Air Canada stock jumps after Q2 earnings beat estimates, revenue hits record

MONTREAL – Air Canada reported its best second-quarter revenue in the airline’s history and dramatically improved its adjusted net income to $115 million, beating analyst forecasts by a wide margin and giving a boost to the company’s stock price.

On the Toronto Stock Exchange, Air Canada’s B shares soared 20 per cent in heavy trading Wednesday. The stock gained 43 cents to $2.55 within minutes of the open but remained short of the 52-week high of $3.40.

Trading volume was higher than average, with more than two million shares traded on the TSX within the first five minutes of Wednesday’s session.

Air Canada’s adjusted profit amounted to 41 cents per share, an improvement from a year-earlier adjusted net loss of $7 million, or two cents per share, the airline announced early Wednesday in its most recent quarterly report.

Analysts had estimated Air Canada would have 10 cents per share of adjusted net income and $3.02 billion of revenue, according to data compiled by Thomson Reuters.

Operating income increased to $174 million from $63 million, while operating revenue totalled $3.06 billion, a second-quarter record for Air Canada and up from $2.99 billion a year earlier. Passenger revenues increased three per cent to $2.76 billion on a 1.6 per cent growth in traffic and a 1.5 per cent improvement in yield. Premium class revenues increases 3.3 per cent.

Including one-time costs, the Montreal-based airline lost $23 million or nine cents per share for the three months ended June 30, compared with a loss of $161 million or 59 cents per share a year earlier.

“These results clearly indicate that we are executing on our strategic initiatives particularly with a company wide efforts to achieve long-term cost-containment and underscore the substantial operating leverage and upside that are available to us if we can continue to execute on these initiatives,” CEO Calin Rovinescu said Wednesday during a conference call.

EBITDAR (earnings before interest, taxes, depreciation, amortization and rent) was $385 million, up from $312 million last year and compared to $326 million forecast by analysts.

Air Canada (TSX:AC.B) said its operating expenses decreased one per cent as higher wages, salaries and capacity purchase costs were more than offset by lower fuel costs, depreciation, amortization and impairment expenses.

Its adjusted cost per available seat mile excluding fuel and the cost of Air Canada Vacations ground packages fell 1.4 per cent.

Walter Spracklin of RBC Capital Markets said Air Canada’s strong performance was driven by “good cost controls and positive yield.”

“Costs (are) coming down quicker than expected,” he wrote in a report, noting the airline is projecting lower costs for the year likely driven by lower maintenance costs.

He added the good quarter should be well received by investors.

“Overall, it was a decent quarter operationally in which Air Canada did a solid job in managing controllable costs while shoring up its underlying business. We believe the company’s capacity growth plans in international markets make sense and it is encouraging to see the cost controls continuing.”

The airline, which is already closely aligned with the Jazz regional service operated by Chorus Aviation Inc. (TSX:CHR.B), recently launched a new discount long-range leisure service called Rouge.

This summer, Rouge is flying to Edinburgh, Venice and Athens, as well as a number of Caribbean destinations. In the winter it will add sun destinations in the Caribbean, Mexico and the U.S.

Rovinescu said market response to the new leisure carrier “has been very positive” and Air Canada’s plans are on track for growing the Rouge fleet to serve more holiday destination markets.