAR of $162 million in the fourth quarter of 2011, an improvement of $122 million. On a GAAP basis, in the fourth quarter of 2012, Air Canada reported net income of $8 million or $0.03 per diluted share compared to a net loss of $60 million or $0.22 per diluted share in the fourth quarter of 2011. Air Canada reported an adjusted net loss of $6 million or $0.02 per diluted share compared to an adjusted net loss of $167 million or $0.60 per diluted share in the same quarter in 2011.

Copyright Photo: Antony J. Best. Boeing 777-333 ER C-FIUW (msn 35249) completes its final approach into London (Heathrow).

Air Canada:

Air Canada plans a major Asian expansion this coming summer

Air Canada (Montreal) is launching a new nonstop route between Toronto (Pearson) and Seoul (Incheon), starting service to Istanbul subject to government approval, adding seven weekly departures to Beijing from Toronto and Vancouver , and upgrading its Calgary-Tokyo Narita route to provide daily service.

Highlights of Air Canada’s 2013 summer schedule include:

Nonstop service to Istanbul beginning June 4 . Subject to government approval, Air Canada will begin flying three-times weekly, year-round to the historic city which also serves as a gateway to other destinations in Turkey , Central Asia, the Middle East and Africa . Flights will be operated with a Boeing 767-300 ER aircraft. It will be the only early evening departure from Toronto to Istanbul .
The launch on June 2 of a new Toronto-Seoul service operating three times a week, creating a fifth Asian destination from Air Canada’s Toronto hub. The year-round service, operated with a Boeing 777-300 ER aircraft, will complement existing Vancouver to Seoul service by providing daily departures from Canada to Seoul .
An addition of three more weekly departures between Toronto and Beijing starting June 1 , bringing the total number of departures from Toronto to Beijing to ten a week. The flights will be operated with a Boeing 777-300 ER aircraft
Four additional departures each week between Vancouver and Beijing starting June 1 , for a total of 11 weekly departures, including a new late night flight timed to be convenient for business travellers. The flights will be operated with a Boeing 767-300 ER aircraft.
The upgrading of our Calgary-Tokyo Narita service starting May 1 to offer daily departures, up from five a week last summer. The flights are operated with a Boeing 767-300 ER.

Air Canada:

Air Canada reports third quarter earnings of C$554 million

Air Canada (Montreal) today reported earnings before interest, taxes, depreciation, amortization and impairment, and aircraft rent (EBITDAR), before the impact of certain benefit plan amendments, of $554 million in the third quarter of 2012 compared to EBITDAR of $535 million in the third quarter of 2011, an increase of $19 million. Including the favourable impact of benefit plan amendments, EBITDAR was $678 million for the third quarter of 2012. Adjusted net income ⁽¹⁾ of $230 million increased $37 million from the third quarter of 2011. Adjusted net income per diluted share ⁽¹⁾ was $0.82 in the third quarter of 2012 compared to adjusted net income per diluted share of $0.68 in the same quarter in 2011. On a GAAP basis, Air Canada reported net income of $429 million or $1.54 per diluted share for the third quarter of 2012 compared to a net loss of $124 million or $0.45 per diluted share for the same period last year. This improvement in net income was driven in large part by favorable foreign exchange gains quarter-over-quarter.

Air Canada has entered into discussions with the federal government with respect to an extension of pension deficit funding relief given that the Air Canada special funding regulations expire in January 2014. Air Canada’s Canadian-based unions support the extension request. This is in addition to various changes to Air Canada’s pension plans that were made during the last round of labour negotiations, which remain subject to regulatory approval.

Income Statement Highlights

System passenger revenues increased $92 million or 3.1 per cent, on a 1.6 per cent improvement in yield and a 0.8 per cent growth in traffic. Passenger revenue per available seat mile (RASM) increased 2.2 per cent from the third quarter of 2011 due to the yield increase and a 0.5 percentage point improvement in passenger load factor.

Excluding the impact of certain benefit plan amendments described below, fuel expense and the cost of ground packages at Air Canada Vacations, CASM increased 1.6 per cent from the third quarter of 2011. This 1.6 per cent CASM increase was in line with the 1.0 per cent to 2.0 per cent third quarter increase projected in Air Canada’s news release dated August 8, 2012.

In the third quarter of 2012, operating expenses decreased $65 million or 2 per cent from the corresponding quarter in 2011. Included in operating expenses in the third quarter of 2012 was an expense reduction of $124 million related to changes made to the terms of the new collective agreement with pilots pertaining to retirement age. This reduction is reflected under “Benefit plan amendments” on Air Canada’s consolidated statement of operations.

In the quarter, operating income of $421 million, which included the favourable impact of the benefit plan amendments, increased $151 million from the third quarter of 2011.

Liquidity Highlights

At September 30, 2012, Air Canada’s cash and short-term investments amounted to $2,196 million, $17 million higher than Air Canada’s cash and short-term investments balance at September 30, 2011, and represented 18 per cent of 12-month trailing operating revenues

At September 30, 2012, adjusted net debt of $4,268 million decreased $308 million from December 31, 2011, reflecting the impact of net debt repayments, as well as the favourable impact of a stronger Canadian dollar.

Current Outlook

In the fourth quarter of 2012, Air Canada expects its system ASM capacity, as measured by available seat miles (ASMs), to increase in the range of 0 to 1.0 per cent when compared to the fourth quarter of 2011.

Taking into account reported ASM capacity for the first nine months of 2012, Air Canada now expects its full year 2012 system capacity to increase in the range of 0.75 to 1.25 per cent when compared to the full year 2011 (as opposed to the 0.5 to 1.5 per cent ASM increase projected in Air Canada’s news release dated August 8, 2012) and expects its full year 2012 domestic capacity to increase in the range of 0.5 to 1.0 per cent from the full year 2011 (as opposed to the 0.5 to 1.5 per cent ASM increase projected in Air Canada’s news release dated August 8, 2012).

