With fuel up 49% in third quarter, Air Canada reports net loss of $132m

November 6, 2008

A 49% increase in fuel expense drove Air Canada to a net loss of $132 million in the normally profitable third quarter compared with a $273 million net income in the same quarter last year.

Fuel expense increased $348 million in the third quarter to $1.1 billion due to record high fuel prices. Partly offsetting this increase was solid operating revenue growth of $121 million or 4% versus the third quarter of 2007.

Passenger revenues increased $106 million or 4% from the third quarter of 2007. Air Canada reduced overall capacity by 3.5% in the third quarter. Traffic decreased 2.2% on this capacity reduction resulting in a 1.0 percentage point improvement in system passenger load factor. Yield grew by 6.2%, mainly reflecting higher fares and fuel surcharges to partially offset the impact of higher fuel prices in the third quarter.

The net loss for the third quarter of $132 million included non-cash mark-to-market net losses of $93 million on financial instruments, consisting primarily of fuel hedge contracts, and net losses on foreign currency monetary items of $87 million. This compared to net income of $273 million in the third quarter of 2007, which included net gains on foreign currency monetary items of $104 million.

'Against a backdrop of unprecedented fuel costs, Air Canada is one of the few North American carriers to report a third quarter operating profit,' said Montie Brewer, president and CEO.

'Looking ahead, forward bookings are tracking in line with announced capacity reductions. With our investments to offer customers an industry-leading product and the youngest, most fuel efficient fleet of any North American network carrier, we are well positioned to manage through the challenging environment.'

During the quarter, 75% of domestic Canada sales or 63% when combined with U.S. sales, were made directly with Air Canada, either online or through call centres.

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