Air Canada today reported record full year 2016 EBITDAR(1) (earnings before interest, taxes, depreciation, amortization and aircraft rent), excluding special items, of $2.768 billion, compared to the previous record of $2.542 billion recorded in 2015, an increase of $226 million or 8.9 per cent and surpassing the 6 to 8 per cent increase projected in its November 7, 2016 news release. On a GAAP basis, Air Canada reported operating income of $1.345 billion in 2016 versus $1.496 billion in 2015.
Air Canada generated adjusted net income(1) of $1.147 billion or $4.06 per diluted share compared to adjusted net income of $1.222 billion or $4.18 per diluted share in 2015. The airline reported net income of $876 million or $3.10 per diluted share in 2016 compared to net income of $308 million or $1.03 per diluted share in 2015.
As referenced above, special items are excluded from all of Air Canada’s reported EBITDAR calculations. In 2016 and 2015, special items described further below increased operating expenses by $91 million and $8 million, respectively.
“In 2016, we achieved outstanding results, surpassing the previous records for EBITDAR, as well as for passenger and operating revenues, underscoring the effectiveness of our business strategy and improved competitive position,” said Calin Rovinescu, President and Chief Executive Officer. “Traffic for the year grew by more than 13 per cent with increases in all five geographic markets and we reached a new record of serving close to 45 million customers on our expanding global network, with the launch of 28 new routes including 15 new international and 12 U.S. transborder routes. Our growth in 2016 also led to the creation of 1,500 new high quality jobs in Canada between our mainline, Rouge and Express services. Along with significant investments in our fleet and product, we maintained our priority on investments and training resulting in higher employee engagement and customer service scores.
“Looking at 2017, we expect to achieve an EBITDAR margin of between 15 to 18 per cent, with our current forecast of rising fuel prices, and our return on invested capital(1) is projected to be between 9 and 12 per cent. Moreover, we forecast positive free cash flow(1) in 2017 in the range of $200 million to $500 million.
“Last week, on the occasion of Air Canada’s 80th anniversary year and Canada’s 150th, we unveiled a new livery for the fleet and new uniforms for our employees, just a few of the many ways we continue to refresh our product and invest in our employees and in our customers’ travel experience. I would like to thank Air Canada’s employees whose dedication and professionalism are a cornerstone for the successes achieved in 2016, flying Canada’s flag proudly, across Canada and around the world,” concluded Mr. Rovinescu.
Full Year Income Statement Highlights
In 2016, record system passenger revenues of $13.148 billion increased $728 million or 5.9 per cent from 2015. Traffic growth of 13.2 per cent reflected traffic increases in all of Air Canada’s five geographic markets. As an expected effect of the implementation of Air Canada’s strategic plan for sustained, profitable growth, yield declined by 6.6 per cent due to a 5.1 per cent increase in average stage length (which reduced system yield by 2.8 percentage points) and an increase in the number of seats in long-haul leisure markets (at, on average, lower fares). Other factors, including lower carrier surcharges, a higher proportional growth of international connecting traffic and competitive pressures in the domestic, European and Pacific markets, also contributed to the yield decrease.
In 2016, operating expenses of $13.332 billion increased $960 million or 8 per cent from 2015 on a 14.7 per cent growth in capacity.
Air Canada’s cost per available seat mile (CASM) decreased 6.0 per cent from 2015. The airline’s adjusted CASM(1), which excludes fuel expense, the cost of ground packages at Air Canada Vacations® and special items, decreased 2.9 per cent from 2015, in line with the 2.75 to 3.75 per cent decrease projected in Air Canada’s November 7, 2016 news release. Had the Canadian-U.S. dollar exchange rate remained at the full year 2015 level, adjusted CASM would have decreased 3.8 per cent when compared to 2015.
Fourth Quarter Income Statement Highlights
In the fourth quarter of 2016, record system passenger revenues of $3.035 billion increased $199 million or 7.0 per cent from the fourth quarter of 2015. Traffic growth of 15.3 per cent reflected traffic increases in all of Air Canada’s five geographic markets. A yield decline of 7.2 per cent resulted from a 6.5 per cent increase in average stage length (reducing system yield by 3.6 percentage points). An increase in the number of seats at, on average, lower fares in long-haul leisure markets, lower carrier surcharges, and a higher proportional growth of international connecting traffic, were also contributing factors to the yield decrease.
In the fourth quarter of 2016, operating expenses of $3.407 billion increased $383 million or 13 per cent from the fourth quarter of 2015 on a 17.1 per cent growth in capacity. In the fourth quarter of 2016 and 2015, special items increased operating expenses by $91 million and $31 million, respectively.
Air Canada’s cost per available seat mile (CASM) decreased 3.8 per cent from the fourth quarter of 2015. The airline’s adjusted CASM(1) decreased 6.1 per cent from the fourth quarter of 2015, slightly better than the 5.0 to 6.0 per cent decrease projected in Air Canada’s November 7, 2016 news release.
EBITDAR amounted to $455 million in the fourth quarter of 2016 versus EBITDAR of $456 million in the fourth quarter of 2015. EBITDAR margin was 13.3 per cent in the fourth quarter of 2016 versus EBITDAR margin of 14.3 per cent in the fourth quarter of 2015.
In the fourth quarter of 2016, Air Canada recorded adjusted net income of $38 million or $0.14 per diluted share compared to adjusted net income of $116 million or $0.40 per diluted share in the same quarter in 2015.
On a GAAP basis, taking into account special items in each quarter, Air Canada recorded operating income of $18 million in the fourth quarter of 2016 compared to operating income of $158 million in the fourth quarter of 2015. The airline reported a net loss of $179 million or $0.66 per diluted share in the fourth quarter of 2016 compared to a net loss of $116 million or $0.41 per diluted share in the fourth quarter of 2015.
In the fourth quarter and full year 2016, a special item relating to a past service cost expense of $91 million was recorded to reflect the estimated cost of defined benefit pension increases applicable to members of the Air Canada Pilots’ Association.
In the fourth quarter and full year 2015, special items included the following:
One-time payments totaling $62 million related to Air Canada’s contract on collective agreement terms with CUPE and the IAMAW; and
A $30 million recovery related to cargo investigations and proceedings which had been previously paid.
In addition, for the full year 2015, Air Canada recorded favourable tax-related provision adjustments of $23 million…