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Air Canada Reports Record Full Year 2015 Results

• Record adjusted net income⁽¹⁾ of $1.222 billion or $4.18 per diluted share in 2015 versus record 2014 adjusted net income of $531 million or $1.81 per diluted share (an increase of $691 million, 130.1 per cent or $2.37 per diluted share versus the 2014 record)
• Record operating income of $1.496 billion in 2015, an increase of $681 million or 83.6 per cent from the 2014 record
• Record EBITDAR margin⁽¹⁾ of 18.3 per cent, exceeding 2014 by 5.7 percentage points and surpassing the 2015 Investor Day target
• Return on Invested Capital⁽¹⁾ of 18.3 per cent in 2015, exceeding 2014 ROIC by 6.2 percentage points and surpassing the 2015 Investor Day target

MONTRÉAL, Feb. 17, 2016 /CNW Telbec/ - Air Canada today reported record full year adjusted net income⁽¹⁾ of $1.222 billion or $4.18 per diluted share compared to record adjusted net income of $531 million or $1.81 per diluted share in 2014, an improvement of $691 million or $2.37 per diluted share. EBITDAR⁽¹⁾ (earnings before interest, taxes, depreciation, amortization and aircraft rent) amounted to $2.534 billion compared to EBITDAR of $1.671 billion in 2014, an improvement of $863 million or 51.6 per cent. On a GAAP basis, Air Canada reported operating income of $1.496 billion in 2015, an increase of $681 million or 83.6 per cent from 2014. The airline reported net income of $308 million or $1.03 per diluted share in 2015 compared to net income of $105 million or $0.34 per diluted share in 2014. 

"In 2015, we achieved the best financial results in Air Canada's history for a second year in a row, by a substantial margin, underscoring the effectiveness of our business strategy and enhanced competitive position. Our results reflect the significant progress being achieved through our various value-enhancing initiatives, including fleet modernization, international expansion, the roll-out of rouge and our network diversification," said Calin Rovinescu, President and Chief Executive Officer.

"As I have said previously, our plan is not dependent on fuel prices staying at current levels, and the transformative changes we've made in recent years provide us with a cost structure, fleet and flexibility to respond, as we did in 2015, to competitive market conditions, fluctuations in the Canadian dollar and to economic weakness. Moreover, we have a proven track record of proactively managing and allocating capacity to meet demand, as we did last year upon seeing signs of weakness in Western Canada; and we will continue to adjust capacity to maximize profitability.

"Looking forward, we are committed to maintaining the strong momentum that we achieved in 2015 and we remain firmly on track to execute on all of our key objectives.  We are therefore reconfirming today the three key financial targets established at our June 2015 Investor Day: namely an annual EBITDAR margin of 15 to 18 per cent from 2015 to 2018; a year-over-year return on invested capital of 13 to 16 percent from 2015 to 2018; and reducing our leverage ratio⁽¹⁾ to 2.2 or less by 2018. These metrics are the main financial indicators we use to measure the continuing success of our long range plan which is focused on margin expansion and sustained profitability.  In addition, we remain committed to reducing our unit costs and are on track to realizing CASM savings of 21 per cent, excluding the impact of foreign exchange and fuel prices, by the end of 2018 when compared to 2012.  

"We've transformed and created a solid financial framework for our airline. We have remarkable employees who are rising to the challenge and I would like to thank and acknowledge their dedication and efforts to deliver exceptional customer service and an excellent financial performance in 2015," concluded Mr. Rovinescu.

Full year Income Statement Highlights

In 2015, system passenger revenues of $12.420 billion increased $616 million or 5.2 per cent from 2014.  Traffic growth of 9.6 per cent reflected traffic increases in all of Air Canada's five geographic markets.  A yield decline of 4.6 per cent (consistent with the anticipated yield impact stemming from the successful implementation of the airline's strategic plans) reflected an increase in average stage length of 3.2 per cent, which had the effect of reducing system yield by 1.8 percentage points, a higher proportional growth of lower-yielding international-to-international passenger flows supporting the airline's international expansion strategy and higher EBITDAR margins, a higher proportion of seats into long-haul leisure markets and a reduction in carrier surcharges relating to lower fuel prices, particularly where carrier surcharges are regulated. Passenger revenue per available seat mile (PRASM) decreased 4.4 per cent on the lower yield, which was more than offset by the 9.3 per cent CASM decline discussed below.

In 2015, operating expenses of $12.372 billion decreased $85 million or 1 per cent from 2014.  This decrease was mainly due to lower aircraft fuel expense of $924 million, largely offset by the impact of a 9.4 per cent growth in capacity and the unfavourable impact of a weaker Canadian dollar on foreign currency denominated non-fuel operating expenses of $326 million.  Special items increased operating expenses by $8 million in 2015 while special items reduced operating expenses by $11 million in 2014. 

Air Canada's cost per available seat mile (CASM) decreased 9.3 per cent from 2014.  The airline's adjusted CASM⁽¹⁾, which excludes fuel expense, the cost of ground packages at Air Canada Vacations® and special items, decreased 0.2 per cent from 2014, in line with the decrease of up to 1.0 per cent projected in Air Canada's news release dated November 5, 2015. Had the Canadian-U.S. dollar exchange rate remained at the 2014 level, adjusted CASM would have decreased 3.6 per cent when compared to 2014.

In 2015, Air Canada recorded EBITDAR of $2.534 billion versus EBITDAR of $1.671 billion in 2014, an increase of $863 million.

Fourth Quarter Income Statement Highlights

In the fourth quarter of 2015, system passenger revenues of $2.836 billion increased $81 million or 3.0 per cent from the fourth quarter of 2014. Traffic growth of 8.6 per cent reflected traffic increases in all of Air Canada's five geographic markets. A yield decline of 5.5 per cent, consistent with the anticipated yield impact stemming from the successful implementation of the airline's strategic plan, reflected an increase in average stage length of 2.6 per cent, which alone had the effect of reducing system yield by 1.5 percentage points. PRASM decreased 5.3 per cent on the lower yield, which was more than offset by a 7.0 per cent CASM decline discussed below.

