Air Canada reported 2019 first-quarter net income of C$354 million ($264 million), reversed from a C$203 million loss in the year-ago period.

Revenue rose 9.4% year-over year to C$4.5 billion, a record for the quarter, despite weather-related disruptions and the grounding of the carrier’s 24 Boeing 737 MAX 8s.

Passenger revenue increased 9.4% to C$3.8 billion, driven by a 5% yield improvement and 4.2% traffic growth. The carrier also reported better-than-expected redemption revenue following the Jan. 10 completion of the acquisition of the Aeroplan loyalty program from Aimia.

Air Canada’s first-quarter operating expenses rose 8.5% to C$4.3 billion.

President and CEO Calin Rovinescu told analysts and journalists that savings were realized during the quarter as a result of a revised capacity-purchase agreement (CPA) with Chorus Aviation, whose Jazz Aviation is a regional feeder for Air Canada.

The new CPA and completion of the Aeroplan acquisition contributed to Air Canada’s improved first-quarter results, Rovinescu said.

“We believe that having control of our own loyalty program and a more competitive cost of regional lift should narrow our valuation discount as compared to major US carriers, and we are already seeing their contribution to our earnings,” he said.

“We achieved these results in a quarter where we faced extremely severe weather events early in the quarter, literally from coast to coast, and the first 18 days of the Boeing 737 MAX grounding at the end of the quarter,” Rovinescu said. “To add some perspective, in the quarter, we canceled 8,000 flights, over 1,600 of which were on mainline—a 40% increase over mainline cancellations [in 1Q 2018].”

MAX aircraft comprise about 20% of Air Canada’s narrowbody fleet and carried 9,000-12,000 passengers on about 75 daily departures before the worldwide grounding. To cope with the capacity hit, the Montreal-based carrier suspended routes from Halifax and St. John’s to London Heathrow and reduced frequencies on others, in some cases consolidating two daily flights onto one larger aircraft.

The MAX grounding contributed to a 3.2% increase in CASM, excluding fuel expense, special items and the operating cost of Aeroplan, deputy CEO and CFO Michael Stewart Rousseau said. The cost impact included lease extensions for less-efficient aircraft that were scheduled to exit the fleet.

“The impact on our unit cost is expected to increase the longer the grounding persists, particularly heading towards … the busy summer season,” he said.

In the wake of the grounding and Boeing’s halt of MAX deliveries, Air Canada suspended financial guidance for the year.

“We will reinstate guidance for 2019 once we have greater clarity on the situation,” Rousseau said.

To prepare for the MAX’s return to service, some Air Canada pilots are spending time in full-flight simulators. The carrier is the only North American airline with MAX simulators.

“All of our MAX pilots, who today are not able to fly because of the grounding and are not flying other equipment, all those pilots are actually doing their time in the simulator to be as prepared as they can be, including having modeled some of these scenarios that occurred in the two accidents,” Rovinescu said.

Air Canada had expected to take delivery of 12 additional MAXs from late March through June. Six of those are completed and parked at Boeing’s Renton, Washington, facility; the others are on the production line, Rovinescu said.

“So certainly, six of them could come in fairly quickly once we did our inspections … but the other six would take a little bit longer,” he said.

Boeing has slowed MAX production from 52 to 42 aircraft per month.

Jack Wittman,