Shares of Air Canada fell more on Friday that any time in the past seven months following the announcement by Canada’s largest airline that rising costs of fuel would cause a key measure for profit to drop by 50% during the first quarter.
That forecast implies that earnings prior to taxes, interest, depreciation as well as aircraft rent would be C$250 million or $190 million for the first quarter, which trailed the analyst estimates that averaged C$366 million.
A margin of 6.9%, which is half of the level from last year, would come up short of analyst’s predictions of 12%, which also was expecting lower costs not related to fuel.
While results remain solid, the airlines’ outlook for 2017 contained items that created trepidation which in turn helped drop the stock to levels of last week’s value, said one analyst with RBC.
The airline announced that it remains committed as well as on track to lower costs for each seat flown per mile by up to 21% during the upcoming six years through 2018 year end, as it looks to expand its discount carrier Rouge and add jets that are more fuel efficient like the Boeing 787 Dreamliner and the 737 Max.
Air Canada currently is boosting its capacity as well as enticing passengers flying to Asia or Europe from the U.S.
Air Canada shares fell 6.9% in Toronto after falling 8.5% for its biggest decline intraday since June of 2016. The airline, based in Montreal, has increased by 5.3% since the start of 2017 through its close on Thursday, which topped the gain of 3.8% in the S&P/TSX Index.
Return on its invested capital for both 2017 as well as 2018 will run between 9% and 12% because of adjusted profit being lower than had been projected said the airline on Friday.
That was short of the previous target released by the airline of between 13% and 16%.
Investors looked at the target for a lower return as an important negative during the quarter.
It ebitar will likely be between 15% and 18% of revenue said the airline in its statement. Air Canada is comfortable with the range for 2018, said one analyst, even though the comparable figure in 2016 had been 19%.
In 2017, free cash flow is expected to range between C$200 million and C$500 million, said officials at the airline.
Air Canada expects it will pay on average C$0.66 for one liter of fuel during 2017. That represents an increase of 22% from what it paid for fuel in 2016.