In the fourth quarter of 2015, operating expenses of $3.024 billion increased $26 million or 1 per cent from the fourth quarter of 2014. This increase was mainly due to the impact of an 8.4 per cent growth in capacity and the unfavourable impact of a weaker Canadian dollar on foreign currency denominated non-fuel operating expenses of $105 million, largely offset by lower aircraft fuel expense of $183 million.  In the fourth quarters of 2015 and 2014, special items increased operating expenses by $31 million and $30 million, respectively.

CASM decreased 7.0 per cent from the fourth quarter of 2014.  Adjusted CASM increased 0.8 per cent from the fourth quarter of 2014, in line with the increase of up to 1.0 per cent projected in Air Canada's news release dated November 5, 2015. Had the Canadian-U.S. dollar exchange rate remained at the fourth quarter 2014 level, adjusted CASM would have decreased 3.5 per cent when compared to the fourth quarter of 2014.

Excluding special items in both periods, EBITDAR amounted to $456 million in the fourth quarter of 2015 versus EBITDAR of $349 million in the fourth quarter of 2014, an improvement of $107 million. Excluding special items, EBITDAR margin was 14.3 per cent in the fourth quarter of 2015 versus 11.2 per cent in the fourth quarter of 2014, an improvement of 3.1 percentage points. Including special items, EBITDAR amounted to $425 million in the fourth quarter of 2015 compared to EBITDAR of $319 million in fourth quarter of 2014. 

In the fourth quarter of 2015, taking into account the special items for both periods, Air Canada recorded operating income of $158 million in the fourth quarter of 2015 compared to operating income of $106 million in the fourth quarter of 2014, an increase of $52 million or 49.1 per cent.  Air Canada recorded an operating margin of 5.0 per cent in the fourth quarter of 2015 compared to an operating margin of 3.4 per cent in the fourth quarter of 2014, an improvement of 1.6 percentage points.

For the fourth quarter of 2015, adjusted net income of $116 million or $0.40 per diluted share increased $49 million or $0.17 per diluted share from the same quarter of 2014.

Financial and Capital Management Highlights

At December 31, 2015, unrestricted liquidity (cash, short-term investments and undrawn lines of credit) amounted to $2.968 billion (December 31, 2014 – $2.685 billion).  

Adjusted net debt amounted to $6.291 billion at December 31, 2015, an increase of $1.159 billion from December 31, 2014 due to higher long-term debt and finance lease balances (including current portion) partly offset by higher cash balances. The increase in long-term debt and finance lease balances year-over-year was largely due to the unfavourable impact of a weaker Canadian dollar on foreign currency denominated debt and to the financing of aircraft purchases. The airline's adjusted net debt to EBITDAR ratio was 2.5 at December 31, 2015 versus a ratio of 3.1 at December 31, 2014.   

In 2015, net cash flows from operating activities totaled $2.012 billion, an improvement of $1.058 billion from 2014.  Free cash flow⁽¹⁾ of $197 million improved $744 million when compared to 2014, driven by higher cash flows from operating activities partly offset by higher capital expenditures.  Air Canada took delivery of two Boeing 787 aircraft in the fourth quarter of 2015 (a total of six Boeing 787 aircraft in 2015).

For the 12 months ended December 31, 2015, return on invested capital (ROIC⁽¹⁾) was 18.3 per cent versus 12.1 per cent for the 12 months ended December 31, 2014, higher than the ROIC of 13 to 16 percent projected in Air Canada's news release dated June 2, 2015.

Fleet Flexibility

Air Canada's fleet renewal program includes Boeing 787 aircraft as well as Boeing 737 MAX aircraft (with deferral rights). By mid-2016, Air Canada will also own outright 22 older wide-body and narrow-body aircraft (B767, A330, A319). In addition, the leases for 18 narrow-body aircraft expire later in 2016 and 2017. Together, these aircraft provide the airline with tremendous flexibility to implement its strategic plans and to adjust aircraft and capacity to better match passenger demand.

Right to Vote on the Remuneration of Executives

Air Canada recently changed its Advisory Vote on Executive Compensation ("Say on Pay") policy to allow shareholders to provide their views on the Corporation's approach to executive compensation on an annual basis rather than on a bi-annual basis, commencing with the Annual Meeting of Shareholders to be held on May 10, 2016 in Halifax. Air Canada is committed to demonstrating leadership in evolving governance issues including executive compensation as well as providing shareholders with clear, comprehensive and transparent disclosure relating to executive compensation and to receive feedback from shareholders on this matter.

Current Outlook

Reconfirming Three Key Financial Targets

At Air Canada's June 2015 Investor Day, the Corporation established three key financial targets which are being reconfirmed today: 

• Annual EBITDAR⁽¹⁾ margin of 15-18 per cent over the term of 2016-2018 (following on the achievement of an 18.3 per cent EBITDAR margin for 2015)
• Year-over-year ROIC⁽¹⁾ of 13-16 per cent over the term of 2016-2018 (following on the achievement of an 18.3 per cent year-over-year ROIC for 2015)
• A leverage ratio⁽¹⁾ not exceeding 2.2 by 2018 (measured by adjusted net debt over normalized EBITDAR)

In addition, Air Canada remains committed to reducing its unit cost and is on track to realizing CASM savings (excluding the impact of foreign exchange and fuel prices) of 21 per cent by the end of 2018 when compared to 2012.

Quarterly Reporting/Change to Guidance Practices

To better align Air Canada's reporting with the above-noted key financial targets, Air Canada will report on its progress against these targets on a quarterly basis at the same time as it provides actual traffic and capacity results for the quarter in its comprehensive quarterly and annual financial disclosures. Air Canada will no longer provide monthly traffic information nor will it provide forward-looking quarterly and annual capacity guidance as it believes that such information and guidance, without the context of a full quarterly review of other key financial metrics, risks distorting the proper understanding of Air Canada's progress against its key financial targets and long range plan.

