Air Canada stock slides on fuel costs
Air Canada has reported a third-quarter loss of $132 million during the busy summer travel season, citing rising fuel costs and the impact of fuel-hedging contracts negotiated before the price of oil tumbled.
The country’s largest airline, which is flying out of a period of record fuel prices into a global economic recession, said it lost $1.32 per share during the three-month period versus a profit of $273 million, or $2.73 a share, in the year-earlier period.
Sales, meanwhile, rose 4.1 per cent to $3 billion.
Investors, who had expected a profit, responded by pushing the airline’s stock down 91 cents, or nearly 17 per cent, to $4.49 on the Toronto Stock Exchange.
Montie Brewer, the airline’s chief executive, told analysts during a conference call that high fuel prices still hurt operations during the third quarter, even as the price of oil began to fall after hitting a high of $147 (U.S.) per barrel in July.
"As the great proportion of our tickets are sold in advance of the date of travel, the prices we charge simply could not match the pace in the rise of fuel prices," Brewer said.
Air Canada said its fuel expenses increased $348 million in the third quarter to $1 cheapest cash advance.1 billion, up 49 per cent, compared with the third quarter of 2007.
At the same time, the airline incurred mark-to-market losses of $93 million on financial instruments, consisting mostly of fuel hedge contracts, and net losses on foreign currency of $87 million.
Analysts expressed concern that Air Canada’s liquidity situation was tightening just as it headed into a seasonally weak period. As well, the opportunity to borrow money is limited by the ongoing credit crunch.
In June, Air Canada said it was scaling back flying by 7 per cent and slashing up to 2,000 jobs to combat a fuel bill expected to soar by nearly $1 billion for the year.
Brewer said yesterday that the recent fall in oil prices – a barrel of crude now trades for about $60 (U.S.) – does not change Air Canada’s plan to cut back flights.
"Although oil prices have since retreated, the tight capacity strategy remains valid as we are expecting demand to weaken, given the global financial crisis and weakening customer confidence."