Air Canada’s profits dip as fuel costs rise

Sunday, August 10, 2008, 8:31 by Aviation Correspondent

Skyrocketing fuel bills have taken its toll on yet another airline: Air Canada, the flag carrier of Canada and the country’s largest airline, has suffered a 21% drop in its profits in the second quarter of 2008. The net income of Air Canada, headquartered in Montreal, Quebec, Canada, declined to Canadian $122 million (US $115 million), or Canadian $1.22 a share, from Canadian $155 million, the company said in a statement.

However, the revenues of the airline rose by 5.4% to Canadian $2.78 billion in the second quarter of 2008.

This means that Air Canada’s operating earnings nosedived in the period – descending to $7 million, or less than 1% of the company’s operating revenue. In the second quarter of 2007, the carrier had earned an operating profit of $88 million, or 3.3% of its operating revenues.

A gain to the tune of Canadian $92 million related to fuel-hedging contracts has helped the airline offset the impact of rising fuel, Air Canada said.

According to the statement, the fall in profits was on account of the fuel expenses, which rose by 33% in the second quarter of 2008. (In dollar terms, the airline paid $212 million more to fly its fleet of 343 aircraft in the second quarter of 2008.)

This situation had forced Air Canada, in June 2008, to abolish 2,000 jobs, reduce seating capacity on flights to the United States and some other international routes.

Air Canada had also announced then that it was replacing its older Boeing 767 jets and Airbus SAS planes with more fuel-efficient Boeing 777s.

Montie Brewer, chief executive officer of Air Canada, was quoted by the Canadian media as telling aviation analysts: “The company will be more aggressive in cutting costs by reducing aircraft weight, and will remove 9 Boeing 767 jets from its fleet. We expect demand to soften as fares go up. The cost of fuel has gone up and the cost that customers are ultimately going to have to bear is fairly high.”

Air Canada, founded in 1937, provides scheduled and charter air transportation for passengers and cargo to over 160 destinations and has its largest hub at Toronto Pearson International Airport. It also provides vacation packages to over 90 destinations via Air Canada Vacations.

Air Canada, a founding member of Star Alliance, is 75% owned by ACE Aviation Holdings Incorporated. ACE Aviation Holdings has sold off stakes in most of its other investments, including regional airline Jazz Air and Aeroplan, Air Canada’s frequent-flier programme.

Meanwhile, in a separate statement, Robert Milton, chief executive officer of ACE Aviation Holdings Incorporated, said steps were under way to close down ACE and that the company was “actively exploring options” for Air Canada “to maximise value for our shareholders.”

ACE Aviation Holdings, Robert Milton added, was considering a tie-up with a United States-based airline as well as sale to a buyout firm. “The picture,” he told journalists, “is obviously pretty fast moving. The movement downward of oil over the last couple of weeks, I view as helpful in the whole equation.”

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