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AC Surprise First Quarter Profit

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MONTREAL -- Air Canada (AC.TO) reported a profit in its latest quarter compared with a loss a year ago as it saw its operating revenue rise nine per cent.

The airline says it earned $345 million or $1.26 per diluted share for its first quarter, compared with a loss of $203 million or 74 cents per diluted share in the same quarter a year ago.

Air Canada says the results included foreign exchange gains of $263 million in its most recent quarter compared with foreign exchange losses of $197 million in the first quarter of 2018.

On an adjusted basis, the airline says it earned $17 million or six cents per diluted share in the quarter compared with an adjusted loss of $26 million or 10 cents per diluted share a year ago.

Operating revenue rose to $4.45 billion compared with $4.07 billion in the first three months of 2018.

Analysts on average had expected a loss of 18 cents per share and revenue of nearly $4.39 billion for the quarter, according to Thomson Reuters Eikon.

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I found this preview of this week's AC and WS Q1 result interesting for what Ben Cherniavsky admitted. I don't know how they can advise clients when they admit they don't really know what they are doing. If WS beats the street by the same margin AC did, the analyst community might as well go off and cover the Bitcoin market. Then again, I've probably had less faith in Ben Cherniavsky than most. He's always preferred the simpler modelling he can do with Westjet - at least when it had a single fleet type and simple product design. But even WS is becoming a more complex business to model successfully.


Montreal-based Air Canada, slated to report on Monday morning, is expected to post a loss of 17 cents a share and revenue of $4.4-billion, according to Refinitiv estimates. Air Canada’s share price has risen by 28 per cent this year on the Toronto Stock Exchange.

WestJet of Calgary, which reports on Tuesday, is expected to post per-share profit of 31 cents and revenue of $1.28-billion, according to Refinitiv. WestJet’s share price has fallen by 11 per cent since March 1, but is up by 4 per cent this year.

Ben Cherniavsky, an analyst with Raymond James, said forecasting airline financial results is a complex and difficult task that is rarely done accurately. As an example, he said Air Canada’s 2018 operating profit of $1.17-billion was 20 per cent less than his forecast and 30 per cent below the analyst consensus. Meanwhile, the stock price has almost doubled.“

Over the 20 years that we have covered Air Canada and WestJet, our models for these companies have morphed into highly complex, hugely sophisticated, data-rich predictive tools designed to facilitate an analysis of the countless variables that impact the business,” he said. “But with the massive number of inputs that we can drive into the model also comes a massive amount of forecast error that can get compounded in the process.

“We must be honest with ourselves and our clients: We don’t have a tremendous amount of confidence in the precision of our forecasts,” he said.

Even with the Max planes out of the picture till at least mid-summer, Mr. Cherniavsky sees a constant theme for Canadian airlines over the past five years: too many planes for too few travellers. This is the cause of both airlines’ lagging returns and margins, he said.

“With the economy looking progressively tenuous and oil prices back on the rise, we expect this financial underperformance of Canada’s airlines will persist until this capacity issue is addressed,” he said.

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