Adjusted CASM

For the first quarter of 2016, Air Canada expects adjusted CASM (which excludes fuel expense, the cost of ground packages at Air Canada Vacations and special items) to increase between 7.0 to 8.0 per cent when compared to the first quarter of 2015, of which 3.5 to 4.5 per cent is estimated to result from a weaker Canadian dollar versus the U.S. dollar relative to the first quarter of 2015.  The remaining increase is largely due to Boeing 777 aircraft being removed from operations for conversion into more competitive configurations, as previously announced, in support of Air Canada's business strategy.

For the full year 2016, Air Canada projects adjusted CASM to vary between ± 0.5 per cent from the full year 2015. If the value of the Canadian dollar were at 2015 levels, adjusted CASM for the full year 2016 versus the full year 2015 would be projected to decrease 2.0 to 3.0 per cent. 

Major Assumptions

Air Canada assumes relatively low to modest Canadian GDP growth for the period 2016 to 2018.  Air Canada also assumes a continuing relationship between the price of jet fuel and the value of the Canadian dollar whereby declines in the cost of fuel continue to be associated with decreases in the value of the Canadian dollar.

Air Canada expects that the Canadian dollar will trade, on average, at C$1.41 per U.S. dollar for the first quarter and for the full year of 2016 and that the price of jet fuel will average 50 cents per litre for the first quarter of 2016 and 52 cents per litre for the full year 2016.

For the full year 2016, Air Canada also expects:

• Depreciation, amortization and impairment expense to increase by $150 million from the full year 2015.  This increase is mainly due to new deliveries of Boeing 787 and 777 aircraft, as well as the Boeing 777 fleet reconfiguration program.
• Employee benefits expense to increase $35 million from the full year 2015. This increase is mainly due to changes in discount rate assumptions related to pension and post-employment benefits.
• Aircraft maintenance expense to increase $250 million from the full year 2015, of which approximately $100 million is estimated to be due to the weaker Canadian dollar when compared to the U.S. dollar.  The remaining increase is mainly due to higher end-of-lease maintenance provisions, which is due to fewer lease extensions in 2016 versus 2015 and to the impact of a higher number of operating leases; and an increase in maintenance expense due to Boeing 787 aircraft flying under power-by-the-hour arrangements.

The following table summarizes the above-mentioned projections for the full year 2016:

 

	Full Year 2016 versus Full Year 2015
Depreciation, amortization and impairment expense	Increase $150 million
Employee benefits expense	Increase $35 million
Aircraft maintenance expense	Increase $250 million

 

The outlook provided constitutes forward-looking statements within the meaning of applicable securities laws and is based on a number of additional assumptions and subject to a number of risks. Please see section below entitled "Caution Regarding Forward-Looking Information". 

   ⁽¹⁾   Non-GAAP Measures

Below is a description of certain non-GAAP measures used by Air Canada in order to provide readers with additional information on its financial and operating performance.  Such measures are not recognized measures for financial statement presentation under Canadian GAAP and do not have standardized meanings and may not be comparable to similar measures presented by other public companies.  Refer to Air Canada's 2015 MD&A for reconciliation of non-GAAP financial measures.

• Adjusted net income (loss) and adjusted net income (loss) per diluted share are used by Air Canada to assess the overall financial performance of its business without the effects of foreign exchange, net financing income (expense) relating to employee benefits, mark-to-market adjustments on fuel and other derivatives and special items as these items may distort the analysis of certain business trends. Air Canada also uses adjusted net income as a measure to determine return on invested capital.
• EBITDAR is commonly used in the airline industry and is used by Air Canada to assess earnings before interest, taxes, depreciation, amortization, impairment and aircraft rent as these costs can vary significantly among airlines due to differences in the way airlines finance their aircraft and other assets.
• Adjusted CASM is used by Air Canada to assess the operating and cost performance of its ongoing airline business without the effects of fuel expense, the cost of ground packages at Air Canada Vacations and special items, as such expenses may distort the analysis of certain business trends and render comparative analysis to other airlines less meaningful.
• Free cash flow is used by Air Canada as an indicator of the financial strength and performance of its business because it shows how much cash is available for such purposes as repaying debt, meeting ongoing financial obligations and reinvesting in Air Canada.
• Adjusted net debt is a key component of the capital managed by Air Canada and provides a measure of the airline's net indebtedness.
• Adjusted net debt to trailing 12-month normalized EBITDAR leverage ratio is commonly used in the airline industry and is used by Air Canada to measure financial leverage and is calculated by dividing adjusted net debt by trailing 12-month normalized EBITDAR.
• Return on invested capital (ROIC) is used by Air Canada to assess the efficiency with which it allocates its capital to generate returns. Return is based on adjusted net income (loss), excluding interest expense and implicit interest on operating leases. Invested capital includes average year-over-year total assets, net of average year-over-year non-interest-bearing operating liabilities, and the value of capitalized operating leases (calculated by multiplying annualized aircraft rent by 7).
• Special items refer to those items that, in management's view, are to be separately disclosed by virtue of their size or incidence to enable a fuller understanding of the Corporation's financial performance. Refer to sections 6 and 7 of Air Canada's 2015 Management's Discussion and Analysis of Results and Financial Condition for a description of special items recorded in the fourth quarters and full years 2015 and 2014.

Air Canada's 2015 Audited Consolidated Financial Statements and Notes and its 2015 Management's Discussion and Analysis of Results and Financial Condition are available on Air Canada's website at aircanada.com, and will be filed on SEDAR at www.sedar.com.

For further information on Air Canada's public disclosure file, including Air Canada's Annual Information Form dated March 31, 2015, consult SEDAR at www.sedar.com.

