Air Canada preliminary results better than expected; United reports 1st quarterly profit since 2007

North and South American airline stocks were boosted on Tuesday (20-Jul-2010) by impressive financial results from Air Canada and United Airlines released during trading. The Dow (+0.8%) was also boosted by United’s results, while Canada’s TSX (+0.8%) also profited from Air Canada’s announcements.

Gains in the sector were despite a 1.2% rise in oil prices for the day, to USD77.44.

Air Canada reports better than expected preliminary results

Air Canada (+12.6%) soared after the carrier announced it expects to report an operating profit of between USD57.5-76.6 million for 2Q2010, while EBITDAR is expected to reach USD306.6-325.7 million.

The results are stronger than analysts had expected. Canaccord-Genuity analyst, David Tyerman, told Reuters he was expecting the carrier to report a 4.9% increase in revenue per ASM for the quarter, much lower than the 6.6% Air Canada reported.

Versant Partners increased its one-year target of Air Canada’s stock from CAD4.00 to CAD4.50 as a result.

The carrier also announced during trading that it is planning, subject to market and other conditions, a private offering of USD900 million in aggregate principal amount of senior secured notes due 2015 to be issued in separate series denominated in USD and CAD. Upon successful completion of the offering, the carrier intends to use the net proceeds for the repayment of all indebtedness under Air Canada's secured term credit facility entered into in Jul-2009 and would use any remaining net proceeds for general corporate purposes.

Moody’s assigned the carrier with a B3 CFR rating.

See related CAPA Profile: Financial Results

United Airlines reports first quarterly profit since 2007

United Airlines (+4.8%) also gained after the carrier reported a better than expected net profit of USD430 million, or USD1.95 per diluted share, excluding non-cash, net mark-to-market hedge gains and certain accounting charges. According to Reuters, analysts had expected the carrier to report earnings per share of USD1.78 for the quarter. The result is United’s first quarterly profit since 2007.

The carrier also reported an improved net profit for the six months ended 30-Jun-2010, of USD191 million, compared to a loss of USD354 million in the previous corresponding period.

For the remainder of 2010, the company expects both mainline and consolidated CASM, excluding fuel, profit sharing and certain accounting charges for the full year to be up 2-3% year-on-year. The company expects consolidated CASM, excluding fuel, profit sharing and certain accounting charges for the 3Q2010 to be up 3.3-4.3% year-over-year.

The company expects scheduled debt and capital lease payments of approximately $220 million and non-aircraft capital expenditures of approximately $120 million for the third quarter of 2010.

Elsewhere, Copa Airlines (-0.7%), WestJet (-0.4%) and Southwest Airlines (-0.3%) were the only carriers to be down for the day. Continental Airlines (+4.3%) was boosted by United’s results, while Hawaiian Airlines (+4.4%) also gained.

North & South America selected airlines daily share price movements (% change): 20-Jul-2010