Air Canada's shares slide on capacity, fare concerns

(Reuters) - Air Canada shares fell 5 percent on Friday after the country's largest airline posted second-quarter results that raised concerns about downward pressure on fares. The Montreal-based carrier reported a profit that beat analysts' estimates on lower costs, but some other closely watched revenue metrics fell short of market expectations. Recent events in Europe, such as the Nice terror attack and Britain's decision to leave the European Union, softened demand in those markets, company executives told analysts on a conference call. Benjamin Smith, Air Canada's president of passenger airlines, said demand has been "holding up" in the third quarter. Air Canada recently added 10 new international routes, as part of its plan to lower costs through economies of scale. But BMO analyst Fadi Chamoun said in a note that Air Canada's ambitious growth, while demand was weak, caused an 8.2 percent drop in passenger revenue per available seat mile in the quarter. Macquarie analyst Konark Gupta, in an investor note, also cited concern about weakness in the average per-mile fare paid by passengers. He noted that several carriers have warned that high capacity and low demand would pressure fares for the rest of 2016. Air Canada Chief Executive Calin Rovinescu said on the call that he expected the carrier's additional capacity to be profitable. "We appreciate that we're setting some pretty high hurdles for us to fill the seats," he said. "But demand is continuing to be strong." Air Canada affirmed its estimate for a 4 to 8 percent increase in 2016 earnings before interest, taxes, depreciation, amortization and aircraft rent (EBITDAR). Many analysts closely watch this measure because Air Canada is overhauling its fleet, which lifts higher depreciation, amortization and interest costs. The carrier said 2016 costs would likely fall more than previously expected. It estimated a 2.75 to 3.75 percent drop in adjusted cost per available seat mile, excluding fuel, compared with a previously estimated decline of 1.75 to 2.75 percent. Air Canada posted adjusted earnings of 72 Canadian cents per share, well above analysts' average estimate of 58 Canadian cents according to Thomson Reuters I/B/E/S. Net earnings fell to C$186 million ($141.32 million), or 66 Canadian cents per share, from C$296 million, or C$1.00 per share, a year earlier. Air Canada shares fell 50 cents Canadian to C$8.94 late Friday afternoon. (Reporting by Anet Josline Pinto in Bengaluru and Allison Lampert in Montreal; Editing by Anil D'Silva and Richard Chang)