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Air Canada reports third quarter results; posts record operating income

    As a result of the deconsolidation of Jazz effective May 24, 2007, Air
    Canada's consolidated results for the third quarter of 2007 and for the
    first nine months of 2007 are not directly comparable to Air Canada's
    consolidated results for the same periods of 2006. This press release
    highlights the performance of "Air Canada" excluding the consolidation of
    Jazz operations (previously referred to as "Air Canada Services").

    2007 THIRD QUARTER OVERVIEW

    - Record operating income of $351 million in the third quarter, an
      increase of $119 million or 51.3 per cent, compared to $232 million
      (excluding special charge) in the 2006 quarter.
    - Net income of $273 million in the third quarter compared to $44 million
      in the 2006 quarter.
    - Passenger revenues of $2,660 million, increased $108 million or
      4.2 per cent over the third quarter of 2006, mainly driven by a
      3.1 per cent growth in traffic.
    - Unit cost reduced by 4.4 per cent over the 2006 quarter. Excluding fuel
      expense, unit cost declined 2.4 per cent from the third quarter of
      2006.
    - EBITDAR of $561 million in the quarter compared to EBITDAR (excluding
      special charge) of $437 million in the third quarter of 2006, an
      increase of $124 million.

    MONTREAL, Nov. 9 /CNW Telbec/ - Air Canada today reported record
operating income of $351 million, an increase of $119 million or 51.3 per cent
from the third quarter of 2006 (excluding a special Aeroplan Miles charge of
$102 million in 2006), due to an increase in operating revenues of $93 million
or 3 per cent, combined with a decrease in operating expenses of $26 million
or 1 per cent.
    The airline reported net income for the third quarter of $273 million,
which included net gains on foreign currency monetary items of $104 million,
compared to net income of $44 million in the third quarter of 2006 which
included losses on foreign currency monetary items of $3 million.
    Passenger revenues increased $108 million or 4.2 per cent over the third
quarter of 2006 mainly due to traffic growth of 3.1 per cent on a capacity
increase of 3.5 per cent. System revenue per available seat mile (RASM) rose
0.7 per cent compared to the third quarter of 2006 due to a 1.1 per cent
growth in yield, as measured by passenger revenue per revenue passenger mile.
As a result of Air Canada's decision to reduce freighter capacity, cargo
revenues decreased by $26 million from the third quarter of 2006.
    Unit cost, as measured by operating expense per available seat mile
(CASM), decreased 4.4 per cent from the third quarter of 2006. Excluding fuel
expense, unit cost declined 2.4 per cent over the third quarter of 2006 and
included unit cost reductions in aircraft maintenance, materials and supplies,
and commissions. The reduction in operating expense year over year included a
decrease of $45 million in fuel expense as a result of the favourable impact
of a stronger Canadian dollar versus the US dollar, hedging gains in the third
quarter of 2007 and the introduction of new, more fuel-efficient aircraft to
the fleet.
    EBITDAR amounted to $561 million, an increase of $124 million (excluding
special charge) from the third quarter of 2006.
    "I am very pleased to report a strong third quarter highlighted by record
operating income that resulted from both strong revenue growth and reduced
unit costs," said Montie Brewer, President and Chief Executive Officer. "Our
domestic Canada and U.S. transborder markets performed well, with significant
revenue and yield growth as we continued to effectively manage capacity in the
softer U.S. market. Looking forward, with the exception of continuing weakness
on the Atlantic, system wide bookings remain solid."
    Continued Mr. Brewer, "Our new business model continues to perform well,
delivering increases in yields and unit revenues, while reducing unit costs.
In fact, I'm very pleased to note that unit costs in every major cost area
were flat or down from one year ago. Almost two thirds of our domestic sales
are online, and three quarters direct with Air Canada - one of the highest
penetration rates of any major international carrier - resulting in
substantially lower distribution costs. I would like to thank all our
employees who have contributed to the tremendous progress we have made in the
quarter. As always, they demonstrated their deep commitment to serving our
customers by exceeding our targets for both customer service and on-time
performance for the quarter."
    Consistent with Air Canada's strategy of leveraging new technologies to
simplify business processes and the travel experience for its customers, in
the quarter the carrier became one of the first airlines in the world to
introduce paperless mobile boarding passes, and is well on its way to
eliminate paper tickets, ahead of industry targets. Customer feedback on the
carrier's new Embraer aircraft in its North American fleet and new Boeing 777
aircraft in its international fleet has been extremely positive. In addition,
with approximately half of the planned fleet refurbishment completed to offer
a streamlined in-flight product network wide, Air Canada is well positioned to
fully leverage its international network through its hubs in Toronto,
Vancouver and Montreal.
    Year to date, Air Canada reported operating income of $361 million, an
increase of $112 million over the same period in 2006 excluding special
charges. The year-to-date results for 2006 included the special charge for
Aeroplan miles of $102 million and a special charge for labour restructuring
of $28 million. For the first three quarters, operating revenues increased by
$290 million, or 3.7 per cent, to $8,133 million versus $7,843 million,
excluding the special charge, for the same period in 2006. Net income was
$394 million year to date, versus $70 million for the same period the previous
year.
    For the fourth quarter, capacity is expected to increase by approximately
2.5 per cent versus the comparable period in 2006. CASM, excluding fuel
expense, is expected to decrease at a slightly lower rate, year over year,
than experienced in the third quarter of 2007.
    For the full year 2007, it is expected that capacity will have increased
by 3 per cent versus the full year 2006 and that CASM, excluding fuel expense,
will have decreased by less than 1 per cent from 2006.
    In 2008, Air Canada expects its capacity (ASM) to increase by 2.5 to
4 per cent, reflecting growth in each of its markets.