Analyst Conference Call Advisory

Air Canada will host its quarterly analysts' call today, February 17, 2016 at 09:00 ET.  Calin Rovinescu, President and Chief Executive Officer, Michael Rousseau, Executive Vice President and Chief Financial Officer, and Benjamin Smith, President, Passenger Airlines, will be available for analysts' questions.  Immediately following the analysts' Q&A session, Michael Rousseau, Executive Vice President and Chief Financial Officer, and Pierre Houle, Managing Director and Treasurer, will be available to answer questions from holders of Air Canada's bonds and term loan B lenders.  Media and the public may access this call on a listen-in basis.  Details are as follows:

Dial 416-340-8010 or 1-866-225-9256

Live audio webcast: http://bell.media-server.com/m/p/7ve6ectn

CAUTION REGARDING FORWARD-LOOKING INFORMATION

This news release includes forward-looking statements within the meaning of applicable securities laws. Forward-looking statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable.  These statements may involve, but are not limited to, comments relating to preliminary results, guidance, strategies, expectations, planned operations or future actions.  Forward-looking statements are identified by the use of terms and phrases such as "preliminary", "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "predict", "project", "will", "would", and similar terms and phrases, including references to assumptions. 

Forward-looking statements, by their nature, are based on assumptions, including those described herein and are subject to important risks and uncertainties.  Forward-looking statements cannot be relied upon due to, amongst other things, changing external events and general uncertainties of the business. Actual results may differ materially from results indicated in forward-looking statements due to a number of factors, including without limitation, our ability to successfully achieve or sustain positive net profitability or to realize our initiatives and objectives, our ability to pay our indebtedness, reduce operating costs and secure financing, currency exchange, industry, market, credit, economic and geopolitical conditions, energy prices, competition, our ability to successfully implement strategic initiatives and our dependence on technology, war, terrorist acts, epidemic diseases, casualty losses, employee and labour relations, pension issues, environmental factors (including weather systems and other natural phenomena and factors arising from man-made sources), limitations due to restrictive covenants, insurance issues and costs, changes in demand due to the seasonal nature of the business, dependence on suppliers and third parties, including regional carriers, Aeroplan and the Star Alliance, changes in laws, regulatory developments or proceedings, pending and future litigation and actions by third parties and the ability to attract and retain required personnel, as well as the factors identified throughout this news release and those identified in section 17 "Risk Factors" of Air Canada's 2015 MD&A dated February 17, 2016.  The forward-looking statements contained in this news release represent Air Canada's expectations as of the date of this news release (or as of the date they are otherwise stated to be made), and are subject to change after such date.  However, Air Canada disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required under applicable securities regulations.

HIGHLIGHTS

The financial and operating highlights for Air Canada for the periods indicated are as follows.

 

View News Release Full Screen

(Canadian dollars in millions, except where indicated)	Fourth Quarter						Full Year
	2015		2014		$ Change		2015		2014		$ Change
Financial Performance Metrics
Operating revenues		3,182		3,104		78		13,868		13,272		596
Operating income		158		106		52		1,496		815		681
Non-operating expense		(274)		(206)		(68)		(1,188)		(710)		(478)
Net income (loss)		(116)		(100)		(16)		308		105		203
Adjusted net income (1)		116		67		49		1,222		531		691
Operating margin %		5.0%		3.4%		1.6 pp		10.8%		6.1%		4.7 pp
EBITDAR (1)		425		319		106		2,534		1,671		863
EBITDAR margin % (1)		13.4%		10.3%		3.1 pp		18.3%		12.6%		5.7 pp
Unrestricted liquidity (2)		2,968		2,685		283		2,968		2,685		283
Net cash flows from operating activities		238		16		222		2,012		954		1,058
Free cash flow (1)		(376)		(370)		(6)		197		(547)		744
Adjusted net debt (1)		6,291		5,132		1,159		6,291		5,132		1,159
Return on invested capital ("ROIC") % (1)		18.3%		12.1%		6.2 pp		18.3%		12.1%		6.2 pp
Diluted earnings per share	$	(0.41)	$	(0.35)	$	(0.06)	$	1.03	$	0.34	$	0.69
Adjusted earnings per share – diluted (1)	$	0.40	$	0.23	$	0.17	$	4.18	$	1.81	$	2.37
Operating Statistics (3)					% Change						% Change
Revenue passenger miles ("RPM") (millions)		15,301		14,090		8.6		67,545		61,616		9.6
Available seat miles ("ASM") (millions)		18,869		17,403		8.4		80,871		73,889		9.4
Passenger load factor %		81.1%		81.0%		0.1		83.5%		83.4%		0.1
Passenger revenue per RPM ("Yield") (cents)		18.2		19.2		(5.5)		18.0		18.9		(4.6)
Passenger revenue per ASM ("PRASM") (cents)		14.7		15.6		(5.3)		15.1		15.8		(4.4)
Operating revenue per ASM (cents)		16.9		17.8		(5.4)		17.1		18.0		(4.5)
Operating expense per ASM ("CASM") (cents)		16.0		17.2		(7.0)		15.3		16.9		(9.3)
Adjusted CASM (cents) (1)		12.2		12.1		0.8		11.3		11.3		(0.2)
Average number of full-time equivalent ("FTE")    employees (thousands) (4)		25.1		24.3		3.5		24.9		24.4		1.8
Aircraft in operating fleet at period-end		370		364		1.6		370		364		1.6
Average fleet utilization (hours per day)		9.4		9.2		1.4		10.0		9.9		1.1
Seats dispatched (thousands)		12,623		11,948		5.6		52,359		49,351		6.1
Aircraft frequencies (thousands)		136		135		0.9		567		555		2.1
Average stage length (miles) (5)		1,495		1,457		2.6		1,545		1,497		3.2
Fuel cost per litre (cents)		58.6		79.7		(26.5)		63.0		88.9		(29.1)
Fuel litres (millions)		1,035		992		4.3		4,478		4,213		6.3
Revenue passengers carried (thousands) (6)		9,686		9,189		5.3		41,126		38,526		6.7

