Lower fuel bills are helping Air Canada's recovery, but those gains are being tempered by the euro zone debt crisis.
Every 1-per-cent decrease in the cost of jet fuel translates into a boost of $33-million annually in earnings before interest and taxes (EBIT) for the country's largest carrier, said National Bank Financial Inc. analyst Cameron Doerksen.
But while Canadian travellers are benefiting from the weaker euro, demand for flights taken by Europeans to Canada has dampened. An estimated one-fifth of Air Canada's revenue is derived from transatlantic flights.
Overall travel demand has remained healthy, giving a lift to the airline's revenue. When Montreal-based Air Canada reports its second-quarter financial results on Wednesday, revenue will likely rise slightly, analysts say.
Mr. Doerksen estimates that the company's second-quarter revenue will climb to $3.03-billion, compared with $2.92-billion a year earlier.
But he forecasts that earnings before interest, taxes, depreciation, amortization and aircraft rent (EBITDAR) will slip to $319-million for the three months ending June 30, down from $338-million in the same period last year.
The consensus estimate for quarterly earnings per share is 4 cents, though Mr. Doerksen is calling for a loss of 4 cents a share. In last year's second quarter, Air Canada lost 17 cents a share.
Longer term, Air Canada will face stiffer competition, notably from WestJet Airlines Ltd., which will launch a regional carrier with 78-seat Bombardier Q400 turboprops in the second half of 2013 to compete on some shorter routes that Air Canada currently dominates.
Those turboprops will have a single, economy-class cabin, but WestJet is also starting to roll out "premium economy" seats in the first three rows and in the exit row of its Boeing 737 jets as the Calgary-based carrier makes a play for business travellers.