Air Canada today reported a net income of $3 million or $0.02 per share for the quarter ended March 31, 1999 as compared to a net loss of $26 million or $0.18 per share in 1998. The operating loss of $1 million compared to an operating income of $4 million in the first quarter last year.
“I am very pleased with our strong performance in revenue growth, particularly from premium traffic which grew 12 per cent over the previous year,” said President and Chief Executive Officer, R. Lamar Durrett. “While we experienced major weather-related operational disruptions in the first quarter for the second consecutive year, I am pleased to report our investment in customer service and products is paying off in all markets. This is evidenced by strong improvements in yields as well as the numerous industry and customer-driven awards received in recent months.”
“However, unit costs remain unacceptably high. Reducing costs without compromising award-winning product and service remains our focus. We are underway in our implementation of company-wide profitability initiatives, and I will be reporting on their progress in future quarterly updates.”
Although Air Canada reduced available seat mile (ASM) capacity by 2 per cent versus the previous year`s quarter, passenger revenue grew by $83 million or 8 per cent. Domestic passenger revenues rose 7 per cent and U.S. transborder revenues grew 8 per cent. Other international passenger revenues increased 8 per cent reflecting Atlantic growth. In total, passenger revenue per available seat mile improved 9 per cent, due to a combination of higher yields and improved load factors. Cargo revenues declined $5 million or 5 per cent, due largely to reduced capacity. Other revenues were down $23 million with lower revenues due to the sale of Galileo Canada in June 1998 offsetting increased revenues from Aeroplan.
Operating expenses for the quarter rose $60 million or 4 per cent which translated into a unit cost increase per ASM of 8 per cent excluding subsidiaries. Key elements in the expense growth were $32 million for higher airport and navigation charges, including Nav Canada fees, $28 million for salary and wage expense and a $15 million increase to aircraft rent and depreciation charges. Fuel expense declined $36 million as a result of lower fuel prices and volumes in 1999 as well as lower fuel hedging costs. Other expenses increased $20 million largely in relation to higher contract services, information technology costs, communications expenses and a number of flying related costs partially offset by lower expenses due to the sale of Galileo Canada. An estimated 30 per cent of the expense growth was due to a weaker Canadian dollar.
In the first quarter the Corporation realized value through two major financial transactions which contributed to non-operating income of $6 million compared to expense of $45 million for 1998. Gains of $56 million were earned on the sale of investments and purchase of perpetual debt ($37 million after-tax, $0.20 per share) as compared to gains on sale of other assets of $3 million in 1998 ($2 million after-tax, $0.01 per share). Air Canada took advantage of the rise in high technology stocks to sell approximately 35 per cent of its interest in Equant N.V., a company which provides international data network services mainly to airlines, for cash proceeds and a pre-tax gain of $42 million. As well, the Corporation capitalized on prevailing market conditions to purchase 3 billion Japanese yen perpetual debt resulting in a $13 million pre-tax gain. Net interest expense and foreign exchange amortization rose $5 million in 1999.
Cash Flow and Balance Sheet
During the quarter, Air Canada completed the issue of $175 million unsecured 6.75 per cent senior debentures. Spending on new property and equipment totaled $63 million mainly related to aircraft, systems development, facilities and ground equipment. Cash and cash equivalents at March 31, 1999 were $463 million, while unused lines of credit amounted to $604 million.
One Airbus A340 aircraft was added in the quarter under a short-term operating lease, while three Boeing 747-200 aircraft and three DC-9 aircraft were retired. At March 31, 1999, Air Canada`s active fleet totalled 152 aircraft, excluding subsidiary airlines.