UPDATE 3-Air Canada earnings rise; smaller decrease in costs seen

(Adds details from conference call)
Aug 12 (Reuters) - Air Canada AC.TO reported a jump in
second-quarter earnings on Wednesday but a closely-watched
revenue number declined, and the company said it expected an
important cost measure to improve less than previously forecast,
sending shares lower.
Passenger revenue per available seat mile fell 5.5 percent
in the second quarter as the airline added lower-margin
international flights. BMO Capital Markets analyst Fadi Chamoun
said the airline's forecasts implied a larger than expected
decline in that measure in the current quarter.
Air Canada has been adding capacity, weighing on some of its
financial metrics even as earnings rise.
"I'll address the elephant in the room - our capacity
growth," Chief Executive Calin Rovinescu said on a call with
analysts and investors.
"As an established carrier with legacy costs, and a great
global brand, to compete, we need to grow internationally," he
said, adding that every new route must be profitable. The
company is focused on profits and return on invested capital,
not revenue per available seat mile, Rovinescu added.
Air Canada has become consistently profitable after years of
losses, bringing operating costs under control. Lower oil prices
should continue to lift earnings in the months ahead.
But the airline is facing rising competition from smaller
rival WestJet Airlines Ltd WJA.TO . Once a low-cost carrier
focused on the domestic market, Calgary-based WestJet is
expanding internationally and is trying to win more business
travelers.
Air Canada said it now expected adjusted cost per available
seat mile, which excludes fuel expenses, to decline 1 percent to
2 percent in 2015, as a weaker Canadian dollar increases some
expenses. It had previously forecast a 1.5 percent to 2.5
percent decrease. ID:nCNWzq8BBa
This measure edged up to 11.3 cents in the second quarter
from 11.2 cents a year earlier. But its operating expense per
available seat mile improved 7.6 percent, as lower fuel costs
more than offset the currency impact.
A weakening in the Canadian dollar hurts Canadian airlines
as some of their costs are denominated in U.S. dollars. They
also purchase planes and fuel in U.S. dollars.
Excluding a tax adjustment and other items, Air Canada
earned 85 Canadian cents per share in the second quarter,
slightly above the analysts' average estimate of 84 Canadian
cents, according to Thomson Reuters I/B/E/S.
Net income rose 33 percent to C$296 million, or C$1.00 per
share, while operating revenue increased 3.3 percent to C$3.41
billion.
Shares dropped 6.1 percent to C$12.12.