MONTREAL, Nov. 6 /CNW Telbec/ -- Air Canada today reported operating income of $68 million in the third quarter of 2009. This compared to $112 million recorded in the third quarter of 2008. Operating results continued to be adversely impacted by ongoing weak economic conditions resulting in declines in passenger and cargo revenues, partially offset by the impact of lower fuel prices year over year. EBITDAR amounted to $320 million, a decrease of $35 million from the third quarter of 2008.

The carrier reported net income of $277 million for the third quarter 2009 which included gains on foreign exchange of $295 million. This compared to a net loss of $132 million in the third quarter of 2008 which included losses on foreign exchange of $87 million.

Passenger revenues decreased $366 million or 13 per cent to $2.4 billion from the third quarter of 2008, due to a decrease in yield of 11.2 per cent as a result of reduced traffic and competitive pricing initiatives to stimulate demand. Premium cabin revenues declined 16 per cent from the third quarter of 2008, an improvement from the year-over-year decline in premium revenues of 30 per cent in the second quarter results of 2009.

In the third quarter of 2009, traffic dropped 2.1 per cent on a 3.3 per cent cut in capacity, resulting in a passenger load factor improvement of 1.0 percentage point compared to the same quarter in 2008. This passenger load factor improvement reflected Air Canada's disciplined approach to capacity management and the various new initiatives undertaken to stimulate traffic and generate revenues, such as the new 7 per cent commission paid to Canadian travel agents since June 2009 on Tango fares.

System revenue per available seat mile (RASM) decreased 10.2 per cent from the third quarter of 2008, entirely due to the yield decline.

In the quarter, operating expenses declined $361 million or 12 per cent from the third quarter of 2008, with lower fuel prices being the main factor in the year-over-year decrease. In the third quarter of 2009, a weaker Canadian dollar versus the U.S. dollar compared to the third quarter of 2008 resulted in additional expenses of $60 million in the quarter.

Unit cost, as measured by operating expense per available seat mile (CASM), decreased 9.2 per cent compared to the third quarter of 2008. Excluding fuel expense, CASM increased 4.5 per cent year-over-year mainly due to higher aircraft maintenance expenses. The spike in aircraft maintenance costs was primarily driven by timing of airframe and engine events in 2009 compared to 2008. The weaker Canadian dollar versus the U.S. dollar was also a factor in the CASM growth (excluding fuel expense) year-over-year. These increases were partly offset by a reduction in employee benefits expense as a result of revised actuarial assumptions.

The 4.5 per cent increase in CASM (excluding fuel expense) for the third quarter of 2009 was less than the projected CASM increase (excluding fuel expense) provided in Air Canada's news release dated August 7, 2009 in which CASM (excluding fuel expense) was projected to increase between 5.5 per cent and 6.5 per cent compared to the same period in 2008. The difference is primarily attributable to the fact that certain expenses recorded in the third quarter of 2009 were lower than anticipated (relative to the guidance provided on August 7th). These expenses included aircraft maintenance, capacity purchase fees paid to Jazz and information technology costs.

Air Canada reported earnings per diluted share of $2.44 in the third quarter of 2009 on an unadjusted basis. On an adjusted basis, the airline reported a loss per share (diluted) in the third quarter of 2009 of $0.19. Earnings per share is adjusted to remove Air Canada's gains on foreign exchange of $295 million and a gain on assets of $1 million in the third quarter of 2009.

In late July, Air Canada announced that it had entered into a memorandum of understanding with GECAS for the sale and leaseback of three Boeing 777 aircraft. The sale and leaseback transactions were substantially completed in early November 2009 and provided initial net cash proceeds of $95 million (net of deposits), with additional net proceeds of $20 million to be received upon completion of a remaining part of the transaction which is expected to occur in the fourth quarter of 2009.

"The third quarter of 2009 was of pivotal significance for Air Canada," said Calin Rovinescu, President and Chief Executive Officer. "During the quarter, we finalized a series of transactions that stabilized the company and strengthened our position to manage through the challenges brought on by ongoing weak economic conditions.

