Air Canada earnings lose altitude

Higher fuel prices hurt Air Canada's earnings.(Adrian Wyld/Canadian Press)

Air Canada's earnings were grounded in the second quarter as the airline's rising fuel bill shrank its bottom line.

The country's biggest air carrier on Friday posted a net profit of $122 million, or $1.22 per share, for the April to June period. The company's earnings, however, took a 21 per cent cut compared to a profit of $155 million this time last year.

Soaring fuel costs were the biggest factor weighing down Montreal-based Air Canada's financial results, the company said in an earnings release.

Air Canada paid an average of 89.2 cents a lire for its jet fuel, a whopping 33 per cent hike compared to aviation energy costs for the second quarter last year.

In dollar terms, the carrier paid $212 million more to fly its 343 aircraft in the most recent quarter.

Thus, Air Canada's operating earnings collapsed in the period, falling to $7 million, or less than one per cent of the company's operating revenue. In the second quarter of 2007, Air Canada posted an operating profit of $88 million, or 3.3 per cent of its operating revenue line.

Sales gain

Sales at the airline were up 5.4 per cent, or $143 million, in the latest three-month period. Overall, Air Canada posted revenue of $2.8 billion.

"I am pleased to report solid operating results for the quarter, despite the difficult industry environment created by unrelentingly high fuel prices," said Montie Brewer, president and chief executive officer.

"The more resilient domestic Canada market drove sustained revenue growth in the quarter [despite] the introduction of a number of fare increases and fuel surcharges."

Indeed, despite a slumping economy, Air Canada's passenger revenue was more than five per cent higher, reaching $2.5 billion.

The company said increased traffic, with available passenger miles rising by 2.4 per cent, and better cash yields for each of those seats, up 2.5 per cent, resulted in the improved sales in this category.

Turbulence ahead

Air Canada, however, warned investors that the company will increase the amount of depreciation cost on its aircraft by between $140 million and $150 million in the second half of the year.

3-month stock chart for Air Canada

This charge, which reflects the lower value of a company's capital assets, is rising because Air Canada is buying or leasing more aircraft and fixing up existing planes.

Air Canada is also forecasting a rise of one per cent in its operating expenses, partly as a result of its plan to reduce flying capacity in the last half of 2008.

Air Canada shares rose three cents to $5.94 in TSX trading.

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