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Air Canada introduces a new color scheme

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At three events held simultaneously across Canada in Toronto, Montreal and Vancouver, Air Canada on February 9, 2017 unveiled for its customers and employees, a bold new livery inspired by Canada for its entire fleet, elegant new uniforms for its employees, and a taste of some of the new onboard menu offerings that its customers can look forward to.

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Above Copyright Photo: TMK Photography. Boeing 787-8 Dreamliner C-GHPQ (msn 35257) at the Toronto (Pearson) event.

“Air Canada’s new livery signals a pivotal inflection point in our 80-year history,” said Benjamin Smith, President, Passenger Airlines at the event in Toronto, where the airline’s largest hub is located. “On the occasion of Canada’s 150th anniversary year, with our new livery, new uniforms for our employees, the award-winning international cabin standard introduced with the launch of our Boeing 787 aircraft, and enhanced onboard offerings, the future Air Canada represents the strength of our nation and the future-looking spirit of our airline. On behalf of our 30,000 employees world-wide, it is a privilege to fly Canada’s flag, and we are proud to showcase some of the best of this nation’s talent as we continue to expand Air Canada’s horizons to fly to more than 200 destinations on six continents.”

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Above Copyright Photo: Gilbert Hechema. Airbus A321-211 C-GJWO (msn 1811) at the Montreal (Trudeau) event.

Air Canada’s fleet of 300 mainline and regional aircraft are being repainted in a bold black and white design that highlights its iconic red maple leaf encircled ensign, or “rondelle,” that returns to the tail of the flag carrier’s fleet after an absence of 24 years. Reflecting Canada’s vastness and contrasting seasons, with references to its wildlife and First Nations heritage, the new fleet livery was designed by international design firm Winkreative, headed by Canadian entrepreneur Tyler Brûlé. Following today’s events, the first three aircraft sporting this new livery will enter service immediately. Videos and photos of Air Canada’s Boeing 787 Dreamliner in the new livery are available here: aircanada.com/livery.

Airline Color Scheme - Introduced 2017

Above Copyright Photo: Air Canada Boeing 787-8 Dreamliner C-GHPQ (msn 35257) YUL (Gilbert Hechema). Image: 936904.

With the new livery providing a sleek, contemporary backdrop, Air Canada premiered elegant charcoal grey and black employee uniforms with red accents and accessories by Canadian designer Christopher Bates. The stylish uniforms combining urban chic and international flair complement the charcoal greys, natural tones and red accents featured in the new interior cabin design of Air Canada’s international fleet. The airline’s pilots, flight attendants, airport customer service agents and other uniformed personnel comprising approximately two-thirds of its 30,000 global workforce will start wearing their new uniforms later this year. Photos are available here: http://www.aircanada.com/uniform.

On hand at the event at Air Canada’s main hub in Toronto were Tyler Brûlé and Christopher Bates to celebrate with customers and employees, together with the airline’s award-winning culinary partner, British Columbia-based chef David Hawksworth, and world renowned Quebec-based sommelier, Véronique Rivest, both actively involved in developing Air Canada’s premium menu choices. Air Canada’s selection of Signature dishes, created by Chef Hawksworth, showcases the finest Canadian ingredients from across the country available since it was launched in October 2015 for Air Canada’s International Business Class customers. Air Canada’s new sommelier, Véronique Rivest, will expertly pair the dishes and develop Air Canada’s wine program with a selection of Canadian, old and new world wine that are changed seasonally to highlight the best wines to be enjoyed at 30,000 feet.

In addition, guests were treated to a sampling of some of the new onboard menu choices that will be available for Air Canada customers starting this April, including Lavazza premium Italian coffee that becomes the airline’s new coffee offering among its complimentary beverage selections for all customers, and Toronto-based Dufflet Pastries’ pumpkin spice loaf which will be featured on flights to Europe in Premium Economy and Economy Class cabins. Guests also sampled a selection of Quebec fine cheeses including Oka, camembert and cheddar, alongside freshly baked bread from Quebec artisanal bakery Première Moisson, paired with a Vineland Estates Winery white wine from Ontario’s Niagara region and Les Athlètes du Vin, a French Pinot Noir, both selected by sommelier Véronique Rivest, which will debut for Air Canada’s International Business Class customers in April.

