Air Canada Reports Second Quarter

8th Aug 2003

MONTREAL, Aug. 7 /CNW Telbec/ - For the second quarter ended June 30,
2003, Air Canada reported an operating loss before reorganization items of
$270 million compared to income of $62 million in the same quarter of 2002.
The revenue and traffic downturn experienced in the first quarter intensified
in the second quarter of 2003 primarily as a result of the SARS crisis. On a
network-wide basis, total operating revenues declined $600 million or 24 per
cent from the second quarter of 2002 mainly due to a deterioration in
passenger revenues. Loss before foreign exchange on long-term monetary items
and income taxes was $765 million and included reorganization items totaling
$426 million. Reorganization items represent revenues, expenses, gains and
losses, and provisions for losses that can be directly associated with the
reorganization and restructuring of the business under the Companies`
Creditors Arrangement Act (CCAA). Refer to Note 5 to the Consolidated
Financial Statements. The net loss was $566 million compared to net income of
$30 million in the second quarter of 2002.
On April 1, 2003, Air Canada obtained an order from the Ontario Superior
Court of Justice providing creditor protection under CCAA. Air Canada also
made a concurrent petition under Section 304 of the U.S. Bankruptcy Code.
Refer to Notes 1 through 5 to the Consolidated Financial Statements as well as
to the “Restructuring Update” on page 5 of this press release.
“The airline`s restructuring is progressing at a rapid pace. Recognizing
that the marketplace has changed forever, we made permanent structural changes
to our cost base in the early stages of our restructuring,” said Robert
Milton, President and Chief Executive Officer. “In just four months, we have
successfully restructured on a permanent basis a significant portion of our
operating costs, including salaries and wages across all employee groups, and
renegotiated many of our aircraft leases. The current focus is on
renegotiating the company`s unsecured claims, all significant commercial
agreements and raising equity capital to ensure financial stability upon exit
from CCAA. We expect to file a Plan of Arrangement in the fall with exit from
CCAA anticipated by the end of the year.
“While we achieved an operating cost reduction of $268 million or 11 per
cent year over year, the significant and immediate revenue and traffic
shortfall caused by the SARS crisis, the lingering impact of the war in Iraq
as well as the continuing weak yield environment resulted in an operating
loss. Given the nature of our business, I am satisfied that we reacted as
quickly as feasible to remove costs when faced with the unanticipated fall-out
from SARS, said Mr. Milton.
“The revenue shortfall was progressively disclosed on a monthly basis
throughout the quarter and as anticipated, over $400 million of the revenue
loss in the quarter can be directly attributed to the impact of SARS following
on the war in Iraq. Given two consecutive outbreaks in Toronto, our main hub,
in addition to our extensive presence in Asia, Air Canada has been hit harder
by SARS than any other airline worldwide with the exception of certain Asian
Pacific carriers. The effect of the second Toronto outbreak in late May was
devastating with travelers avoiding Toronto as both a destination and
connecting point. Although the traffic decline did bottom out in May and
traffic trends showed some improvement in June, international and transborder
traffic to all points in Canada continues to be affected. As the SARS crisis
in Toronto peaked at a time when travelers were firming up summer travel
plans, many international travelers avoided all of Canada as a summer holiday
destination with severe negative impact to the entire Canadian tourism
“Our quick actions to lower costs together with some recovery in traffic,
in part due to seasonal demand, reduced the operating loss for June to
$400,000 per day from a daily operating loss of over $5 million in April.
“With the SARS crisis now largely over we are seeing some pick up in
demand overall in our network although the pricing environment remains weak.
While the third quarter should reflect some improvement relative to the
significant revenue drop in prior months, the lingering effect of SARS is
expected to continue for the balance of the year. We currently expect the
revenue shortfall from SARS and the war in Iraq to be approximately $850
million for the year. The overall year over year decline in revenue is
estimated to be well in excess of $1 billion. No meaningful recovery is
expected before the third quarter of 2004,” concluded Mr. Milton.

For the quarter, consolidated passenger revenues declined $567 million or
26 per cent from the prior year on an 18 per cent reduction to available seat
mile (“ASM”) capacity. The SARS crisis, increased low cost competition, the
lingering adverse effect on passenger volumes from the war in Iraq and a weak
economy contributed to a passenger traffic decline of 21 per cent. Passenger
revenue per revenue passenger mile (“yield”) was down 7 per cent from the
second quarter of 2002 while passenger revenue per available seat mile
(“RASM”) for the quarter was down 10 per cent.
Second quarter domestic passenger revenues were down $251 million or 26
per cent on a 13 per cent reduction to ASM capacity. Domestic passenger
traffic was down 16 per cent due to lower domestic and international demand
resulting from the SARS crisis in Toronto and to increased low cost
competition. Reflecting price competition as well as initiatives to stimulate
traffic, domestic yield was 12 per cent lower and domestic RASM declined 15
per cent from 2002.
US transborder passenger revenues were down $137 million or 27 per cent
on an 18 per cent reduction to ASM capacity. In a weak market with increased
competition from US airlines, US transborder traffic declined 18 per cent and
yield decreased 12 per cent.
Other international passenger revenues were $179 million or 26 per cent
below the prior year. Atlantic revenues declined 11 per cent with decreases of
8 per cent in yield and 4 per cent in both traffic and ASM capacity over the
prior year. The Pacific market was severely impacted by the SARS crisis
resulting in a 63 per cent decline in passenger revenues. Pacific traffic was
down 62 per cent on a 52 per cent reduction to flying capacity. South Pacific,
Caribbean, Mexico and South America revenues were down 8 per cent on reduced
Reflecting the reduction to flying capacity, cargo revenues decreased
$19 million or 13 per cent. Other revenues were $14 million or 6 per cent
lower largely as a result of reduced Aeroplan revenues and a decrease in third
party aircraft maintenance revenues in the Technical Services division.
For the quarter, total operating revenues declined $600 million or 24 per
cent compared to the second quarter of 2002.
For full results


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