Air Canada’s FY2013 financial performance clouded by currency pressures - and aggressive competition

Air Canada's decent FY2013 financial results are being overshadowed by a weakened 4Q2013 performance partly triggered by currency and weather headwinds that are carrying over into 1Q2014. While the carrier has some mechanisms in place to mitigate its expenses denominated in the USD, markets are spooked and the carrier's stock price has fallen since it warned that it would face challenges in the first three months of 2014.

Aside from the weaker 4Q2013 results, Air Canada recorded a return on invested capital (ROIC) for 2013 of 11% versus 7.9% the year prior. Its return performance bodes well for Air Canada's stated goal of reaching a sustainable ROIC of 10% to 13% by 2015.

While Air Canada remains bullish that it is on a well-established path towards sustainable profitability, it faces some immediate noise that could create a cloud over its business transformation. But despite the near-term challenges, its cost reduction efforts appear to be paying off as it forecasts unit costs reductions for FY2014, compared with projected increases at its main rival WestJet.