In 2016, Air Canada significantly increased its global footprint with the launch of 28 new routes including 15 new international and 12 U.S. trans-border routes. With new service to Morocco, the airline joined the elite club of global carriers serving all six continents. In 2016, Air Canada and Air Canada Rouge started new services between Toronto-Seoul, Toronto-London Gatwick, Toronto-Prague, Toronto-Budapest, Toronto-Warsaw, Toronto-Glasgow, Montreal-Casablanca, Montreal-Lyon, Vancouver-Delhi, Vancouver-Brisbane and Vancouver-Dublin.

In 2017, Air Canada and Air Canada Rouge will continue its global strategic expansion and will launch new international services between Toronto-Mumbai, Toronto-Berlin, Toronto- Reykjavik, Montreal-Shanghai, Montreal-Algiers, Montreal-Marseille, Montreal- Reykjavik, Vancouver-Taipei, Vancouver-Nagoya, Vancouver-Frankfurt, and Vancouver-London Gatwick. Air Canada will also receive its first Boeing 737 MAX aircraft at the end of 2017, marking the start of its narrowbody fleet renewal program, to be followed in 2019 with the delivery of its first Bombardier C Series aircraft.

To date, Air Canada has taken delivery of 23 new Boeing 787 Dreamliners with 14 more planned by 2019 – all offering the new international cabin standard. In addition, the airline completed the reconfiguration of its entire Boeing 777 fleet of 25 aircraft with the state-of-the-art Dreamliner cabin configuration and inflight entertainment systems.

Air Canada continues to receive top honours, including being named the fastest growing brand among Canada’s largest companies and being recognized by Skytrax as the only Four Star international network carrier in North America. Air Canada, was also named in 2016 among Canada’s Top 100 Employers for a fourth year in a row.

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Top Photo and Images: Air Canada.

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Air Canada launches Boeing 787-8 nonstop flights from Vancouver to Newark

Air Canada launches Boeing 787-8 nonstop flights from Vancouver to Newark

Air Canada on June 17, 2016 launched daily Boeing 787-8 Dreamliner service on its Vancouver-Newark route. The carrier’s Dreamliners offer the choice of three cabins of service including its new Business Class – Transcontinental option

With the introduction of 787-8 Dreamliner service on the Newark-Vancouver route, Air Canada Business Class – Continental is now available on three Canada-U.S. transborder routes including select Los Angeles-Toronto and San Francisco-Toronto flights.

Also on June 17, 2016, Air Canada flight AC061 departed for Seoul, South Korea, inaugurating the carrier’s 10th new international route in the past month.

Since May 19, Air Canada and Air Canada Rouge have between them started seven new non-stop routes to Europe and one each to Asia, Africa and Australia as part of the airline’s international expansion. In addition, Air Canada has also launched 11 new U.S. transborder routes since the start of May.

This summer, Air Canada has launched new international services between Vancouver-Brisbane, Vancouver-Dublin, Toronto-Glasgow, Toronto-Budapest, Toronto-London-Gatwick, Toronto-Prague, Toronto-Warsaw, Toronto-Seoul, Montreal-Casablanca, and Montreal-Lyon, with Vancouver-Delhi to launch this fall. Last year, Air Canada launched new international services between Toronto-Delhi, Toronto-Amsterdam, Toronto-Dubai, Montreal-Venice, Montreal-Mexico City and Vancouver-Osaka.

Copyright Photo: Air Canada Boeing 787-8 Dreamliner C-GHPQ (msn 35257) YYZ (TMK Photography). Image: 923292.

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Air Canada to upgrade the Newark – Vancouver route to Boeing 787-8s

Air Canada Boeing 787-8 Dreamliner C-GHPQ (msn 35257) ZRH (Andi Hiltl). Image: 923112.

Air Canada (Montreal) will up gauge the daily Newark – Vancouver route from Airbus A319s to Boeing 787-8s for next summer starting on June 17, 2016 per Airline Route.

Copyright Photo: Andi Hiltl/AirlinersGallery.com. Boeing 787-8 C-GHPQ (msn 35257) arrives in Zurich.