    David Richardson to Succeed Robert Milton as Chairman of Board of
    -----------------------------------------------------------------
    Directors
    ---------

    As has been previously disclosed, ACE Chairman and CEO Robert Milton will
be retiring as Chairman of Air Canada and leaving the Board of Directors. The
effective date will be January 1, 2008. Mr. Milton remains Chairman, President
and CEO of ACE Aviation Holdings.
    "Robert's contribution to the successful transformation of Air Canada
cannot be over-stated," said Montie Brewer. "His passion for the business,
consummate grasp of the industry and single-minded determination to succeed
through new thinking and new ways of doing business made Air Canada what it is
today. Under his leadership, the airline successfully fought off a hostile
takeover attempt, completed a merger with Canadian Airlines and restructured
the airline to allow it to compete effectively and profitably in today's
environment.
    "However, I believe that Robert's most important legacy at Air Canada
will be the restructuring of a legacy carrier into several successful
businesses which is now viewed by many as a blueprint for the industry. I will
personally miss his steadfast leadership and support and on behalf of Air
Canada's 23,000 employees thank him for his immense contribution to this great
airline."
    David I. Richardson, who currently serves on Air Canada's Board will
succeed Mr. Milton as Chairman of Air Canada's Board of Directors.
Mr. Richardson brings significant experience as a corporate director. He is
also a director of Air Canada, Jazz Air Holding GP Inc. and a trustee of
Aeroplan Income Fund. Mr. Richardson is the former Chairman of Ernst & Young
Inc. (Canada) and a former Executive Partner of Ernst & Young LLP.
    "The Air Canada executive team joins me in welcoming David onboard as our
next Chairman," said Montie Brewer. "With his extensive business background
and strong commitment as a corporate director, he has already made an
invaluable contribution to the Board of Air Canada. I look forward to working
with David in his new capacity."

    Third Quarter 2007 Accomplishments
    ----------------------------------

    - Celebrated Air Canada's 70th anniversary with the participation of
      thousands of employees and customers at events showcasing the new
      Boeing 777 aircraft and onboard product.