 

(1)	Refer to sections 9 and 19 of Air Canada's 2015 MD&A for descriptions of Air Canada's non-GAAP financial measures and additional GAAP measures.
(2)	Unrestricted liquidity refers to the sum of cash, cash equivalents, short-term investments and the amount of available credit under Air Canada's revolving credit facilities.  At December 31, 2015, unrestricted liquidity was comprised of cash and short-term investments of $2,672 million and undrawn lines of credit of $296 million.  At December 31, 2014, unrestricted liquidity was comprised of cash and short-term investments of $2,275 million and undrawn lines of credit of $410 million.
(3)	Except for the reference to average number of FTE  employees, operating statistics in this table  include third party carriers (such as Jazz Aviation LP ("Jazz") and Sky Regional Airlines Inc. ("Sky Regional")) operating under capacity purchase agreements with Air Canada.
(4)	Reflects FTE employees at Air Canada.  Excludes FTE employees at third party carriers (such as Jazz and Sky Regional) operating under capacity purchase agreements with Air Canada.
(5)	Average stage length is calculated by dividing the total number of available seat miles by the total number of seats dispatched.
(6)	Revenue passengers are counted on a flight number basis which is consistent with the IATA definition of revenue passengers carried whereby passengers are counted on a flight no. basis rather than by journey/itinerary or by leg.

 

SOURCE Air Canada

[Lakelad]

.

Air Canada to stop issuing monthly traffic figures.

Air Canada CEO challenges ‘short-term investors’ to sell shares; stock drops

Wednesday, Feb. 17, 2016 - The Globe and Mail
Greg Keenan

Air Canada chief executive officer Calin Rovinescu challenged “short-term investors” to sell the airline’s shares Wednesday and it appears they took him at his word.

Shares in the company fell 10 per cent in midday trading even though Air Canada announced adjusted financial results in 2015 that represented a record.

But Mr. Rovinescu had strong words when asked by analysts on a conference call about the airline’s decision to stop issuing monthly traffic figures and whether it considered offering more disclosure every month instead of less.

“To be very blunt, we’re not running this company for the benefit of short-term investors from a day-to-day basis or from a month-to-month basis,” said Mr. Rovinescu.

“We’ll see what the stock price does. If short-term investors don’t like this, I can encourage them to leave. We’re running this company for the benefit of our-long term stakeholders.”

Air Canada’s share price fell 83 cents to $7.58 in morning trading on the Toronto Stock Exchange.

The airline reported annual adjusted net income of $1.22-billion or $4.18 a share in the year ended Dec. 31, up from $531-million or $1.81 a year earlier.

Those are the best financial results in the airline’s history, Mr. Rovinescu said.

But investors also appeared to focus on fourth-quarter results, which showed a final loss of $116-million, deeper than the $100-million final loss in the fourth quarter of 2014.

Instead of monthly traffic statistics, Air Canada will provide them quarterly and indicate how they stack up against Air Canada’s long-term targets and financial plan.

“That means we’re going to be providing information that we consider relevant to how we manage the company, not in terms of what somebody would like to see on a day-to-day basis or a month-to-month basis,” Mr. Rovinescu said.

“If we attract greater long-term investors, that should result in less [share price] volatility, not more volatility and we’ll have the analysts starting to think about this in the way many pension funds [do.]”

 

.

 

 

[CanadaEH]

Well that's an interesting tactic. No longer publishing monthly traffic results and posting the next two quarterly results on a Friday (Q2 the Friday before the Aug long weekend). Doesn't sound promising. 

[Seeker]

9 hours ago, CanadaEH said:

Well that's an interesting tactic. No longer publishing monthly traffic results and posting the next two quarterly results on a Friday (Q2 the Friday before the Aug long weekend). Doesn't sound promising. 

I like it and hope and wish that other companies follow suit.  There is no need for airlines to publish monthly L/Fs.  Really, why not publish weekly stats, or even daily?  Mr. Rovinescu is right, all it does is increase volatility and provide opportunities for short-term traders to the detriment of long-term investors.

[CanadaEH]

Why would AC stop publishing results when every other NA airline has for ... well, forever? The timing is odd. The "strong words" for investors is odd. Volatility is part of the game when you're a publicly traded company that's affected by so many external factors. I just don't get it. AC posted the weakest Q4 results in NA and it is not going to get any better in Q1 or Q2, in my opinion. I don't see how not publishing traffic results is going to mask that. 

[Specs]

Ask Mr Deluce or maybe it's best to just keep them guessing?

[deicer]

6 hours ago, CanadaEH said:

Why would AC stop publishing results when every other NA airline has for ... well, forever? The timing is odd. The "strong words" for investors is odd. Volatility is part of the game when you're a publicly traded company that's affected by so many external factors. I just don't get it. AC posted the weakest Q4 results in NA and it is not going to get any better in Q1 or Q2, in my opinion. I don't see how not publishing traffic results is going to mask that. 

Maybe the days of Hedge Funds using corporations is coming to the end?  This isn't just a move by AC, look at where else it is happening. 

 

No more buying in, getting influence on the Board, and then taking out as much as possible in a short period.  I see that as a good thing!

[DEFCON]

To say I was initially sceptical of CR’s appointment wouldn’t be an over-statement, but fairness now demands reconsideration and a reversal of that ‘opinion’.

 

During my adult life there have been many CEO’s of AC, but not a one capable of reordering the corporate structure, changing the culture, placing the Company on solid financial footing and delivering record numbers.

 

I know the industry is fickle and presents many unexpected challenges and opportunity, but credit should be given where it’s due and although I still think CEO’s are over-paid, in this case I think CR deserves much respect for his accomplishments.

[Seeker]

4 hours ago, DEFCON said:

To say I was initially sceptical of CR’s appointment wouldn’t be an over-statement, but fairness now demands reconsideration and a reversal of that ‘opinion’.

