A better-than-expected third quarter performance has prompted Air Canada to slightly reduce planned capacity cuts and soften full-year, unit-cost increase projections even though it expects North American economies to remain weak for the remainder of the year.

The three-month period to Aug. 31 produced a C$68 million operating profit for the Montreal-based carrier, a C$180 million reversal on the operating loss recorded in the same period last year. A C$295 million gain from a foreign currency exchange also allowed the airline to mitigate a C$83 million non-operating expense, and produce a C$277 million net income for the quarter.

This compares to the C$132 million net loss recorded in the third quarter of 2008.

Operating expenses for the quarter fell 12%, based predominantly on reduced fuel costs, while revenue declined 13% to C$2.4 billion.

Calin Rovinescu, the airline’s president and CEO commenting on the results said, “The third quarter of 2009 was of pivotal significance for Air Canada. 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.

“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 12-18 months,” he added.

This upturn has also resulted in a new full-year guidance, with capacity now expected to be down 4.25% to 4.75% from the previous forecast of 4.5% to 5.5%, and unit costs excluding fuel to grow 3% to 3.5% instead of the 4% to 5% predicted in August (DAILY, Aug. 10).

“Our first priority is reducing our unit costs to more competitive levels,” said Rovinescu. “Our Cost Transformation Program is on track to achieve expected annual revenue and cost-reduction initiatives on a run rate basis of C$50 million in 2009, C$250 million by 2010 (of which C$145 million has been achieved), and the full C$500 million by 2011 (of which C$175 million has been achieved), and the remaining initiatives are well underway.”

He added “[o]ur second priority is international growth” and that “[o]ur third priority, and one I am personally leading, is a culture change within Air Canada.

“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.”