Air Canada adjusts CASM guidance in light of cost savings

Washington DC
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Air Canada is moving forward with its cost transformation initiative as it ends the second quarter and has lowered its adjusted cost per available seat mile (CASM) guidance for the remainder of 2013.

The Montreal-based carrier now expects its full-year adjusted cost per available seat mile (CASM) to decrease 1% to 2% compared to the range of 0.5% to 1.5% guidance the carrier outlined in June. The figure is adjusted for fuel expenses, unusual items and the cost of ground packages at Air Canada Vacations.

Adjusted CASM totalled 11.7 Canadian cents (11 cents) in the quarter, a decrease of 1.4%. This is on the high end of the 0.5 to 1.5% reduction for the quarter that the carrier forecasted by the carrier during its investor day in June. Non-adjusted CASM in the quarter dropped 3.6% to 16.99 Canadian cents during the quarter.

Air Canada expects its adjusted CASM to decrease 1.5% to 2.5% in the third quarter compared to the same three months of 2012.

Lower maintenance and fuel expenses are playing a role in lowering the adjusted CASM, as well improved revenues of C$3.06 billion realised during the quarter.

"This revenue growth, combined with lower fuel prices, and a lower adjusted CASM, drove our improved performance," says chief executive Calin Rovinescu during an earnings call today.

In the second quarter, Air Canada saw maintenance expenses drop 3% year-over-year to C$168 million. A C$6 million reduction in aircraft lease termination provisions contributed to the lower figure. Air Canada expects to see a decrease of $40 million in maintenance expenses for the full 2013 year compared to 2012.

A 6% decrease in fuel expenses was also a contributing factor to Air Canada's improved earnings for the quarter, partially offset by an unfavourable Canadian-US exchange rate that added C$15 million to the fuel bill.

Depreciation, amortisation and impairment expenses decreased 22% during the second quarter, in part helped by the removal of Bombardier CRJ100 aircraft previously operated by Jazz and lower depreciation expenses from interior modifications.

Employee benefits expense, on the other hand, climbed in the second quarter by 14% and is expected to increase by C$70 million for the full year. Wages, salaries and benefits spend increased 9% in the second quarter to C$565 million.

Total operating expenses decreased by C$42 million in the quarter to $2.89 billion.

Air Canada also anticipates profitability improvements from its Rouge low-cost carrier, which began operations on 1 July and operates with a lower cost structure than the mainline carrier due to a higher density configuration of aircraft and new labour work rules. It also expects the introduction of its five new Boeing 777-300ER aircraft to lower incremental costs per passenger via its high-density configuration with 458 seats compared to the 349 in in-service configuration. The first new 777-300ER was delivered to the carrier in June.