Air Canada's revenue is up, but profits are down

Air Canada’s revenue is up, so why are profits down?

MONTREAL — Air Canada is reporting a lower profit for this year’s second quarter as it dramatically increased the number of routes offered by its main fleet and discount brand.

“In the quarter, Air Canada and Air Canada Rouge launched 10 new international routes and 11 new transborder routes (to the U.S.) marking the most intensive period of expansion in Air Canada’s history,” chief executive Calin Rovinescu said.

“Moreover, on June 30 we served more than 160,000 customers, setting an all-time record which we expect to surpass during the upcoming August long weekend.”

Higher costs helped push the Montreal-based airline’s net income lower to $186 million – down from $296 million in the second quarter of 2015.

The main reasons for the decline were an unfavourable swing in foreign exchange rates and two unusual items last year that didn’t recur.

The quarter’s operating expenses were up $90 million, including $51 million from non-fuel expenses denominated in foreign currencies, as well as the cost of growing fleet capacity by 11%.

The increase in operating expenses would have been higher without a $141-million decline in fuel expenses amid lower global prices for crude oil.

Adjusted net income – which Air Canada says is a better measure of its overall financial performance – fell to $203 million or 72 cents per share from $250 million.

Air Canada’s revenue was up by $44 million to nearly $3.46 billion, a one per cent increase from $3.41 billion.

“Traffic growth in all five of our geographic markets exceeded last year’s strong growth,” Rovinescu said.

“We continued to increase our revenue base in the face of a challenging revenue environment principally in the domestic and Atlantic markets and despite a generally weak global economy.”