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Air Canada forecasts sustained profits

Low-cost carrier, new labour deals show promise

Air Canada says it is on the runway toward achieving the promise of sustained profits as it pursues new pension relief, aircraft maintenance savings and a plan to launch a low-cost carrier next year.

Details of the plan to start the new carrier are still being formulated, but the country's largest airline said Wednesday that arbitrated labour agreements, especially one with its 3,000 pilots, provide it with the necessary flexibility to pursue the endeavour.

"The launch of an Air Canada low-cost carrier represents pure growth in flying for our pilots and for the Air Canada family," president and CEO Calin Rovinescu said during a conference call that followed disappointing second-quarter earnings results.

Air Canada lost $96 million in the three-month period, more than double the $46 million it lost in the same period a year earlier and more than analysts had expected.

"We experienced several challenges in the quarter which adversely affected our net results, namely job actions which occurred this past March and April that impacted second-quarter bookings and revenues, and a slight capacity impact as a result of the Aveos [bankruptcy]," Rovinescu said.

The airline estimates the two factors reduced earnings by 12 to 17 cents per diluted share in the quarter. As it was, the overall loss was equal to 35 cents per share, up from 17 cents in the year-earlier period.

On an adjusted basis, the Montreal-based airline had a loss of five cents per share, up from a loss of one cent per share a year ago. The adjusted loss was four cents per share higher than a consensus estimate compiled by Thomson Reuters. Such estimates often exclude unusual items.

Air Canada said it would have made an adjusted profit of seven to 12 cents per share without the impact of the labour disruptions and the bankruptcy of Aveos Fleet Performance, which had done major overhauls of the airline's planes.

Revenue for the April- to-June quarter ahead of the main summer travel period was little changed year over year, rising $71 million to $2.99 billion. However, its revenue per seat mile was up only two per cent and yield or price increases lagged expectations amid tight competition in the Montreal-Toronto corridor and U.S. short-haul routes.

While the industry has grown in recent years, Air Canada has been stagnant without the addition of new aircraft. The carrier plans to transfer to the new low-cost airline 20 Boeing 767 planes and 30 Airbus A319s currently used in its mainline fleet when they come off lease. The move comes as Air Canada is set to receive the first of 37 Boeing 787 Dreamliners beginning in 2014.