 

During my adult life there have been many CEO’s of AC, but not a one capable of reordering the corporate structure, changing the culture, placing the Company on solid financial footing and delivering record numbers.

 

I know the industry is fickle and presents many unexpected challenges and opportunity, but credit should be given where it’s due and although I still think CEO’s are over-paid, in this case I think CR deserves much respect for his accomplishments.

I agree.  I expected CR to be a short-timer.  I expected him to make a few token changes, collect a big payout and disappear like that guy before him.  I'm very impressed, and have him to thank for making my future much better than it would have otherwise been.

[MD2]

17 hours ago, Specs said:

Ask Mr Deluce or maybe it's best to just keep them guessing?

Respectfully, there is a big difference that you are missing. Mr. Deluce is under no obligation to the public, but only to his own stakeholders which he will share all required information. To change a long-standing tradition of a public company in contrast to common practice of other airlines, not to mention changing the time of the report, simply show that Air Canada corporate is trying to delay the effects of its expected poor performance over the next two quarters. Regardless of what kind of words Mr. Rovinescu may have for investors, they only follow results and performance. And less transparency by Air Canada, after its poor fourth quarter pretty much guarantees a similar, or dare I say worse prospect than WestJet for Air Canada over the next several quarters. Its shares will likely have more losing to do. In fairness, at least WestJet had the courage to take the beating standing and not hide the results by magic show...

[Seeker]

Perhaps other airlines will join Air Canada and decide that they no longer want to support the day-traders in their activities.  I wonder how much time and effort is spent in various airline management offices trying to desperately manage monthly operations to get positive numbers each and every month.

[FA@AC]

1 hour ago, seeker said:

I agree.  I expected CR to be a short-timer.  I expected him to make a few token changes, collect a big payout and disappear like that guy before him.  I'm very impressed, and have him to thank for making my future much better than it would have otherwise been.

Pretty much my thoughts too.  I suspect that Canadian airlines are in for a difficult year, but if there is a downturn I think we'll be in better shape to weather it than was the case under previous management teams.

[Guest]

2 hours ago, MD2 said:

Respectfully, there is a big difference that you are missing. Mr. Deluce is under no obligation to the public, but only to his own stakeholders which he will share all required information. To change a long-standing tradition of a public company in contrast to common practice of other airlines, not to mention changing the time of the report, simply show that Air Canada corporate is trying to delay the effects of its expected poor performance over the next two quarters. Regardless of what kind of words Mr. Rovinescu may have for investors, they only follow results and performance. And less transparency by Air Canada, after its poor fourth quarter pretty much guarantees a similar, or dare I say worse prospect than WestJet for Air Canada over the next several quarters. Its shares will likely have more losing to do. In fairness, at least WestJet had the courage to take the beating standing and not hide the results by magic show...

What amazes is that Porter despite the day by day prophecies of failure is still operating, paying wages, paying suppliers and pissing off those who don't like it!

[MD2]

48 minutes ago, Malcolm said:

What amazes is that Porter despite the day by day prophecies of failure is still operating, paying wages, paying suppliers and pissing off those who don't like it!

Unfortunately it does appear so for some members on this site, at any rate, on the topic of this discussion, this move by Air Canada simply shows that its performance is much worse than WestJet and the street is correctly responding. Some people working for Air Canada are influenced by emotions, but the market does not like lack of transparency and is ruthless in punishing weak results. As a general rule I am not a fan of shorting, however for those who are, Air Canada seems to present a good opportunity at the moment. I'm sure Bean would agree!!

[Kip Powick]

3 hours ago, Malcolm said:

What amazes is that Porter despite the day by day prophecies of failure is still operating, paying wages, paying suppliers and pissing off those who don't like it!

I really don't think anyone "dislikes" Porter. Porter employs the same industry qualified individuals that are present in all airlines and if Porter ceased to exist I would hope that a real sense of loss would prevail amongst every airline employee group and heart felt compassion would be evident for those that lost their jobs. Hopefully crocodile tears would never appear.

The problem with Porter, that annoys those in the Canadian Industry, is the lack of transparency when it comes to putting out their operating data. Certainly that is not the only issue but is the primary issue with respect to all in the industry in order to  ascertain the airline's health.

The other factors, (slots. terminal, access etc.), are merely griping points and are added onto the failure of Porter to put out the numbers  and when the entire bundle is carted out by the "nay sayers", they initially bitch about  " no numbers" and when reminded that Porter is a private company, harp on all the other minor facets of the airline they feel that are "not right". 

Only time, including Municipal, Provincial, and Federal  stick-handling, will tell if Porters dream to become ensconced in the jet age is ever realized

Should that event ever take place, then the "next real fight" will be for slots at Billy Bishop.

Tick-tock 

[MD2]

6 hours ago, Kip Powick said:

I really don't think anyone "dislikes" Porter. Porter employs the same industry qualified individuals that are present in all airlines and if Porter ceased to exist I would hope that a real sense of loss would prevail amongst every airline employee group and heart felt compassion would be evident for those that lost their jobs. Hopefully crocodile tears would never appear.

The problem with Porter, that annoys those in the Canadian Industry, is the lack of transparency when it comes to putting out their operating data. Certainly that is not the only issue but is the primary issue with respect to all in the industry in order to  ascertain the airline's health.

The other factors, (slots. terminal, access etc.), are merely griping points and are added onto the failure of Porter to put out the numbers  and when the entire bundle is carted out by the "nay sayers", they initially bitch about  " no numbers" and when reminded that Porter is a private company, harp on all the other minor facets of the airline they feel that are "not right". 

Only time, including Municipal, Provincial, and Federal  stick-handling, will tell if Porters dream to become ensconced in the jet age is ever realized

Should that event ever take place, then the "next real fight" will be for slots at Billy Bishop.