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Air Canada reports a first quarter net profit of $122 million

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Air Canada (Montreal) today (May 12) reported first quarter adjusted net income of $122 million (all amounts are in Canadian dollars) or $0.41 per diluted share compared to an adjusted net loss of $132 million or $0.46 per diluted share in the first quarter of 2014, an improvement of $254 million or $0.87 per diluted share. EBITDAR(1) (earnings before interest, taxes, depreciation, amortization and aircraft rent) amounted to $442 million compared to EBITDAR of $147 million in the same quarter in 2014, an increase of $295 million or 200 per cent year-over-year.

Here is the rest of the financial report:

 

On a GAAP basis, Air Canada reported operating income of $200 million in the first quarter of 2015 compared to an operating loss of $62 million in the first quarter of 2014, an improvement of $262 million. The airline recorded an operating margin of 6.2 per cent compared to a negative operating margin of 2.0 per cent in the first quarter of 2014, an improvement of 8.2 percentage points.

“I am delighted to report the best first quarter financial performance in Air Canada’s history,” said Calin Rovinescu, President and Chief Executive Officer. “Record results in adjusted net income, operating income, operating margin, EBITDAR, passenger revenues and passenger load factor for the quarter all underscore our team’s success in executing on our value-enhancing strategies. We have continued to see a strong demand environment, and in the first quarter our margins expanded dramatically, bolstered by strong cost control, with adjusted CASM declining 1.8 per cent despite the weaker Canadian dollar, and solid traffic growth particularly on leisure sun routes.

“While fuel prices remain volatile, in 2015 we expect to continue to expand margins, increase adjusted net income, strengthen our balance sheet and create value for shareholders. We also expect to set a new record for second quarter operating income this year; however year-over-year improvements will likely be modest when compared to the first quarter improvement. This is due to a particularly strong revenue performance in the second quarter of 2014 and higher projected maintenance expense, the absence of favourable tax-related provisions adjustments of $41 million recorded in the second quarter of 2014, as well as higher relative fuel prices in the second quarter versus the first quarter of 2015.

“I would like to thank Air Canada’s 27,000 employees for their hard work earning the loyalty of our customers as we continue to implement our commercial strategy focused on international growth with a renewed fleet and onboard product.”

First Quarter Income Statement Highlights

In the first quarter of 2015, on capacity growth of 9.3 per cent, system passenger revenues of $2.786 billion increased $178 million or 6.9 per cent from the first quarter of 2014. The increase in system passenger revenues was due to traffic growth of 10.9 per cent partly offset by a yield decline of 4.2 per cent. An increase in average stage length of 2.7 per cent versus the same quarter in 2014, reflecting international long-haul growth, had the effect of reducing system yield by 1.6 percentage points. On a stage length adjusted basis, system yield decreased 2.6 per cent year-over-year. Modest yield declines are an anticipated and natural consequence of the successful implementation of Air Canada’s strategy to profitably increase long-haul international and leisure flying.

Passenger revenue per available seat mile (PRASM) decreased 2.7 per cent from the first quarter of 2014 as the lower yield was partly offset by a passenger load factor improvement of 1.2 percentage points.

In the first quarter of 2015, operating expenses of $3.049 billion decreased $78 million or 2 per cent from the first quarter of 2014 on capacity growth of 9.3 per cent. The decline in operating expenses reflected the impact of lower jet fuel prices largely offset by the impact of the weaker Canadian dollar and capacity-related cost increases. The unfavourable impact of a weaker Canadian dollar on foreign currency denominated operating expenses (mainly U.S. dollars) in the first quarter of 2015, when compared to the first quarter of 2014, increased operating expenses by approximately $135 million. This currency impact was partly offset by a favourable currency impact of $38 million on passenger revenues and realized currency derivatives gains of $51 million.

