Air Canada Releases First Quarter

MONTREAL, May 28 /CNW Telbec/ - On May 13, 2003, Air Canada, on an
exceptional basis, released preliminary unaudited consolidated operating
results for the first quarter 2003 and for April 2003. The objective of the
early release was to ensure that Air Canada stakeholders would have its
financial results on as current a basis as possible while Air Canada is
developing its restructuring plan. The airline also released an aggressive
action plan to reduce operating costs until traffic levels stabilize.
As previously announced, for the first quarter ended March 31, 2003, Air
Canada reported an operating loss of $354 million, a $194 million
deterioration from the same quarter in 2002. The average operating loss for
the quarter amounted to just under $4 million per day. Loss before foreign
exchange on long-term monetary items and income taxes was $415 million versus
a loss of $246 million in 2002. The net loss amounted to $270 million compared
to a net loss of $219 million in the first quarter of 2002.
On April 1, 2003, Air Canada obtained an order from the Ontario Superior
Court of Justice providing creditor protection under the Companies` Creditors
Arrangement Act (CCAA). Air Canada also made a concurrent petition under
Section 304 of the U.S. Bankruptcy Code. Refer to Note 1 to the Consolidated
Financial Statements.
As previously reported in the May 13, 2003 press release, the downturn
experienced in the first quarter intensified in April 2003 primarily as a
result of the SARS outbreak in Toronto, Air Canada`s main hub, which was
estimated to have negatively impacted revenues by more than $125 million for
the month. The April 2003 preliminary unaudited operating loss is expected to
be $152 million or $123 million worse than the corresponding period last year.
The airline`s inability to offset April`s revenue loss with corresponding cost
reductions resulted in an operating loss of just over $5 million per day. At
the time of the May 13th release, traffic on Asian routes was experiencing a
decline of approximately 60 per cent and Toronto enplanements were
significantly down. On a network-wide basis, forward bookings for May, June
and July were reported down by 20 to 25 per cent year-over-year. Based on May
2003 traffic and on forward bookings to date, these adverse revenue and
traffic trends are expected to continue, which further underscores the urgency
to restructure under the CCAA process.
As a result of this deteriorating revenue and traffic environment, Air
Canada also announced, on May 13, 2003, the implementation of a number of
actions to reduce operating costs until traffic levels stabilize:
- Reducing overall capacity by 17 per cent year-over-year for June, July
and, on a preliminary basis, August. Asian and transborder routes are primarily affected with a 60 per cent and 25 per cent reduction, respectively.
- Cancelling or temporarily suspending services on 13 city pair routes.
  - Grounding of approximately 40 aircraft including both widebody and narrowbody aircraft at the Mainline carrier and turbo prop aircraft at Air Canada Jazz.
Compared to the 2002 quarter, first quarter 2003 consolidated passenger
revenues declined $112 million or 6 per cent on a 2 per cent reduction to
available seat mile (“ASM”) capacity. Increased competition, the build-up of
the war in Iraq and the first stage of the SARS crisis, all contributed to a
passenger traffic decline of 6 per cent. Passenger yield per revenue passenger
mile (“RPM”) was unchanged from the first quarter of 2002 while passenger
revenue per available seat mile (“RASM”) for the quarter was down 4 per cent.
First quarter consolidated domestic passenger revenues were down
$101 million or 12 per cent on a 6 per cent reduction to ASM capacity.
Reflecting significantly increased domestic low cost competition, uncertainty
regarding the Iraq war, higher security charges, and the first stage of the
SARS crisis, domestic passenger revenues at Mainline, including Tango and ZIP,
declined $95 million or 15 per cent. Total consolidated domestic passenger
traffic declined 11 per cent. Domestic yield per RPM was 2 per cent lower and
domestic RASM declined 7 per cent over 2002.
Mainline US transborder passenger revenues were 9 per cent below the
prior year due mainly to lower yields per RPM with increased fare competition,
and due to reduced traffic on non-leisure markets and the reallocation of some
short-haul transborder flying to Air Canada Jazz. Consolidated US transborder
passenger revenues declined 5 per cent.
Other international passenger revenues were up $16 million or 3 per cent.
While Atlantic and Pacific passenger revenues in the fourth quarter of 2002
reflected a year-over-year improvement, the trend was reversed in the first
quarter of 2003. Atlantic revenues declined 1 per cent with ASM capacity
unchanged from the prior year and Pacific revenues declined 4 per cent on a
4 per cent reduction to flying capacity. South Pacific, Caribbean, Mexico and
South America revenues were up 22 per cent due mainly to increased revenue
from Caribbean markets, many of which were served in conjunction with Air
Canada Vacations.
Cargo revenues improved $14 million or 11 per cent. Other revenues were
up $23 million or 8 per cent largely as a result of increased revenues from
Air Canada Vacations, partially offset by a reduction in third party
maintenance revenues in the Technical Services division.
For the quarter, total operating revenues declined $75 million or 3 per
cent compared to the first quarter of 2002.
With significantly higher fuel prices, operating expenses increased
$119 million or 5 per cent from the first quarter of 2002 on a 2 per cent
reduction to ASM capacity. Salaries, wages and benefits expense was up
$31 million or 4 per cent of which $16 million was due to higher employee
benefits including future employee benefits and pension expenses. Fuel expense
rose $53 million or 18 per cent in spite of reduced ASM capacity. Aircraft
maintenance materials and supplies expense was up $25 million or 21 per cent.
The lower level of maintenance materials expense in the prior year was mainly
the result of the temporary parking of a number of high maintenance aircraft
in 2002. Airport and navigation fees increased by $5 million on reduced
aircraft departures, reflecting continued cost increases for landing fees and
general terminal charges. Commission expense was below the prior year by
$14 million or 15 per cent resulting from lower commission rates and reduced
passenger revenues. Other year-over-year cost reductions were recorded in
communications and information technology, and food, beverages and supplies
expenses. The “other” expense category increased $29 million or 7 per cent due
largely to Air Canada Vacations` expanded tour operations.
Unit cost, as measured by operating expense per ASM, was up 5 per cent
from the prior year for the Mainline-related operations (up 2 per cent,
excluding fuel expense).
Non-operating expense amounted to $61 million in the quarter, down
$25 million with net interest expense unchanged from the prior year. In the
first quarter of 2002, the Corporation recorded, in “other” non-operating
expense, a $37 million charge related to the disallowance, by the Government
of Canada, of a portion of Air Canada`s 2001 claim for $105 million of
government assistance pertaining to the closure of Canada`s airspace following
the September 11, 2001 terrorist attacks. In the 2003 quarter, Air Canada recorded $132 million of income from
foreign exchange fluctuations on long-term monetary assets and liabilities.
This compares to income of $21 million in the first quarter of 2002.