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Air Canada foresees sustained profit, plans 2013 low-cost carrier launch

Passengers wait in line for an Air Canada flight at Toronto's Pearson airport, March 18, 2012.

J.P. MOCZULSKI/The Globe and Mail

Air Canada says it is on the runway to sustained profits after years of stagnation as it pursues new pension relief, aircraft maintenance savings and next year's launch a low-cost carrier.

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.

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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)," Mr. Rovinescu told analysts.

The airline estimates the two factors reduced earnings by of 12 to 17 cents per diluted share in the quarter.

The loss was equal to 35 cents per share, up from 17 cents per share in the comparable 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 Wednesday that it would have made an adjusted profit without the impact of the labour disruptions and the bankruptcy of Aveos Fleet Performance, which had done major overhauls of the airline's planes.

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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.

While the industry has grown in recent years, Air Canada has been stagnant without the addition of new aircraft.

The Montreal-based carrier plans to transfer to the new low-cost airline 20 Boeing 767 planes and Airbus A319s currently used in its mainline fleet. The move comes as Air Canada is set to receive the first of 37 Boeing 787 Dreamliners beginning in 2014.

Mr. Rovinescu said the low-cost carrier model will allow Air Canada to grow its presence in markets where it can't now compete effectively with new entrants, return to markets previously abandoned and enter new markets that are impossible with its mainline brand.

"With a strong liquidity position and our principal labour agreements now behind us and the potential for growth through the startup of a low-cost carrier airline, we believe we are well positioned to transform Air Canada into a more competitive, sustainable and solidly profitable airline for the benefit of our stakeholders," he said.

Air Canada also expects to receive unquantified savings from new aircraft maintenance agreements.

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The arbitrated labour agreements will cut its pension solvency deficit by about $1.1-billion. But it plans to seek regulatory and government approval for a 10-year extension for resolving its remaining $3.1-billion pension deficit.

Air Canada is the country's largest domestic and international full-service airline providing scheduled and charter air transportation for passengers and cargo to more than 175 destinations on five continents.

It is the world's 15th largest commercial airline, providing service to more than 32 million passengers a year.

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