Air Canada reports strong Q2 2016 earnings
By Air Canada
Air Canada has reported record second quarter 2016 EBITDAR (earnings before interest, taxes, depreciation, amortization and aircraft rent) of $605 million compared to the previous record EBITDAR of $591 million in the same quarter in 2015. EBITDAR in the second quarter of 2015 included a special item which improved EBITDAR by $23 million. Air Canada recorded adjusted net income of $203 million or $0.72 per diluted share compared to adjusted net income of $250 million or $0.85 per diluted share in the second quarter of 2015. On a GAAP basis, Air Canada reported net income of $186 million or $0.66 per diluted share in the second quarter of 2016 compared to net income of $296 million or $1.00 per diluted share in the second quarter of 2015.
By Air Canada
“I am pleased to report record EBITDAR results for the quarter from both an increase in revenue and traffic, and specifically from our continued strong focus on unit cost improvement,” said Calin Rovinescu, president and chief executive officer. “Traffic growth in all five of our geographic markets exceeded last year’s strong growth. We continued to increase our revenue base in the face of a challenging revenue environment principally in the domestic and Atlantic markets and despite a generally weak global economy. Overall revenue growth included an increase in international-to-international connecting passengers via Canada as we continue to successfully build our main hubs as attractive and efficient options for international travellers.
“Our continued focus on our strategic priorities, as well as our increased flexibility and our ability to adapt and react to an evolving business environment, unexpected macroeconomic or geopolitical threats or natural disasters, are helping us deliver on the key financial targets established at our 2015 Investor Day, namely annual EBITDAR margin, return on invested capital and leverage ratio, as well as a significant reduction in unit costs.
“In the quarter, Air Canada and Air Canada Rouge launched 10 new international routes and 11 new transborder routes marking the most intensive period of expansion in Air Canada’s history. Moreover, on June 30, we served more than 160,000 customers, setting an all-time record which we expect to surpass during the upcoming August long weekend. I would like to thank our employees for their continued focus on taking care of customers and working together to help make Air Canada a global industry leader,” concluded Rovinescu.
Second Quarter Income Statement Highlights
In the second quarter of 2016, record system passenger revenues of $3.143 billion increased $61 million or 2.0 per cent from the second quarter of 2015. Traffic growth of 9.3 per cent reflected traffic increases in all of Air Canada’s five geographic markets. A yield decline of 6.8 per cent principally resulted from a 4.2 per cent increase in average stage length (reducing system yield by 2.4 per cent) as well as increased market capacity and competitive pricing affecting primarily domestic and European services.
As previously discussed, Air Canada’s network strategy for sustained profitable growth involves higher average stage lengths, an increased number of seats at, on average, lower fares in long-haul leisure markets and a higher proportional growth of international connecting traffic, all of which contributed, as expected, to a decline in yield. In the second quarter of 2016, operating expenses of $3.181 billion increased $90 million or 3 per cent from the second quarter of 2015. This increase was due to the impact of an 11.0 per cent capacity growth and the unfavourable impact of a weaker Canadian dollar on non-fuel foreign currency denominated operating expenses which increased operating expenses by $51 million in the second quarter of 2016. These increases were partly offset by the impact of lower fuel expense of $141 million over the same period.
Air Canada’s cost per available seat mile (CASM) decreased 7.3 per cent from the second quarter of 2015. The airline’s adjusted CASM, which excludes fuel expense, the cost of ground packages at Air Canada Vacations and special items, decreased 1.1 per cent from the second quarter of 2015, better than the 2.0 to 3.0 per cent increase forecast in Air Canada’s April 29, 2016 news release. The better than forecasted adjusted CASM results were due to lower than previously expected regional airlines expense, aircraft maintenance expense and wages, salaries and benefit expense and to other operating expense reductions.