Air Canada shares plunge

Air Canada shares fell Monday after the country’s largest airline issued a surprise preliminary profit warning that it will record a loss in the first quarter.

Air Canada shares fell Monday after the country’s largest airline issued a surprise preliminary profit warning that it will record a loss in the first quarter.

In Toronto, the share price fell more than 12 per cent to $2.62, down 38 cents on heavy trading volume of more than 5.5 million shares.

In a news release, Air Canada issued preliminary results for the first three months of 2013, ahead of the May 3 scheduled earnings release. It is forecasting a net loss of about $260 million for the first quarter, compared with a net loss of $274 million in the first quarter of 2012.

After adjustments, the net loss narrows to $143 million for the first quarter of 2013, compared with an adjusted net loss of $162 million in the same period in 2012.

Air Canada said it issued the profit warning as it is required to do under Canadian securities law, as it begins to explore a range of debt financing options.

However, it did not elaborate on its specific debt financing plans. It is unclear whether it is looking to refinance existing debt or to pay for upcoming fleet expansions including new Boeing 777 jets due this summer and Boeing 787 Dreamliner planes expected next year.

Its adjusted net debt was estimated at $3.98 billion at March 31, a decrease of $246 million from March 31, 2012.

Air Canada also blamed severe weather in the first quarter that led to flight cancellations at the airline’s major Canadian hubs, including Toronto’s Pearson airport, which was hit with de-icing delays in February. It estimates weather issues cost the airline $10 million.

Other factors included an earlier Easter holiday in March which lead to a higher proportion of leisure passengers compared with business travellers, as well as foreign currency impact on passenger revenues.

The airline is also taking a $24 million charge related to Airbus A340-300 aircraft that it no longer flies.

David Tyerman, an analyst at Canaccord Genuity, said he was not surprised by Air Canada’s announcement, in part because his forecast was lower than the consensus given by other analysts.

Tyerman said he expected Air Canada would be down in the first quarter due to lower yield as well as higher forecasted maintenance costs.

But he added that the first quarter for an international airline like Air Canada always tends have lower revenues due to lower traffic. Fewer people are flying certain routes, such across the North Atlantic, in the first quarter, which is not peak vacation time.

“There’s nothing necessarily wrong with them. It’s just the way the year has been unfolding,” he said.

Air Canada will be able to lower some its costs later in the year as Air Canada transfers 15 Embraer 175 planes to Sky Regional airline as well enjoying some small benefits from the startup of the leisure carrier Rouge, he added.

The airline also begins to take delivery of its new 777 planes for long-haul routes and will introduce premium economy on its Montreal-to-Paris flight in July.

In a research note on Monday, RBC Capital Markets analyst Walter Spracklin, who downgraded the stock last week to sector perform, wrote that with Air Canada’s share price up 250 per cent year over year, “We believe the AC stock is particularly vulnerable to negative surprises.

“This morning’s unexpected profit warning is an example of this risk, with the lower-than-expected RASM (revenue per available seat mile) and yields certainly a cause for concern,” he said, adding increasing competition is another factor.

About the author

Avatar of Linda Hohnholz

Linda Hohnholz

Editor in chief for eTurboNews based in the eTN HQ.

Share to...