Fuel costs, strikes hurt Air Canada results

Air Canada (AC.B-T), the country's largest airline, reported a bigger first-quarter loss on Friday, citing higher fuel costs and wildcat strikes by its unionized workers.

Despite the challenges, the Montreal-based company said it was able to make progress in its debt reduction efforts and to keep costs under control.

"The quarter was marked by a challenging environment, with persistently high fuel prices," chief executive officer Calin Rovinescu said in a statement. "In addition, our operations were disrupted by job action by a number of unionized employees, which resulted in a decline in bookings for travel originating in Canada in the immediate aftermath of these incidents."

Air Canada said booking trends were improving now that the government has mandated that the labor disputes with its pilots' and machinists' unions be resolved before an arbitrator.

Both the pilots and mechanics unions are worried that Air Canada's plan to start a low-cost carrier will hurt their job security and wages, while the airline has said it is critical to sustained profitability.

Rival WestJet Airlines Ltd (WJA-T), Canada's No. 2 airline, said this week that it would buy up to 45 planes from Bombardier Inc. (BBD.B-T) for a regional carrier it plans to start late next year. This new airline will intensify competition with Air Canada, which is now the sole carrier on several routes to small Canadian towns.

COST IMPROVEMENTS

Air Canada said it remained focused on maintaining strong liquidity levels and on its cost reduction efforts.

The company said it expected the increase in operating expenses per available seat mile in 2012 to be slightly less than it had forecast earlier, largely due to the lower-than-expected cost increases in the first quarter.

Air Canada now expects costs per available seat mile, a widely used measure, to rise rising 0.5 percent to 1.5 percent, excluding fuel expenses and the cost of ground packages at Air Canada Vacations. It previously had forecast 1 percent to 2 percent growth for the year.

On that basis, the company expects expenses in the current quarter to rise between 4 percent and 5 percent from a year earlier.

Air Canada's first-quarter net loss widened to $210 million, or 76 cents a share, from $19 million, or 7 cents a share, a year earlier.

Excluding a foreign exchange-related gain, a noncash loss on investments and other one-time items, the company reported a loss of 64 cents a share. The year-earlier loss was 45 cents.

Operating revenue rose 7.6 percent to $2.96 billion.