For the fourth quarter of 2012, Air Canada expects adjusted CASM ⁽¹⁾ to decrease by 2.0 to 3.0 per cent as compared to the fourth quarter of 2011. Taking into account reported operating expense results for the first nine months of 2012, Air Canada now expects adjusted CASM for the full year 2012 to increase by 0.75 to 1.25 per cent from the full year 2011 level (as opposed to the 0.5 to 1.5 per cent increase projected in Air Canada’s news release dated August 8, 2012).

In addition, Air Canada plans to increase its full year 2013 system capacity by 1.5 to 3.0 per cent when compared to the full year 2012. This projection includes all carriers operating under the Air Canada Express banner and the expected impacts of the new leisure group and the two Boeing 777 aircraft scheduled for delivery in June and August 2013.

Air Canada’s above-mentioned outlook assumes Canadian GDP growth of between 1.5 to 2.0 per cent for 2012 and 2013. In addition, Air Canada expects that the Canadian dollar will trade, on average, at C$0.99 per U.S. dollar in the fourth quarter of 2012 and C$1.00 per U.S. dollar for the full year 2012 and that the price of jet fuel will average 88 cents per litre in the fourth quarter of 2012 and 89 cents per litre for the full year 2012.

(1)	Adjusted net income (loss) and adjusted net income (loss) per share – diluted are non-GAAP financial measures. Refer to section 16 “Non-GAAP Financial Measures” of Air Canada’s Third Quarter 2012 MD&A dated November 8, 2012 for additional information.

Air Canada:

Air Canada to add two additional Boeing 777-300 ERs, 15 Embraer ERJ 175s to be transferred to Sky Regional Airlines

Air Canada (Montreal) yesterday (October 1) unveiled a fleet plan providing for international growth at both the mainline carrier and its new low-cost leisure airline to be launched in 2013.

Air Canada will add two new Boeing 777-300 ER aircraft to the mainline carrier’s widebody fleet in order to pursue strategic growth opportunities for its international network. With the addition of these two aircraft, to be delivered in June and September 2013, Air Canada’s Boeing 777 fleet will consist of 20 aircraft comprising the latest generation of 300 ER and 200 LR models. Air Canada currently operates 56 widebody aircraft and 149 narrowbody aircraft.

The arrival of these new Boeing 777s, along with the 787 Dreamliners in 2014, will allow AC to introduce new routes for the mainline carrier and release aircraft from the existing fleet to the new low-cost leisure carrier. Air Canada’s mainline carrier will continue to grow internationally as it launches new routes, while the leisure carrier will pursue opportunities in markets where we are not adequately cost competitive under the mainline brand, according to the carrier.

On September 20, 2012, Air Canada announced that it will hire more than 900 employees over the next 12 months to meet its planned workforce requirements at the main airline. In addition, 200 new jobs will be created for flight attendants and pilots at the airline’s new leisure carrier.

New international services to be introduced with the addition of two Boeing 777 aircraft at the main network carrier will be announced at a future date, as will further details of its leisure carrier low cost unit.

Consistent with Air Canada’s focus on pursuing international growth opportunities and its on-going cost transformation initiatives, the airline and Sky Regional Airlines, Inc. (Air Canada Express) (Toronto) have agreed to the transfer of 15 Embraer 175 aircraft, the smallest aircraft in Air Canada’s fleet, from Air Canada to Sky Regional to operate the aircraft on behalf of Air Canada under the capacity purchase agreement between the parties. The aircraft will continue to be operated on short-haul regional routes, primarily from Toronto and Montreal to destinations in the northeast United States, under the Air Canada Express banner. The transfer of the 15 regional aircraft is expected to be made between February and June 2013. The agreement is subject to a number of conditions. Sky Regional has operated Air Canada Express service between Billy Bishop Toronto City Airport and Montreal Trudeau Airport since May 2011. In addition to Sky Regional, Air Canada has capacity purchase agreements with its other regional airline partners, Jazz, Air Georgian and EVAS, that operate regional Air Canada Express flights on behalf of Air Canada.

Top Copyright Photo: Keith Burton. Boeing 777-333 ER C-FIUV (msn 35248) climbs away from the runway at London (Heathrow).

Air Canada:

Bottom Copyright Photo: Brian McDonough. The 15 Embraer ERJ 170-200SUs (ERJ 175s) will leave the mainline AC fleet and will be operated now as Air Canada Express aircraft by lower-cost Sky Regional. C-FEJD (msn 17000090) prepares to land at Washington (Reagan National).

Air Canada and the IAMAW receive a new arbitrated contract

Air Canada (Montreal) stated yesterday (June 17) that it along with the International Association of Machinists and Aerospace Workers (IAMAW) have received the decision of the arbitrator, Mr. Michel Picher, in the final offer selection arbitration conducted in accordance with the process legislated by the federal government in the Protecting Air Service Act.

The arbitrator’s selection of Air Canada’s final offer concludes a new collective agreement with the IAMAW following negotiations and mediated talks that took place over a period of 14 months. The five-year collective agreement is in effect until March 31, 2016.

The new collective agreement maintains the current defined benefit pension plan for current employees, introduces a new IAM multi-employer pension plan for new employees hired after today’s date, contributes to the reduction of the pension deficit and, as required by the legislation, establishes a protocol for the sustainability of the pension plan taking into account any short term funding pressures on the company.

The airline will not have further comment as details of the new collective agreement are being communicated to its employees.

The IAMAW represents 8,600 mechanics, baggage handlers and cargo agents employed by Air Canada.

Air Canada: