Passenger revenue and strong yield performance on Air Canada’s Atlantic routes helped to propel record 2017 third-quarter results, as the airline reported C$950 million ($763 million) in adjusted net income, up 15.7% from $821 million in adjusted net income for 3Q 2016.

The company posted a C$1.8 billion non-adjusted net profit for the quarter, more than doubling its C$768 million net income in 3Q 2016. The figure, however, includes a net income tax recovery of C$793 million, representing deferred income taxes the company recorded in its 3Q results. The airline’s 3Q EBITDAR was C$1.4 billion, a C$140 million increase over the 2016 September quarter.

Operating revenue for the quarter totaled C$4.9 billion, up 9.6% year-over-year (YOY) driven by increased passenger traffic and improved yields, the company said, especially in its business cabin segment, where revenues were up C$90 million YOY, producing a 5% yield growth. Cargo revenue, too, showed strong 38% YOY growth to C$179 million.

Passenger revenue on Air Canada’s transatlantic routes, where the company took on insurgent European LCCs, increased 17.7% YOY to C$1.3 billion in the third quarter, driving yield up 3.5%. Traffic on the routes was up 13.7% and capacity increased 13.3%.

Operating expenses, driven by a 9.1% increase in capacity as well as 17% higher fuel prices, totaled C$3.9 billion, up 9% YOY. The airline’s third-quarter operating income was a company record C$1 billion, up 12.1%, and its EBITDAR operating margin was 28.4%, also a company record.

Air Canada’s 3Q traffic increased 8.8% to 26.5 billion RPMs on a 9.1% increase in capacity to 31.1 billion ASMs, resulting in an 85.3% passenger load factor for the quarter, down 0.2 point YOY. Yield was up 0.4% to 16.6 cents. PRASM growth was largely flat (up 0.1%), RASM increased only 0.5% and CASM remained flat YOY.

“Our new business model is firing on all cylinders, and making Air Canada not only profitable today but positioning it to be sustainably profitable for the long term,” Air Canada CEO Calin Rovinescu said in an Oct. 25 conference call with analysts and reporters. “We still see many opportunities before us. We affirmed our confidence in the future by setting for ourselves more ambitious financial targets for the next three years.”

Rovinescu said the airline will continue to focus on its global network.  During the quarter, the airline introduced roughly a dozen new international routes or expanded services set to launch in 2018, and will include new routes from Montreal, Toronto and Vancouver to destinations including Shannon, Porto, Bucharest and Zagreb.

“And we continue to look for opportunities to strategically build a network—including through additional Sixth Freedom connecting traffic,” Rovinescu said. “But as we’ve said, our capacity growth will begin to taper with the completion of our widebody program and be replaced with a narrowbody replacement program, which will further reduce unit costs.”

In the past nine months, Air Canada has taken delivery of eight new Boeing 787-9s. An additional 787-9 is scheduled for delivery during the fourth quarter, with five more to come by the end of 2018, and two more to come in 2019.

“We will take the delivery of our first Boeing 737 MAX 8 aircraft in the fourth quarter, beginning the rejuvenation and optimization of our narrowbody fleet,” Air Canada president- Passenger Airlines Benjamin Smith said. Two MAX 8s are scheduled to arrive by the end of 2017, with an additional 16 expected by the end of 2018. An additional 43 of the 61 737 MAX aircraft Air Canada has on order will be introduced into the fleet between 2019 and 2021, replacing existing aircraft in the mainline fleet. Deliveries of the first 25 of 45 Bombardier CS300 aircraft are scheduled to begin in late 2019 and extend through 2022; these will replace Air Canada’s existing fleet of Embraer E190s.

Smith said an “industry-leading IFE system” and satellite Wi-Fi will be installed on the MAX 8s at the time of delivery. “The same standard of satellite Wi-Fi continues to be installed across our widebody aircraft as well as our entire rouge fleet,” Smith said. “The technology will be fully operational on several of the aircraft at the beginning of the fourth quarter with the completion of this program on our 787 and 777 fleets, as well as our rouge 767 fleet, by the end of 2018, and the completion on our Airbus A330s by March 2019.”

As of Sept. 30, Air Canada and Air Canada rouge’s combined fleet comprised 96 widebodies and 125 narrowbodies, for 221 total aircraft. By the end of 2018, the fleet will total 233 aircraft, consisting of 98 widebodies and 135 narrowbodies.

In its end-of-year 2017 guidance, Air Canada expects to achieve an annual EBITDAR margin of 17% to 19%.

Mark Nensel mark.nensel@penton.com