    - Introduced one Boeing 777-200LR aircraft and one 777-300ER aircraft in
      the quarter. To date, Air Canada has taken delivery of five 777-300ER
      aircraft and two 777-200LR aircraft, and is the first North American
      carrier to operate these aircraft types.

    - Took delivery of eight Embraer E190 aircraft in the quarter and four
      more since September 30th. To date, Air Canada has taken delivery of a
      total of 38 Embraer 190 aircraft of 45 on order.

    - Recorded another three consecutive months of strong load factors, for
      year-to-date load factor of 81.5 per cent versus 80.9 for the first
      three quarters in 2006.

    - Achieved on-time arrivals performance of 80.1 per cent in the quarter
      as measured by U.S. carriers, a 3 percentage point increase from the
      previous year.

    - Completed almost half of the planned fleet refurbishment, with the
      majority of narrowbody aircraft expected to be completed by year-end
      2007 and widebody aircraft by year-end 2008.

    - As of today, hedged 50 per cent of fuel requirements for the fourth
      quarter of 2007 and 13 per cent of fuel requirements for 2008. Using
      equivalent WTI pricing, the remainder of 2007 is hedged at prices that
      can fluctuate between an average of US$68 and US$74 per barrel and 2008
      is hedged at prices that can fluctuate between US$74 and US$79 per
      barrel.

    - Year to date, 46 per cent of domestic consumers chose a higher branded
      fare, compared to 45 per cent in the previous year's first three
      quarters.

    - Revenues from Flight Pass products increased 90 per cent over the third
      quarter of 2006, representing close to 4 per cent of North American
      revenues.

    - Continued to expand its line of Flight Passes with the introduction of
      a Sun Pass to 18 countries, and Hong Kong and China passes for the
      first time to and from Asia.

    - Web penetration for domestic Canada sales in the third quarter was
      64 per cent, a 9.0 percentage point increase from the third quarter of
      2006. Web penetration for combined Canada and U.S. transborder sales
      was 50 per cent - a 7 percentage point increase over the previous
      year's quarter.

    - 74 per cent of domestic Canada sales for the third quarter, or
      61 per cent when combined with U.S. sales, were made directly with Air
      Canada, either online or through call centres.

    - 56 per cent of Air Canada's customers used self-serve check-in products
      world wide in the third quarter.

    - Expanded mobile check-in services with the introduction of paperless
      boarding passes.

    - Expanded self-service kiosks for baggage tagging to Toronto hub, in
      addition to Montreal and Vancouver airports.

    (1) Non-GAAP Measures

    EBITDAR is a non-GAAP financial measure commonly used in the airline
industry to assess earnings before interest, taxes, depreciation and aircraft
rent. EBITDAR is used to view operating results before aircraft rent,
depreciation, amortization and obsolescence as these costs can vary
significantly among airlines due to differences in the way airlines finance
their aircraft and other assets. EBITDAR is not a recognized measure for
financial statement presentation under GAAP and does not have a standardized
meaning and is therefore not comparable to similar measures presented by other
public companies.

    Readers should refer to Air Canada's Third Quarter 2007 Management's
Discussion and Analysis (MD&A), which will be filed on SEDAR, and made
available on Air Canada's website at www.aircanada.com, for a reconciliation
of EBITDAR to operating income.

    For further information on Air Canada's public disclosure file, including
Air Canada's Initial Annual Information Form dated March 27, 2007, consult
SEDAR at www.sedar.com or www.aircanada.com.