Air Canada’s adjusted cost per available seat mile (adjusted CASM(1)), which excludes fuel expense, the cost of ground packages at Air Canada Vacations® and unusual items, decreased 1.8 per cent from the first quarter of 2014, better than the 0.5 to 1.5 per cent increase projected in Air Canada’s news release dated February 11, 2015. The better than expected adjusted CASM performance was largely due to:

Lower than anticipated aircraft maintenance expenses, primarily driven by the acceleration of aircraft lease extensions and certain favourable lease return condition provision adjustments, reducing maintenance expenses by $22 million in the first quarter of 2015;
The impact of the new Jazz CPA, effective January 1, 2015, whereby certain costs, such as ground handling services performed by Air Canada, are no longer recovered from Jazz and passed through to Air Canada under the Jazz CPA as capacity purchase fees, thereby reducing both other revenues and capacity purchase fees; and

Lower than expected employee benefits expense due to lower benefit payments and improved plan experience.

Financial and Capital Management Highlights

At March 31, 2015, unrestricted liquidity (cash, short-term investments and undrawn lines of credit) amounted to over $3.1 billion (March 31, 2014 – $2.5 billion). Air Canada’s principal objective in managing liquidity risk is to maintain a minimum unrestricted liquidity level of $1.7 billion.

At March 31, 2015, adjusted net debt(1) amounted to $5.19 billion, an increase of $58 million from December 31, 2014, as higher long-term debt and finance lease balances were largely offset by higher cash and short-term investments balances. The airline’s adjusted net debt to EBITDAR ratio was 2.6 at March 31, 2015 versus a ratio of 3.1 at December 31, 2014. Air Canada uses this ratio to manage its financial leverage risk and its objective is to maintain the ratio below 3.5.

In the first quarter of 2015, free cash flow(1) of $383 million was $349 million higher than in the first quarter of 2014, reflecting higher cash flows from operating activities partly offset by an increase in capital expenditures which included the acquisition of two Boeing 787-8 aircraft in the first quarter of 2015.

For the 12 months ended March 31, 2015, return on invested capital (ROIC(1)) was 15.2 per cent versus 10.9 per cent for the 12 months ended March 31, 2014. Air Canada’s goal is to maintain a sustainable ROIC of 10 to 13 per cent.

Further to Air Canada’s foreign exchange risk management practices (which are more fully described in Air Canada’s 2014 MD&A dated February 11, 2015), foreign denominated revenues essentially act as a natural hedge against U.S. dollar denominated non-fuel operating expenses. As such, net U.S. dollar operating expenses are largely attributable to the airline’s fuel purchases which are currently at a much lower cost in Canadian dollars despite the impact of a weaker Canadian dollar.

U.S. dollar currency derivatives and U.S. dollar cash reserves which, as at March 31, 2015, amounted to US$2.2 billion and US$711 million, respectively, are employed to offset approximately 65 per cent of the net U.S. dollar currency exposure over the next 18 months. The currency derivatives enable Air Canada to purchase U.S. dollars at a weighted average price of C$1.1784 (subject to various option pricing features, such as knock-out terms and profit cap limitations). These derivatives and U.S. dollar cash reserves would be available to mitigate certain cash flow exposure from the currency movements over the next 18 months; however the benefit of these hedging activities is recorded as a foreign exchange gain and not within operating income.

Current Outlook

Capacity

Air Canada expects second quarter 2015 system ASM capacity, as measured by available seat miles (ASMs), to increase 8.75 to 9.75 per cent when compared to the second quarter of 2014, and to be comprised of an increase in the total number of seats dispatched (system) of 5.5 to 6.5 per cent and an increase in system average stage length (measured by ASMs divided by seats dispatched) of approximately 3.0 per cent when compared to the same quarter in 2014.

Air Canada continues to expect its full year 2015 system ASM capacity to increase by 9.0 to 10.0 per cent. For the full year 2015, Air Canada continues to expect an increase in the total number of seats dispatched (system) of 6.0 to 7.0 per cent and an increase in average stage length (system) of approximately 3.0 per cent when compared to the full year 2014. Approximately 55 per cent of the 2015 forecasted capacity increase will be through the continued lower-cost growth of Air Canada rouge® while approximately 38 per cent of the capacity growth will be targeted to international markets operated by the mainline carrier.

