Business

Air Canada reports record loss for 2001

Air Canada has reported its biggest-ever annual loss $1.25 billion as it struggled through what CEO Robert Milton called an "extraordinarily difficult" time for airline companies.

The loss, which amounted to a staggering $10.43 per share, was more than 15 times bigger than the $82 million loss recorded in 2000.

The airline blamed the loss on a confluence of factors that hit its most profitable sector business travel. The economic downturn, the Sept. 11 terror attacks, and high fuel prices during most of the year were body blows that sent most of the world's airlines reeling in 2001.

In Air Canada's case, the damage accelerated in the fourth quarter. Figures released Thursday showed the airline lost $380 million ($3.16 a share) in just the last three months of the year. To put that in perspective, Air Canada's stock closed Wednesday at $4.85 a share; the loss in the final quarter of the year represented about three-quarters of the entire market capitalization of the airline.

Air Canada said passenger revenues in Q4 dropped $440 million or 20 per cent compared to the prior year, with U.S. transborder traffic taking the biggest hit down 30 per cent.

"Air Canada's fourth quarter and full year performance reflect the extraordinarily difficult environment in which we and other comparable North American carriers were operating." Milton said in a release.

Milton indicated the results would have been even worse if he had not taken steps to cut jobs and seat capacity in the aftermath of Sept. 11. On Sept. 26, Milton announced 5,000 job cuts, adding to the 4,000 announced in August and 3,500 made the previous December. Dozens of planes were mothballed; a fifth of the airline's flight schedule was eliminated.

The Q4 loss, while larger than many analysts had been expecting, was hardly unexpected. When Air Canada released its third-quarter financial statements last November, it warned that the following two quarters would be "bleak."

Still, Milton saw room for optimism Thursday that the turnaround would not be far off. "While it is difficult to accurately predict the speed of the economic recovery and the stability of fuel prices, we expect that by following a disciplined and strategic business plan we will return to profitability over the seasonally stronger quarters," he said.

That's not what airline analysts think. Of the 11 analysts polled by First Call/Thomson Financial, none expect the airline to turn a profit in fiscal 2002. The most optimistic forecast is for a loss of $1 a share.

Air Canada stock fell 11 per cent in the first few minutes of trading Thursday, sliding 55 cents to $4.30, before rebounding to close at $4.70.

The stock price has come back a long way from its October lows of $1.64. But it's still less than half its 52-week high of $11.45.

Air Canada still faces many non-financial battles too. The airline, which has an 80 per cent share of the domestic market, faces considerable political criticism. Transport minister David Collenette has called Air Canada's market share in Canada "untenable".

And the launch of its discount "Tango" service in October caused an uproar. Critics said it was merely an attempt to stifle competition by trying to drive rivals WestJet and Canada 3000 out of business.

Late last year, the federal Competition Bureau was about to issue a cease-and-desist order that would have shut down Tango, but the ruling was preempted by the collapse of Canada 3000 in November.