MONTREAL — Air Canada continued its post-pandemic recovery last quarter, earning roughly 10 per cent higher profits year-over-year while straining to keep a lid on costincreases that have plagued the industry.

Net income rose to $184 million in the airline's fourth quarter from $168 million a year earlier, the company reported Friday. Adjusted earnings of $521 million marked a 34 per cent jump. But the latter fell below consensus expectations of $548 million, according to financial markets data firm Refinitiv.

More flights and higher fares on international trips — particularly over the Atlantic and Pacific oceans — drove a 12 per rise in passenger revenues, said CEO Michael Rousseau.

He called the full year "very successful," as net income over 12 months swung to a profit of $2.28 billion from a $1.70-billion loss in 2022.

Net income surged despite a 21 per cent increase in labour costs in the fourth quarter that arose from 3,200 more employees as of Dec. 31 than at the start of the year, as well as from "wage inflation" and profit sharing, said chief financial officer John Di Bert.

Even with advance bookings up six per cent year-over-year last quarter, Air Canada faces uncertain patches in 2024.

A new agreement with its 4,500 pilots now under negotiation is poised to hike wages. Customer compensation rules currently being drafted are also among the "net headwinds" blowing against profit margins, as are expected hikes to airport fees, Di Bert said.

"Costs are coming in notably higher than what had been expected previously," said RBC Capital Markets analyst Walter Spracklin.

He pointed to a lower-than-anticipated increase in flight capacity as a key reason.

Air Canada forecast that flight volumes will grow between six per cent and eight per cent this year, "below our expectation of 10 per cent and below 2019 levels, indicating rapid expansion in leisure routes may be scaling back coupled with continued constraints," Spracklin said in a note to investors.

In spite of the smaller capacity ramp-up, the company boosted its adjusted earnings outlook for 2024 to between $3.7 billion and $4.2 billion from between $3.75 and $4.0 billion previously.

That means earnings will hinge even more on pricier fares, "which we see at risk," Spracklin said.

Air Canada reported that operating revenue rose 11 per cent to $5.18 billion in the three months ended Dec. 31 from $4.68 billion in the same period in 2022.

Fourth-quarter operating capacity increased nine per cent compared with the year before, the Montreal-based company said.

Operating expenses jumped eight per cent due to higher costs that reflected the greater traffic, partially offset by lower jet fuel prices.

On an adjusted basis, Air Canada lost 12 cents per diluted share in its latest quarter, compared with an adjusted loss of 61 cents per diluted share a year earlier.

The result notched below analyst expectations of an adjusted loss of four cents per share, according to Refinitiv.

This report by The Canadian Press was first published Feb. 16, 2024.

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