Air Canada to add premium economy seating, ramp up low-cost carrier

"These results reflect the success of Air Canada's ongoing transformation aligned with strict cost control and disciplined capacity management," CEO Calin Rovinescu said.

MONTREAL – Air Canada says it is on the runway to achieving sustained profitability after ending the year in the black as it prepares to introduce premium economy seating on select international routes and ramp up the size of its low-cost carrier.

The country’s largest airline said Thursday that it plans to add the new seating class on five Boeing 777 aircraft that will join the fleet over the next year, starting this summer.

The planes will have more seats, while the premium economy cabin will have larger seats, greater leg room, upgraded meals, complementary bar service and priority check-in.

The seating will also be available on 37 Boeing 787 Dreamliners that are slated for delivery beginning in 2014, but there are no immediate plans to extend the service to its entire fleet as rival WestJet Airlines (TSX:WJA) is doing.

As these planes are added, the airline plans to enlarge its discount Rouge brand — which takes flight in July with four planes — by adding six more aircraft in 2013. The fleet of Boeing 767 and Airbus A319s will grow to 32 by the end of 2014 and to 42 a year later before eventually reach 50 planes.

The changes were announced after the carrier reversed last year’s net losses in both the final quarter and full year.

It earned $131 million last year, a $380-million turnaround from 2011.

In the fourth quarter, net income was $8 million, or three cents per diluted share, reversing a net loss of $60 million, or 22 cents per diluted share, in the same 2011 period.

CEO Calin Rovinescu said the results clearly demonstrate that the carrier’s plan launched three years ago to stabilize and grow on a sustained basis is working.

“While we have more work to do, Air Canada today is a stronger and more stable airline and we can now fully turn our attention to the future,” he said during a conference call.

On an adjusted basis, Air Canada (TSX:AC.B) beat expectations even though it posted a net loss for the quarter of $6 million, or two cents per share. Although a loss, it was still a big improvement on 2011 when it reported an adjusted net loss of $167 million, or 60 cents per share, for the quarter.

For the full year, net income was $131 million, or 45 cents per diluted share, on revenues of $12.1 billion. That compared with a net loss of $249 million, or 92 cents per diluted share, on revenue of $11.6 billion in 2011, which included a $55-million charge related to Aveos.

Full-year adjusted net income from continuing operations was $53 million, or 19 cents per diluted share, compared with a net loss of $122 million, or 44 cents per diluted, share in 2011.

The Montreal-based carrier was expected to post an adjusted loss of 21 cents per share on $2.8 billion of revenues in the quarter, and five cents on $12.1 billion of revenues for the year, according to analysts polled by Thomson Reuters.

“I am proud of the progress we made in Air Canada’s ongoing transform in 2012” despite the challenges of labour disruptions in the first half of last year, Rovinescu said.

“We are mindful that we have much to do to achieve our goal of sustained profitability year after year after year but, as today’s results show, we’re on the right course.”

Rovinescu cited strong revenue performance by the airline’s international network, especially its routes to Europe and the Pacific.

Analysts said the fourth-quarter results, which include healthy margin expansion, was positive.

“With a strategy focused on higher yielding segments, including international routes and the business class traveller, Air Canada saw a nice uptick in demand,” wrote Walter Spracklin of RBC Capital Markets.

“Leveraging its Canadian hubs, Air Canada is clearly capturing market share on international routes and delineating itself from its domestic competitors.”

David Tyerman of Canaccord Genuity added that improving yield from higher pricing “has positive implications for future profitability.”

The airline flew 8.3 million passengers in the quarter, an increase of 5.1 per cent from the prior year, and nearly 35 million for the year.

Total passenger revenues grew 5.2 per cent to $10.7 million for the year, including $4.2 billion from Canada, $2.13 billion from transborder traffic, $2.11 billion on the Atlantic, $1.36 billion on Pacific routes and $954 million elsewhere.

Premium cabin revenue grew by $87 million or four per cent in the year.

Air Canada had more than $2 billion of cash on hand and reduced its adjusted net debt by $295 million to $4.3 billion.

Meanwhile, the carrier said it has received no indication from Boeing that delivery of the cost-efficient Dreamliner planes will be delayed despite the battery problems that have grounded the fleet worldwide.

“We believe the 787 is a great airplane and we have complete confidence in the ability, the desire and indeed the imperative for Boeing now, with the support of the FAA and other regulatory bodies in other jurisdictions, to resolve the lithium-ion battery issues quickly and safely,” Rovinescu said.

On the Toronto Stock Exchange, Air Canada’s shares gained two cents to $2.47 in afternoon trading.