Air Canada continues to expect its full year 2015 domestic ASM capacity to increase 3.5 to 4.5 per cent when compared to 2014, with a large part of the growth focused on the airline’s transcontinental services. The increase on transcontinental services is partly driven by the positioning of certain Boeing 777 and 787 aircraft at Air Canada’s major hubs in Toronto and Vancouver. Furthermore, in 2015, an overlap of the aircraft brought into the fleet to replace the exiting Embraer 190 aircraft is expected to account for approximately 30 per cent of the projected domestic capacity growth in 2015. This overlap is designed to better match capacity with expected 2015 summer season demand. For the full year 2015, Air Canada continues to expect an increase in the total number of seats dispatched (domestic) of 2.5 to 3.5 per cent and an increase in average stage length (domestic) of approximately 1.0 per cent when compared to the full year 2014.

Adjusted CASM

For the second quarter of 2015, Air Canada expects adjusted CASM (which excludes fuel expense, the cost of ground packages at Air Canada Vacations and unusual items) to increase 0.25 to 1.25 per cent when compared to the second quarter of 2014.

For the full year 2015, Air Canada now expects adjusted CASM to decrease 1.5 to 2.5 per cent from the full year 2014 (as opposed to the decrease of 0.75 to 1.75 per cent projected in Air Canada’s February 11, 2015 news release). This improvement is largely driven by the impact of the new Jazz CPA, effective January 1, 2015, whereby certain costs, such as ground handling services performed by Air Canada, are no longer recovered from Jazz and passed through to Air Canada under the Jazz CPA.

Major Assumptions

Air Canada’s outlook assumes annual Canadian GDP growth of 1.75 to 2.25 per cent for 2015. Air Canada also expects that the Canadian dollar will trade, on average, at C$1.22 per U.S. dollar in the second quarter of 2015 and for the full year 2015 and that the price of jet fuel will average 69 cents per litre for the second quarter of 2015 and 70 cents per litre for the full year 2015.

(1) 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 First Quarter 2015 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 fuel and other derivatives 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, as such expenses may distort the analysis of certain business trends and render comparative analysis to other airlines less meaningful.

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.

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.

Return on invested capital (ROIC) 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 referred to in the above paragraph), excluding interest expense and implicit interest on operating leases. Invested capital includes average year-over-year total assets, net of average year-over-year non-interest-bearing operating liabilities, and the value of capitalized operating leases (calculated by multiplying annualized aircraft rent by 7).

Copyright Photo below: SPA/AirlinersGallery.com. Air Canada acquired two Boeing 787-8 aircraft in the first quarter of 2015. C-GHPQ (msn 35257) departs from London (Heathrow).

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Air Canada is coming to Dubai, United Arab Emirates

Air Canada (Montreal) is coming to Dubai with a new Boeing 787 Dreamliner route from the Toronto (Pearson) hub. The airline issued this statement:

Air Canada today said that it will launch nonstop service between Toronto and Dubai beginning in November 2015. The new route will extend the airline’s international network farther into the Middle East at a time of increased travel between North America and the region.

“The introduction of the Boeing 787 Dreamliner to Air Canada’s fleet this year has been a catalyst for our international expansion plans, which will receive an additional impetus in 2015 when the larger Dreamliner 787-9 series aircraft begins to enter the fleet. The Dreamliner has brought international air travel to a new level of comfort and Air Canada has further enhanced the experience with its award-winning, three-cabin service.”

Air Canada currently serves the region primarily through an extensive joint venture with its JV and Star Alliance partner Lufthansa over Frankfurt and Munich. In addition, the new route will build on Air Canada’s existing codeshare relationship with Etihad Airways, with whom it codeshares on three flights a week between Toronto and Abu Dhabi, in the UAE.

Since last December, Air Canada has announced new international service to Delhi, Amsterdam, Rio de Janeiro, Osaka, Tokyo-Haneda and Panama City. Including Dubai, Air Canada now serves or has announced service to a total of 66 international destinations on five continents from its Toronto global hub.

The three-times-weekly service starts on November 3, 2015. Flights will be operated with the Boeing 787 Dreamliner in a three cabin configuration, including next generation lie-flat seats in International Business Class, a Premium Economy cabin, and upgraded In-Flight Entertainment available at every seat throughout the aircraft.

Schedule:

Air Canada YYZ-DXB Schedule

Copyright Photo: TMK Photography/AirlinersGallery.com. Boeing 787-8 Dreamliner C-GHPQ (msn 35257) arrives at the Toronto (Pearson) hub.