"Building on these achievements, early in the fourth quarter we capitalized on improved market conditions to strengthen our liquidity position by almost $250 million with the completion of an equity offering. This brought our cash balances to close to $1.5 billion, meeting our objective of 15 per cent of the preceding four quarters' operating revenues.

"Our improved balance sheet will give us more financial flexibility to meet challenges as they arise. Although we are seeing indications that the bottom of the recession is now behind us, the industry is still facing an extremely challenging revenue environment and we do not expect to see a full recovery for another 12 to 18 months.

"Against this backdrop, I am encouraged to report a third quarter operating income of $68 million. Although passenger revenue performance reflects the challenges that all airlines are facing, we were successful in mitigating some of the revenue decline with initiatives to stimulate traffic, generate revenues and re-engage customers. These initiatives, along with the right-sizing of our operation through capacity reductions and on-going disciplined capacity management, helped us achieve a one percentage point improvement in system passenger load factor in the quarter.

"While fuel prices were significantly lower this quarter than what we experienced last year, energy costs are rising and will likely remain highly volatile. Looking forward, our management team is focused on a number of priorities in order to mitigate the effects of a weak economy and drive meaningful annual profits on a sustainable basis. I would like to expand on the following three key priorities:

"Our first priority is reducing our unit costs to more competitive levels. Our Cost Transformation Program is on track to achieve expected annual revenue and cost reduction initiatives on a run rate basis of $50 million in 2009, $250 million by 2010 (of which $145 million has been achieved), and the full $500 million by 2011 (of which $175 million has been achieved), and the remaining initiatives are well underway. Over 125 projects have been identified company wide. These initiatives are primarily related to supply chain savings and process-driven efficiencies.

"Our second priority is international growth. We remain focused on building a strong international network as well as key partnerships, while maintaining our commitment to the domestic Canadian market. We have announced plans to introduce a number of non-stop services to Brussels, Barcelona and Athens in 2010, following our new Montreal-Geneva service that has performed well since it was launched in June. In parallel, we are moving on many fronts to solidify our relationships with our Star Alliance partners and ensure that our membership in the world's first, largest and most comprehensive airline alliance is fully leveraged.

"Most recently, Continental Airlines became our newest Star Alliance partner. We have already begun the process of implementing an extensive codeshare agreement with Continental that provides Air Canada and our customers with expanded access to dozens of new destinations along the U.S. eastern seaboard, Mexico and throughout Central America, as well as more opportunities to reward our customers' loyalty through Aeroplan. In addition, the development of our joint venture agreement on the transatlantic with Continental, Lufthansa and United Airlines, referred to as 'A++', for travel effective January 2010, is progressing smoothly. Working with our partners, Air Canada's presence in this important market will be enhanced and our competitive position will be strengthened.

"We will continue to leverage Canada's unique geographical position, our broad global access provided through bilateral air agreements, and Air Canada's extensive North American and international networks. Playing to these strengths, combined with a fully refurbished modern fleet and industry leading product, we are beginning to see encouraging results in our ability to capture increased flow traffic through our Toronto, Vancouver and Montreal hubs that have recently been refurbished to provide simplified transit facilities for connecting customers.

"Our third priority, and one I am personally leading, is a culture change within Air Canada. This is one of the greatest hurdles for a large and diverse organization to overcome. However, we also have many strengths to be proud of, and our employees already recognize the need for change. We have already started to take action to simplify processes and encourage a just-do-it mentality focusing on the principles of ownership, entrepreneurship, leadership and flexibility. This will be a gradual process. However, the tough economic environment is helping by motivating us to be more entrepreneurial, respond more nimbly to opportunities and react more quickly to challenges.

"This management team managed to stabilize the company against great odds during the past four months. By bringing the same energy and focused determination to our next priorities, I am confident we can manage through this economic cycle, achieve sustained profitability and create value for our shareholders," concluded Mr.