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Struggling with higher fuel and maintenance costs, Air Canada (AC.B-T) reported a bigger than expected quarterly loss on Thursday, disappointing investors after fellow Canadian and U.S. airlines notched strong performances.
Air Canada's battered stock fell sharply on Thursday, representing a full-year plunge of more than 60 percent.
Canada's biggest airline skidded to a fourth-quarter adjusted loss of 64 cents a share from a year-earlier adjusted loss of 17 cents, well off analyst expectations of a 49-cent per share loss.
The results come just one day after No. 2 WestJet Airlines (WJA-T) topped analyst expectations as it stoked revenue growth and kept a tight lid on costs.
"They're having to play the hand they're dealt," PI Financial analyst Chris Murray, said of Air Canada.
"It's weaker than expected based on the company and in context of a number of U.S. peers who delivered surprisingly strong results. It makes the gap appear wider."
Montreal-based Air Canada faces a raft of difficulties, analysts say, including global economic uncertainty, high fuel prices, ongoing pressure from its unions, a heavy debt load, and growing competition.
WestJet said on Wednesday it will launch a short-haul airline to serve smaller markets in Canada by the end of 2013, further ratcheting up competition between the two airlines.
Air Canada needs to "step up our game," Chief Operating Officer Duncan Dee said in an interview with Reuters in Beijing, where he was taking part in a Canadian trade mission.
It was too early to speculate what effect WestJet's short-haul service would have on Air Canada's financial results, he said.
Air Canada said revenue growth did not keep pace with rising costs in the quarter and that its plans for a new discount carrier to tap the low-cost leisure market remains important.
It is now evaluating various models to operate a discount vacation carrier, despite vocal opposition to such a plan from labor unions that are currently holding contract talks.
The 3,000 member Air Canada Pilots Association union said on Thursday it will hold a strike vote, after talks with a government-appointed conciliator and management failed to produce an agreement.
The key issues are pay, pensions and Air Canada's plan to start a low-cost carrier.
After a 21-day cooling off period between both parties ends Feb. 14, the pilots can walk off the job after giving the airline 72 hours notice. The pilots have been without a strike since March 31, 2011.
The airline is also in contract talks with its mechanics, baggage handlers and cargo agents with a conciliator, and is holding discussions with its flight dispatchers and crew schedulers.
Air Canada reported a net loss of $80 million, or 22 cents a share, compared with a year-earlier net profit of $89 million, or 27 cents a share.
Quarterly revenue rose 3.2 percent to $2.7 billion.
Total operating costs rose 8 percent in the quarter, due mainly to higher fuel costs, along with rising maintenance costs and capacity growth.
Unit cost in the quarter, as measured by operating expense per available seat mile, rose 4.9 percent from a year ago.
The carrier said it expects first-quarter unit costs to climb 4 percent to 5 percent from the same period last year, excluding fuel expenses and the cost of ground packages at Air Canada Vacations, reflecting a big jump in plane maintenance costs.
On the same basis, it sees full-year 2012 cost per available seat mile rising by 1 percent to 2 percent above 2011 levels.
"It's the same as all other legacy carriers we talk about around the world," said Morningstar analyst Neal Dihora. "They just need to lower their cost structure because we're in an environment where we have free range for the low-cost carriers to basically pound on these guys."
As of Dec. 31, Air Canada said its cash, cash equivalents and short-term investments amounted to $2.1 billion.
In the first quarter of 2012, the airline plans to increase its system capacity by 2.5 percent to 3.5 percent above first quarter 2011 levels.
On a full year-basis, the company expects its system capacity to be flat to rising 1.5 percent above 2011 levels.