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Air Canada to add the Boeing 787 from Vancouver for its Asian routes

Air Canada (Montreal) is gradually introducing the new Boeing 787 Dreamliner from Vancouver, replacing its older Boeing 767-300 ERs on some of its long-range routes. The carrier will introduce the 787 on the Vancouver-Shanghai (Pudong) route on October 26, Vancouver-Tokyo (Narita) on December 15, Vancouver-Beijing on February 1, 2015 and Vancouver-Seoul (Incheon) on March 1, 2015 per Airline Route.

In addition, Air Canada plans to operate Boeing 787 on the Vancouver-Toronto (Pearson) route at least once a day during the winter season effective October 26.

Copyright Photo: TMK Photography/AirlinersGallery.com. Boeing 787-8 Dreamliner C-GHPQ (msn 35257) departs from Lester B. Pearson International Airport in Toronto.

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Air Canada reports record second quarter 2014 results of $139 million

Air Canada (Montreal) today reported second quarter adjusted net income (1) of $139 million (all amounts in Canadian dollars) or $0.47 per diluted share compared to adjusted net income of $115 million or $0.41 per diluted share in the second quarter of 2013, an improvement of $24 million or 21 per cent. EBITDAR (1) (earnings before interest, taxes, depreciation, amortization and impairment, and aircraft rent) amounted to $456 million compared to EBITDAR of $385 million in the second quarter of 2013. On a GAAP basis, Air Canada reported net income of $223 million or $0.75 per diluted share in the second quarter of 2014 compared to a net loss of $23 million or $0.09 per diluted share in the second quarter of 2013. Air Canada’s second quarter 2014 EBITDAR and GAAP net income results included favourable tax-related provision adjustments of $41 million. These provisions are excluded from Air Canada’s adjusted (net income and CASM) results.

“I am pleased to report that Air Canada delivered its best second quarter financial performance in the Corporation’s history, surpassing last year’s records in all three measures of operating income, adjusted net income and EBITDAR,” said Calin Rovinescu, President and Chief Executive Officer. These results underline the significant incremental progress being achieved through our various value-enhancing strategies, as they continue to be implemented.

“In addition to seeing good year-over-year revenue growth in all of our five markets, we have also seen a marked increase in the number of international and U.S.-originating customers choosing Air Canada for their global travel plans. Investments by Air Canada and our industry partners to provide a seamless transfer experience at Canada’s major hubs are starting to show results. The performance of Air Canada rougeTM has exceeded expectations and allows Air Canada to now compete more effectively in leisure markets on a more cost effective basis. Combined with Air Canada’s other cost transformation strategies, adjusted CASM decreased 4.7 per cent from the previous year’s quarter.

“During the quarter, Air Canada took delivery of the first two of 37 firm orders for the Boeing Dreamliner 787 aircraft and a third since, in July (above). The renewal of our international fleet with these next-generation aircraft will provide us with significant improvements in fuel efficiency and allow us to offer customers superior comfort and amenities. We look forward to realizing the full benefits of our international fleet renewal as new aircraft enter the mainline fleet.

“I am especially pleased that once again international air travellers surveyed by the independent UK-based research firm, Skytrax, selected Air Canada as Best Airline in North America for the fifth year in a row. This honour recognizes the professionalism of our employees and their commitment to taking care of our customers, as well as our investment in providing an award-winning product on board our aircraft and on the ground.

“Looking ahead, we remain focused on maintaining the momentum to transform Air Canada into an increasingly profitable company for our shareholders and employees, and executing on our four core priorities: cost transformation, international growth, customer engagement and culture change,” concluded Mr. Rovinescu.

Second Quarter Income Statement Highlights

System passenger revenues amounted to $2,965 million, an increase of $208 million or 7.5 per cent from the second quarter of 2013, on a 9.9 per cent growth in traffic as yield declined 2.1 per cent year-over-year. Average stage length, on a system-basis, increased 2.5 percent from the same quarter of 2013 and had the effect of reducing yield by 1.5 percentage points. Passenger revenue per available seat mile (PRASM) decreased 0.8 per cent from the same quarter in 2013 on the lower yield as passenger load factor improved 1.1 percentage points. In the second quarter of 2014, system premium cabin revenues increased $14 million or 2.4 per cent on yield growth of 3.6 per cent partly offset by a traffic decline of 1.2 per cent.

