Air Canada Reports $205 Million Income

MONTREAL, Oct. 25 /CNW/ - For the quarter ended September 30, 2002, Air
Canada reported net income of $125 million or $0.91 per share, diluted, a
$1.03 billion improvement from the restated third quarter of 2001. Operating
income was $168 million, up $226 million from 2001. Income before foreign
exchange on long-term monetary items and before income taxes was $205 million,
an increase of $374 million from the prior year.

Year over year comparisons of both financial and operational performance
are affected by the adverse impact of the September 11, 2001 terrorist
attacks. As well, the Corporation recorded a number of non-recurring or other
significant items in the third quarter of 2001 and 2002. Please refer to the
Adjusted Third Quarter Results section below and to Attachments One and Two
for further information on the non-recurring or significant items.

“Air Canada`s third quarter results are particularly encouraging in the
context of the crisis facing the North American airline industry today. Our
performance clearly demonstrates that our focus on disciplined capacity
management and cost control in tandem with our market segmentation strategy is
producing positive results. Air Canada achieved the highest profit among all
carriers in the Americas this quarter,” said Robert Milton, President and
Chief Executive Officer.

“Our operating income performance year over year has improved even when
we factor out the impact of September 11th on Air Canada. For the third
consecutive quarter our unit costs, asset and employee productivity are
improved on a year over year basis. In what is generally recognized as the
worst revenue environment in the industry`s history, we generated positive
cash flow and achieved significantly improved operating results - in part due
to our highly effective yield and capacity management strategy.

“Mainline domestic passenger revenues showed marked improvement as
evidenced by a seven per cent revenue increase and a five per cent increase in
domestic yield per RPM year over year, including Tango. Our international
markets also performed robustly in the quarter, posting overall a 17 per cent
revenue improvement. Two of our major international markets - the Atlantic and
the Pacific - posted impressive double digit revenue improvements on single
digit ASM increases.

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“Our market segmentation strategy is effectively allowing us to offer
customers in various market sectors the level of service they are willing to
pay for. Tango, our separately branded service that offers price-conscious
consumers a no-frills medium and long-haul alternative, has continued to
perform well during the quarter, posting an 81.4 per cent average load factor,
while our other mainline operations also posted an improved load factor for
the second consecutive quarter. Tango`s flexibility allows us to adjust to
shifts in both seasonal and consumer demand and therefore we have redeployed
some of its domestic flying for the winter and introduced new Tango
transborder leisure flights to Florida and Las Vegas.

“The successful launch of ZIP, our wholly-owned subsidiary offering low
fares and high value on short-haul flights initially in Western Canada, will
allow us to participate more actively and profitably in the growing discount
market. ZIP replaces Air Canada mainline flying, allowing us to reduce costs
in a marketplace where consumers are increasingly cost conscious. After a
highly successful launch and encouraging results to date, we plan to increase
ZIP`s operations gradually throughout next year until it reaches a complement
of 20 aircraft.

“Looking forward to the remainder of the year and into early 2003, we
expect to achieve further improvements as a result of disciplined capacity
management, further cost reductions and increased productivity. Additional
efficiencies will be realized as we continue to simplify our fleet and pursue
initiatives that enhance customer service while contributing positively to our
bottom line.

“Significant challenges lie ahead however, given the fragile state of the
economy and the uncertainty of world events. Fuel prices are once again close
to historically high levels just as we move into the seasonally weaker
quarters. The revenue environment in the regional and U.S. transborder markets
remains weak with no indication of improvement in the foreseeable future.
Furthermore, it is becoming increasingly clear that escalating surcharges and
fees imposed on the Canadian airline consumer by government and government
created monopolies over and above the cost of airfare are significantly
affecting demand in short-haul and other markets. Year to date, Jazz has
experienced an almost 30 per cent fall off in traffic and these surcharges and
fees are a contributing factor in this fall off. Very simply, many consumers
are now choosing to drive rather than fly.

“On an ongoing basis, we will monitor our liquidity requirements and, as
appropriate, will continue to access various financing alternatives including
sale and leasebacks, asset sales and other transactions. Furthermore, we will
take advantage of opportunities to reduce debt load and de-leverage the
airline, including the purchase of debt.

“With the diligent efforts of our employees to enhance customer service
and improve operational efficiencies and with the ongoing support of our
customers, we will continue to build on our accomplishments and remain well
positioned to meet the challenges that lie ahead,” he concluded.

Q3 HIGHLIGHTS: - $205 million income before foreign exchange on long-term monetary items and income taxes, an improvement of $374 million. - Operating income of $168 million, up $226 million from Q3, 2001. - Net income of $125 million, an improvement of $1.03 billion from restated Q3, 2001. - 4 per cent increase in passenger traffic on a 1 per cent increase in seat capacity. - Aircraft flying hours down 6 per cent.  - Load factor at 76.7 per cent, up 2.0 percentage points. - Passenger revenue per ASM up 6 per cent and unit cost per ASM down 4 per cent for the Mainline carrier. - Positive cash flow from operations of $89 million. - Cash and cash equivalents and committed financing of $897 million at September 30, 2002, unchanged from June 30, 2002.

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