Tick-tock 

Some may say that the same can be said about Air Canada. No one really "dislikes" Air Canada and it if were to be no more, most of its employees will probably be hired by Porter, WestJet, Sunwing, Transat and other great airlines around the country that can easily fill in.  The "problem" with Air Canada is the lingering sense of entitlement that from the one hand wants to be handed things by the government, but then cries out about doing its part on maintaining jobs in Canada and actually working for customer loyalty but then wants special backroom deals with the government.

On the issue of Toronto City airport, there lies an example of this problem that after bankrupting City Express and having total control of the airport, Air Canada never behaved like a viable long term partner for the airport and demonstrated that its only interest in that airport was to prevent other airlines to thrive and provide choice for consumers. This is clear because in spite of its clear reduction of presence over two decades, when Porter appeared, all of a sudden it wanted to come back and have even more access. This is clear to anyone that Air Canada has no real interest in that airport and its only aim is eliminating competition. It would be the example of a man that in spite of being in a long term relationship to a woman never really wants to commit to her, and after years of heartache and then breaking up wants to have a relationship with her only after she has a chance at a long term relationship with a true partner.

This was quite evident in its recent proclamation on Toronto City airport when it came out with some fictitious numbers for the proposed expansion. The odd thing is that Air Canada does these things to retard the progress of this airport and at the same time also demands more access! In what other country does an airline speak against expansion at an airport?! Then it proclaims that it is not in favor of expansion of that airport! Why should an airline speak about it when it is a clear attempt to impede the progress of its competitors and more choice for consumers? Why would an airline feel "entitled" to making such proclamations on airports when it's just another airline in the country? It would be tantamount to Porter making a declaration on behalf of people of Mississauga that Pearson airport is really too close to the homes of over 1.5 million people and really should only be used for turbo-prop traffic, and all jets should go to Hamilton airport where it's out of the way and people of Toronto can get to it by a 45 minute bus ride! This bizarre behaviour of Air Canada, that apparently now thinks investors should not even be given regular information on its business and should really trust its executives, can only be explained by the vanities of the same sense of entitlement, otherwise its vainglory is quite evident to those who can perceive.

[inchman]

16 hours ago, MD2 said:

Respectfully, there is a big difference that you are missing. Mr. Deluce is under no obligation to the public, but only to his own stakeholders which he will share all required information. To change a long-standing tradition of a public company in contrast to common practice of other airlines, not to mention changing the time of the report, simply show that Air Canada corporate is trying to delay the effects of its expected poor performance over the next two quarters. Regardless of what kind of words Mr. Rovinescu may have for investors, they only follow results and performance. And less transparency by Air Canada, after its poor fourth quarter pretty much guarantees a similar, or dare I say worse prospect than WestJet for Air Canada over the next several quarters. Its shares will likely have more losing to do. In fairness, at least WestJet had the courage to take the beating standing and not hide the results by magic show...

I don't get where you're coming from here. Air Canada did report December, January and Full Year traffic figures, all of which were exceptional. Financials were exceptional, too. So, it would appear that you are attempting to rewrite history. 

Air Canada's December numbers were up 6% over December 2014 and Full Year numbers were up almost 10% over 2014. January figures were up over 7% from January 2014. 

Going forward, they intend to publish traffic figures quarterly instead of monthly. So, there will be no "delay" in dealing with either traffic or financials over the next two quarters. While I'd like to see the figures monthly myself as a how-goes-it as an employee, I think the rationale of trying to shake off the short term investor is valid.

I do agree that the numbers over the next few quarters may not be spectacular, but I think that will hold valid for all Canadian airlines. One major advantage that Air Canada has is that, with the low C$, the majority of employee costs compared to other currencies have come down, including the US, Asia and Europe and, despite the higher ground handling and Nav fees after exchange, this should provide some ability to reduce fares in these arenas to keep traffic levels and income higher by attracting non-Canadian customers. Only 25% of Air Canada's traffic is domestic. Airlines that depend primarily on Canadian customers will not have this advantage.

I would also point out that you bring a double standard with your post. Neither Air Canada nor Porter are obligated to publish traffic figures, yet you seem to exclude Porter from common practice of other airlines. Investors who do not wish to invest in an airline which does not report monthly, but now only quarterly, are welcome to invest their money elsewhere... perhaps in Porter when its IPO when it is issued... but I'm sure they would like to see at least some quarterly traffic figures before they do so.

 

[MD2]

23 hours ago, DEFCON said:

To say I was initially sceptical of CR’s appointment wouldn’t be an over-statement, but fairness now demands reconsideration and a reversal of that ‘opinion’.

 

During my adult life there have been many CEO’s of AC, but not a one capable of reordering the corporate structure, changing the culture, placing the Company on solid financial footing and delivering record numbers.

 

I know the industry is fickle and presents many unexpected challenges and opportunity, but credit should be given where it’s due and although I still think CEO’s are over-paid, in this case I think CR deserves much respect for his accomplishments.

DEFCON, while I appreciate your sentiments and enthusiasm, I am reminded of a story often heard in the stock market that once you see old grannies and office staff talking about and buying a stock, it is time to sell it because it has passed its potential. But more on that later.

Recently there was an interesting read in Plane Business from Raymond James on Air Canada which may shed some light on the depth of its  decline. For much of the last year the two big airlines in Canada have been increasing capacity at a rate much higher than demands would support. Surely Alberta is worst hit, but the whole domestic market has been hit hard and therefore the market is on the edge.  In this environment less transparency is not good and certainly an airline that expects to do well will not do this. Some wondered if WestJet was going to follow suit in this practice and the answer I believe is a resounding NO, or at least I hope not!

Air Canada said:

"We understand this represents a step change from market practice however we strongly believe that it is necessary; without the context of a full quarterly review of other key financial metrics, monthly traffic and capacity guidance risks distorting the proper understanding of Air Canada’s progress against its key financial targets and long range plan."

The market read that as cow manure which will do wonders in the flower garden come springtime! This was evident in its one day 12% drop.