Operating expenses amounted to $3,060 million, an increase of $177 million or 6 per cent from the second quarter of 2013 on an 8.5 per cent increase in capacity. Included in Other operating expenses in the second quarter of 2014 were favourable tax-related provision adjustments of $41 million. The unfavourable impact of a weaker Canadian dollar on foreign currency denominated operating expenses (mainly U.S. dollars), when compared to same quarter in 2013, increased operating expenses by $110 million. This unfavourable currency impact on operating expenses was partially offset by a favourable currency impact on passenger revenues of $70 million.

Air Canada’s adjusted cost per available seat mile (adjusted CASM(1)), which excludes fuel expense, the cost of ground packages at Air Canada VacationsTM and unusual items, decreased 4.7 per cent compared to the second quarter of 2013. The 4.7 per cent reduction in adjusted CASM surpassed the adjusted CASM decrease of 3.5 to 4.5 per cent projected in Air Canada’s news release dated May 15, 2014, largely the result of ASM capacity coming at the top end of the expected range and a slight improvement in the value of the Canadian dollar versus what Air Canada assumed in its May 15, 2014 projections.

In the second quarter of 2014, Air Canada recorded operating income of $245 million compared to operating income of $174 million in the second quarter of 2013, an improvement of $71 million. Air Canada’s second quarter 2014 operating income results included favourable tax-related provision adjustments of $41 million.

Financial and Capital Management Highlights

At June 30, 2014, unrestricted liquidity (cash, short-term investments and undrawn lines of credit) amounted to $2,954 million (June 30, 2013 – $2,139 million). Air Canada’s principal objective in managing liquidity risk is to maintain a minimum unrestricted liquidity level of $1.7 billion.

In April 2014, Air Canada completed a private offering of US$400 million of 7.75 per cent senior unsecured notes due 2021 and received net proceeds of approximately $432 million.

At June 30, 2014, adjusted net debt (1) amounted to $4,309 million, a decrease of $42 million from December 31, 2013. The airline’s adjusted net debt to EBITDAR ratio was 2.9 at June 30, 2014 versus a ratio 3.0 at December 31, 2013. Air Canada uses this ratio to manage its financial leverage risk and its objective is to maintain the ratio below 3.5.

In the second quarter of 2014, free cash flow (1) reflected a decline of $183 million from the second quarter of 2013, reflecting primarily the acquisition of two Boeing 787 aircraft.

For the 12 months ended June 30, 2014, return on invested capital (ROIC (1)) was 11.0 per cent versus 8.8 per cent for the 12 months ended June 30, 2013. Air Canada’s goal is to achieve a sustainable ROIC of 10 to 13 per cent by 2015.

Pension Highlights

Based on actuarial valuations completed in the second quarter of 2014, the aggregate solvency surplus in Air Canada’s domestic registered pension plans as at January 1, 2014 was $89 million whereas the solvency deficit at January 1, 2013 was $3.7 billion. The elimination of the $3.7 billion deficit and the surplus generated were largely the result of the following factors: (i) a 13.8 per cent return on investments during 2013, (ii) the implementation of pension benefit amendments which decreased the solvency deficit by approximately $970 million, (iii) contributions made by Air Canada in respect of 2013 of $225 million in respect of the solvency deficit and (iv) the application of a prescribed discount rate of 3.9 per cent to calculate its future pension obligations. Refer to section 9.7 “Pension Funding Obligations” of Air Canada’s 2013 MD&A dated February 12, 2014 for additional information on Air Canada’s pension funding obligations.

Current Outlook

For the third quarter of 2014, Air Canada expects its system ASM capacity, as measured by available seat miles (ASMs), to increase in the range of 9.0 to 10.0 per cent when compared to the third quarter of 2013.

