Air Canada Loss Widens

Air Canada Thursday said tough winter weather and a weaker Canadian dollar pushed it deeper into the red in the first quarter, and said it has decided to refurbish part of its fleet rather than acquire new planes.

The Montreal-based carrier, Canada's biggest airline by traffic, called the quarter "somewhat difficult," but said it made progress on cost-cutting initiatives.

The airline gave an update on its fleet-renewal plans, including a decision to retain and refurbish 25 Embraer S.A. narrowbody aircraft instead of replacing them. Air Canada has been looking at options for upgrading its fleet as it seeks to lower operating expenses and compete more effectively against rivals on international routes.

The decision to retain the Embraer planes was a potential blow to plane maker Bombardier Inc., which would have competed with the likes of Boeing Co. and Airbus Group for the business. The market believed Bombardier had "a good chance" of winning the potential order since it and Air Canada are both Canadian companies, said Canaccord Genuity analyst David Tyerman. An order from a quality carrier such as Air Canada would also have underscored the strength of Bombardier's CSeries small passenger jet program, he said.

Air Canada indicated capital-spending priorities drove its decision to keep the 25 Embraer jets.

"After careful consideration, Air Canada has decided to continue to operate the aircraft given their young age, productivity and high customer acceptance on existing routes and to avoid additional capital expenditures and debt," the airline said in a statement.

Air Canada also said it plans to convert 12 Boeing 777-300ER and six Boeing 777-200LR aircraft into "a more competitive configuration," adding a premium economy cabin and refurbishing the business class cabin.

Air Canada announced plans in December to buy 61 new Boeing 737 Max aircraft to replace its aging fleet of Airbus single-aisle jets. As part of that deal, Boeing agreed to purchase 20 of the 45 Embraer narrowbody jets Air Canada operates, replacing them with larger narrowbody aircraft.

Air Canada lost 341 million Canadian dollars (US$313 million), or C$1.20 a share, in its latest quarter, compared with a loss of C$260 million, or 95 Canadian cents, a year earlier.

Adjusted to exclude items such as foreign-exchange losses, the airline's loss narrowed to 46 Canadian cents a share from 52 Canadian cents. The Thomson Reuters mean estimate was for a loss of 45 Canadian cents a share.

EBITDAR, or earnings before interest, taxes, depreciation, amortization, impairment and aircraft rent, was C$147 million, compared with C$145 million a year earlier. In April, the airline projected first-quarter EBITDAR would be in line with the year-earlier level.

Air Canada said operating expenses increased 2% to C$3.13 billion, partly because of a weaker Canadian dollar.

Revenue rose 3.8% to C$3.07 billion. Analysts were expecting C$3.05 billion.

Air Canada's adjusted cost per available seat mile, or CASM, fell 2.5% from a year earlier, in line with its most recent projection for a decline of 2% to 2.5%. For the second quarter, it expects adjusted CASM to decline in the range of 3.5% to 4.5%. It also said it expects a strong summer travel season.

Write to Judy McKinnon at [e-mail] and Ben Dummett at [e-mail]

Subscribe to WSJ: http://online.wsj.com?mod=djnwires