Chorus Aviation's chief executive says the regional airline continues to have a bright future despite challenges it faces from Air Canada's persistent drive to cut costs.
"We feel that the future is solid," Joseph Randell said in an interview Tuesday after releasing the company's second-quarter results.
"We have a long history of strong operations and we feel that by continuing to focus on costs and delivering a quality product, we feel very good about our future."
The Halifax-based airline formerly known as Jazz beat expectations even though the airlines said net profits dropped 65 per cent in the second quarter on a continued decrease in revenues and a series of unusual items.
Chorus earned $7.9 million, or six cents per share, which was a decline from $22.6 million or 18 cents per share a year earlier.
Net profits were impacted by $13.5 million in unrealized foreign exchange loss on long-term debt and finance leases which had no impact on cash flows and by $2.3 million in expenses related to an ongoing employee voluntary separation program that will reduce costs.
Revenues fell to $410.3 million from $426.3 million a year ago, Chorus reported Tuesday after markets closed.
Excluding one-time costs, adjusted profit was $21.4 million or 17 cents per share, compared to $27.2 million or 22 cents per share in the year-ago period.
Chorus Aviation's adjusted profits were expected to drop by more than 31 per cent to 15 cents per share on $404.4 million, according to analysts polled by Thomson Reuters.
However, chief financial officer Richard Flynn said its underlining profits actually grew 30 per cent if excluding last year's $9 million settlement for the termination of its contract with Thomas Cook and the additional severance paid this quarter on a program to reduce pilots and maintenance people.
"Once you take out the one-offs and unrealized gains and losses, it gives you the truest picture of what the underlining profitability of the company and what that is," added Randell.
Chorus (TSX:CHR.B) and Air Canada have been in an arbitration process for many months over so-called benchmarking.
Both sides agreed to compare, or benchmark, the growth of controllable costs at Chorus' operating subsidiary, Jazz Aviation, to similar operators in the U.S. in past years.
However, it was sent to private arbitration after they disagreed on the methodology to ensure controllable costs — including salaries and wages, maintenance and overhead. A decision is expected by year-end following arguments in September.
After concluding the final round of hearings, Chorus said it expects to prevail.
"In our view it went very well and we're more confident than we were even before. Air Canada continues to take an aggressive view of this but we feel very confident that there will be no mark-up reduction as a result of the arbitration but nevertheless it creates an uncertainty," said Randell.
Chorus' capacity purchase agreement with Air Canada expires in 2020 and the current rates expire the end of 2014.
Chorus cut its dividend in half to 7.5 cents per share in May citing in part increased financial risk of potential retroactive payments to Air Canada.
Walter Spracklin of RBC Capital Markets said that decision "has completely soured (investor) sentiment."
The analyst said Chorus remains in the "penalty box" even though he didn't expect the company would report anything out of the ordinary in the quarterly results. He also doubted there would be any developments on the arbitration given that oral arguments are set for September.
Chorus operates Air Canada Express flights under a capacity purchase agreement with Air Canada and well as offers charter service under the Jazz banner. It was formed in 2001 when Air Canada combined four regional carriers into one. It has more than 4,300 employees and operates about 770 departures per weekday to 78 destinations in Canada and the United States with a fleet of 127 Bombardier-made regional jets and turboprops.
On the Toronto Stock Exchange, Chorus shares were unchanged at $2.24 in Tuesday trading. The value of the shares plummeted after the dividend cut and are valued at less than half the 52-week high of $4.71.
Note to readers: This is a corrected story. A previous version incorrectly reported the company's position on its dividend
© Copyright 2013