Air Canada now expects its full year 2014 system ASM capacity to increase in the range of 7.0 to 8.0 per cent (as opposed to the 6.5 to 8.0 per cent growth projected in Air Canada’s news release dated May 15, 2014) and its full year domestic ASM capacity to increase in the range of 4.0 to 5.0 per cent when compared to 2013 (as opposed to 3.0 to 4.0 per cent growth projected in Air Canada’s news release dated May 15, 2014). The projected system capacity increase is expected to be achieved at a unit cost which is below historical levels. The change in projected domestic ASM capacity is primarily driven by the use of larger aircraft on transcontinental routes in support of the airline’s international expansion strategy.

Air Canada expects the ASM capacity growth to be comprised of an increase in the total number of seats dispatched (system) in the third quarter and full year 2014 in the range of 6.5 to 7.5 per cent and 5.0 to 6.0 per cent, respectively, when compared to same periods in 2013.

For the third quarter of 2014, Air Canada expects adjusted CASM to decrease in the range of 3.5 to 4.5 per cent when compared to the third quarter of 2013.

Taking into account Air Canada’s adjusted CASM performance in the second quarter of 2014, for the full year 2014, Air Canada now expects adjusted CASM to decrease in the range of 3.2 to 4.2 per cent from the full year 2013 (as opposed to the 3.0 to 4.0 per cent decrease projected in Air Canada’s news release dated May 15, 2014).

Air Canada’s outlook assumes Canadian GDP growth of 2.0 to 2.5 per cent for 2014. Air Canada also expects that the Canadian dollar will trade, on average, at C$1.08 per U.S. dollar in the third quarter of 2014 and C$1.09 for the full year 2014 and that the price of jet fuel will average 90 cents per litre for the third quarter of 2014 and 91 cents per litre for the full year 2014.

Notes:

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 Second Quarter 2014 MD&A for additional information.
(2) EBITDAR (earnings before interest, taxes, depreciation, amortization, impairment and aircraft rent) is a non-GAAP financial measure. Refer to section 16 “Non-GAAP Financial Measures” of Air Canada’s Second Quarter 2014 MD&A for additional information.
(3) Unrestricted liquidity refers to the sum of cash, cash equivalents, short-term investments and the amount of available credit under Air Canada’s revolving credit facilities. At June 30, 2014, unrestricted liquidity was comprised of cash and short-term investments of $2,615 million and undrawn lines of credit of $339 million. At June 30, 2013, unrestricted liquidity was comprised of cash and short-term investments of $2,107 million and undrawn lines of credit of $32 million.
(4) Free cash flow (cash flows from operating activities less additions to property, equipment and intangible assets) is a non-GAAP financial measure. Refer to section 7.5 “Consolidated Cash Flow Movements” of Air Canada’s Second Quarter 2014 MD&A for additional information.
(5) Adjusted net debt (total debt less cash, cash equivalents and short-term investments plus capitalized operating leases) is a non-GAAP financial measure. Refer to section 7.3 “Adjusted Net Debt” of Air Canada’s Second Quarter 2014 MD&A for additional information.
(6) Return on invested capital (“ROIC”) is a non-GAAP financial measure. Refer to section 16 “Non-GAAP Financial Measures” of Air Canada’s Second Quarter 2014 MD&A for additional information
(7) Operating statistics (except for average number of FTE employees) include third party carriers (such as Jazz Aviation LP (“Jazz”) and Sky Regional Airlines Inc. (“Sky Regional”) operating under capacity purchase agreements with Air Canada.
(8) Adjusted CASM is a non-GAAP financial measure. Refer to section 16 “Non-GAAP Financial Measures” of Air Canada’s Second Quarter 2014 MD&A for additional information.
(9) Reflects FTE employees at Air Canada. Excludes FTE employees at third party carriers (such as Jazz and Sky Regional) operating under capacity purchase agreements with Air Canada.
(10) Average stage length is calculated by dividing the total number of available seat miles by the total number of seats dispatched.
(11) Includes fuel handling expenses. Economic fuel price per litre is a non-GAAP financial measure. Refer to sections 4 and 5 “Results of Operations” of Air Canada’s Second Quarter 2014 MD&A for additional information.
(12) Revenue passengers are counted on a flight number basis which is consistent with the IATA definition of revenue passengers carried.

Copyright Photo: TMK Photography/AirlinersGallery.com. Boeing 787-8 C-GHPQ (msn 35257) departs from the Toronto (Pearson) hub.

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