Already there were concerns about overwrought, yet, in some cases, less than transparent, financial report that Air Canada provided which it needs to streamline and make much easier to dissect. This move is a huge step in the wrong direction for investors. 

Raymond James analyst Ben Cherniavsky noted in his research report on the results this week:

"...there is no way to adjust for the fact that the market was disappointed in Air Canada’s results. The stock fell 12% on a day that both the TSX and US airlines (XAL) rose 2.5%. In addition to weak yields and higher NF CASM, we believe investors disliked Air Canada’s decision to eliminate monthly traffic reports and any guidance on capacity growth. Despite our own reservations about the value of the former data, we believe that, with its stock in the sewer, this is the wrong time for Air Canada to break with the long-standing industry practice of updating the market monthly with traffic reports." 

A friend said he would add that investors might have been sent running to the hills after the airline said in its call yesterday, "We are in growth mode!" So while you are very magnanimous, it just may be that he who once helped Air Canada return from the brink of insolvency, perchance has fallen victim to being "attached" or "emotional" about the business he leads and if the numbers get really, well change may be coming...

[CanadaEH]

31 minutes ago, inchman said:

I don't get where you're coming from here. Air Canada did report December, January and Full Year traffic figures, all of which were exceptional. Financials were exceptional, too. So, it would appear that you are attempting to rewrite history. 

Air Canada's December numbers were up 6% over December 2014 and Full Year numbers were up almost 10% over 2014. January figures were up over 7% from January 2014. 

AC posted a 1.45% operating margin in Q4 - the worst of all NA airlines. Its BELF was 79.9. I wouldn't call that exceptional. 

[MD2]

55 minutes ago, inchman said:

I don't get where you're coming from here. Air Canada did report December, January and Full Year traffic figures, all of which were exceptional. Financials were exceptional, too. So, it would appear that you are attempting to rewrite history. 

....

I would also point out that you bring a double standard with your post. Neither Air Canada nor Porter are obligated to publish traffic figures, yet you seem to exclude Porter from common practice of other airlines. Investors who do not wish to invest in an airline which does not report monthly, but now only quarterly, are welcome to invest their money elsewhere... perhaps in Porter when its IPO when it is issued... but I'm sure they would like to see at least some quarterly traffic figures before they do so.

 

To put it simply Air Canada did report, but it seems that it is trying to mask its poor performance over the next at least two quarters by moving the report time to a Friday (one even before long week-end) which is essentially tantamount to a warning in the market. In addition to that, it seems to want to change the practice of PUBLICLY TRADED airlines which is to report monthly traffic, etc. Less transparency at a time when 4th quarter results clearly suggest the trend is downward for Air Canada, not to mention the unimpressive attempted explanation of EBIDTAR is viewed very negatively by the investment community. It has and will continue to punish AC shares. A friend said today that he will not be surprised if under pressure from the market this decision is reversed and some poor sod is thrown under the bus. He also said and I paraphrase, that it is very dangerous when a publicly traded company starts drinking its own cool aid. I tend to agree.

Air Canada is a publicly traded company competing for the finite investment dollars for the North American airlines. It cannot become so arrogant to perceive itself above market norms. I don't know, or rather do know why you hasten to bring Porter into the conversation. Porter may at one point CHOSE to publish its numbers, but surely it was in the run-up to its IPO, once that was shelved, there was no point to voluntarily tip its hand, that would be stupid! However, why do you assume Porter does not report its full performance to ITS private stakeholders as regularly as they demand? Rest assured Porter's CEO does not go to his stakeholders and tell them we want to be less transparent with you and give you less information and if you don't like it you should short our shares!

[deicer]

9 minutes ago, MD2 said:

 

Air Canada is a publicly traded company competing for the finite investment dollars for the North American airlines.

Please clarify for me, if I buy an Air Canada share tomorrow, who do I buy it from?

I always thought that if you were looking for investment dollars, you went and borrowed it from banks etc.

Once the IPO is over, unless a company is actively trading in it's own stock, isn't it basically a Ponzi scheme where those who hold the shares they bought talk it up or down depending on whether they are holding or shorting?

[inchman]

13 minutes ago, CanadaEH said:

AC posted a 1.45% operating margin in Q4 - the worst of all NA airlines. Its BELF was 79.9. I wouldn't call that exceptional. 

I'm not sure where you're getting your stuff from, either because the corporate financial report above clearly indicates a Q4 operating margin of 5%; an INCREASE of 1.6% over last year. Yearly operating margin was 10.8%. I'm not sure how that compares with other airlines and I know that Westjet's margin is greater, but Air Canada grew by 9.6% last year, Westjet grew by 0.6%. Wasn't too long ago that those numbers were reversed. 

 

 

[MD2]

What "you" do by buying a few shares here and there is probably of little consequence, we are more talking about endorsement, or in this case lack thereof, by financial institutions such as the one I posted that create large movement in the market, credit rating, buying/borrowing power, etc. 

[deicer]

That is exactly my point.  It is about what the 'Institutions' want. Not necessarily what is good for the company.

That's why I think it is irrelevant what a stock price is as long as a company is productive, providing a good service, paying decent wages, paying it's bills on time, and if at the end of all that if it has one dollar left over as profit, it is successful.

This is why you are seeing voters turn away from the 'establishment'. 

It isn't about the investor, it is about the customer and the employee.  You will always get investment if you provide a good service to the customer and take care of your employees who provide that service.

I see AC now going in that direction and I feel it's a good thing.

 

 

 

[inchman]

Even with the drop on the day following the conference, AC shared traded above where they traded for most days in February, including 2 days prior. The "huge" drop was probably due to those same short term investors Rovinescu says he is trying to shake driving up the price by 12% on the 16th. 

Since Feb 1st, the TSX is basically even, AC is down 8% and WJ is down over 20%. Maybe WJ should have made the same announcement. Since the beginning of the year, AC and WJ stock has performed within about 0.5% of each other. 

So, for all of the doom and gloom being thrown around based on either the results or the change in reporting, not much happening.