Air Canada set to hike fares to offset skyrocketing fuel costs
Air Canada experienced a 31 per cent increase in the price of jet fuel compared with last year’s second quarter and will offset some of the impact with higher fares and other initiatives, Air Canada chief executive Calin Rovinescu said Friday.
The Montreal-based airline did well in terms of revenue, which was up 10.4 per cent compared with last year’s second quarter, but adjusted earnings dropped to $114 million or 41 cents per share.
That was only about half as much as Air Canada’s adjusted earnings of $226 million or 82 cents per share in the second quarter of 2017, but still better than analyst estimates of 28 cents per share, according to Thomson Reuters Eikon.
Air Canada’s revenue for the three months ended June 30 was in line with estimates at $4.33 billion, up from $3.91 billion in the second quarter of 2017.
Rovinescu said its strong revenues demonstrated the appeal of Air Canada’s brand and the continuing strong demand for air travel in all of its main markets.
“We did, however, revise our 2018 guidance for certain key financial metrics given the rapid increase in fuel prices in the first half of 2018,” Rovinescu said in a statement.
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Air Canada is now estimating jet fuel will cost 80 cents per litre in the third quarter and 78 cents per litre for the full year. The previous full-year estimate was 75 cents per litre.
“We estimate that we will be able to mitigate approximately 75 per cent of the expected 2018 annual fuel price increase through fare increases, other commercial initiatives and our cost transformation program.”
Other Air Canada executives told analysts in a conference call Friday that the company was analyzing the potential for cutting some of its seating capacity in the fourth quarter as another response to the higher fuel prices.
In the shorter term, they said, Air Canada is waiting Aimia Inc.’s response to a bid by the airline and its credit card partners to acquire the Aeroplan loyalty points business. The consortium said the offer will expire on Thursday.
He said Air Canada hasn’t deviated from its plan to set up its own in-house loyalty program but sees this week’s acquisition proposal as a way to retain a partnership with Toronto-Dominion Bank and Canadian Imperial Bank of Commerce, which currently offer Aeroplan Visa credit cards.
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“We have not abandoned our plans to launch our own loyalty plan in 2020. If Aeroplan is acquired, Aeroplan miles would simply be converted to our new program . . . (allowing for) a smooth transition for Aeroplan members.”
But Rovinescu said Aimia’s board has the option of rejecting the proposal and adopting a go-it-alone strategy for Aeroplan, without Air Canada as a redemption partner.
“Of course, we see value in continuing with our two incumbent credit card partners that are in that (Aeroplan) program, TD and CIBC, if that’s feasible. . . . But if it’s not, then it’ll have to be with other bank partners. . . . ”
Earlier Friday, Air Canada reported a $77-million net loss, or 28 cents per share, which included a $186-million loss on the expected sale and leaseback of 25 Embraer planes and a $25-million loss on foreign exchange.
In the same period last year, it had a $26-million gain on a sale of assets and a $68-million gain on foreign exchange.
Air Canada shares were up 37 cents at $23.85 shortly after they began trading Friday. Aimia shares – which jumped 35.6 per cent on Wednesday after the consortium announced its proposal – were up four cents at $3.48.
© 2018 The Canadian Press