    CAUTION REGARDING FORWARD-LOOKING INFORMATION
    ---------------------------------------------

    Certain statements in this news release may contain forward-looking
statements. These forward-looking statements are identified by the use of
terms and phrases such as "anticipate", "believe", "could", "estimate",
"expect", "intend", "may", "plan", "predict", "project", "will", "would", and
similar terms and phrases, including references to assumptions. Such
statements may involve but are not limited to comments with respect to
strategies, expectations, planned operations or future actions.
Forward-looking statements, by their nature, are based on assumptions and are
subject to important risks and uncertainties. Any forecasts or forward-looking
predictions or statements cannot be relied upon due to, amongst other things,
changing external events and general uncertainties of the business. Such
statements involve known and unknown risks, uncertainties and other factors
that may cause the actual results, performance or achievements to differ
materially from those expressed in the forward-looking statements. Results
indicated in forward-looking statements may differ materially from actual
results for a number of reasons, including without limitation, energy prices,
general industry, market and economic conditions, war, terrorist attacks,
changes in demand due to the seasonal nature of the business, the ability to
reduce operating costs and employee counts, employee relations, labour
negotiations or disputes, pension issues, currency exchange and interest
rates, changes in laws, adverse regulatory developments or proceedings,
pending and future litigation and actions by third parties as well as the
factors identified throughout Air Canada's filings with securities regulators
in Canada and, in particular, those identified in the Risk Factors section of
Air Canada's 2006 Annual Management's Discussion & Analysis dated February 14,
2007 and in section 11 of Air Canada's Third Quarter 2007 Management's
Discussion & Analysis dated November 8, 2007. The forward-looking statements
contained herein represent Air Canada's expectations as of the date they are
made and are subject to change after such date. However, Air Canada disclaims
any intention or obligation to update or revise any forward-looking statements
whether as a result of new information, future events or otherwise, except as
required under applicable securities regulations.

    HIGHLIGHTS

    Effective May 24, 2007, Air Canada no longer consolidates the operations
    of Jazz Air LP ("Jazz"). The following table provides the reader with
    financial and operating highlights for Air Canada, excluding the
    consolidation of Jazz operations (previously "Air Canada Services") for
    the periods indicated.

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                    Third Quarter
    ($ millions, except per share figures)   2007        2006      Change $
    -------------------------------------------------------------------------
    Financial
    Operating revenues                      2,954       2,759         195
    Operating income                          351         130         221
    Operating income, excluding
     special charges (1)                      351         232         119
    Non-operating expenses                    (45)        (53)          8
    Income (loss) before non-controlling
     interest, foreign exchange
     and provision for income taxes           306          77         229
    Income for the period                     273          44         229
    Operating margin %                       11.9%        4.7%        7.2 pp
    Operating margin %,
     excluding special charges (1)           11.9%        8.1%        3.8 pp
    EBITDAR (2)                               561         335         226
    EBITDAR, excluding
     special charges (1) (2)                  561         437         124
    EBITDAR margin %                         19.0%       12.1%        6.9 pp
    EBITDAR margin %,
     excluding special charges (1)           19.0%       15.3%        3.7 pp
    Cash, cash equivalents and
     short-term investments                 1,502       1,422          80
    Cash flows from operating
     activities                                54           2          52
    Earnings per share -
     basic and diluted (3)                 $ 2.73      $ 0.50      $ 2.23
    -------------------------------------------------------------------------

                                                                   Change %
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Operating Statistics
    Revenue passenger miles
     (millions) (RPM)                      14,789      14,345         3.1
    Available seat miles                   18,144      17,528         3.5
     (millions) (ASM)
    Passenger load factor                    81.5%       81.8%       (0.3)pp
    Passenger revenue yield
     per RPM (cents)                         17.9        17.7         1.1
    Passenger revenue per ASM (cents)        14.6        14.5         0.7
    Operating revenue per ASM (cents)        16.3        15.7         3.4
    Operating expense per ASM
     ("CASM") (cents)                        14.3        15.0        (4.4)
    CASM, excluding fuel expense (cents)     10.4        10.7        (2.4)
    CASM, excluding fuel expense and
     the special charge for labour
     restructuring (cents) (1)               10.4        10.7        (2.4)
    Average number of
     full-time equivalent
     (FTE) employees (thousands)             24.1        23.5         2.8
    Aircraft in operating fleet
     at period end (4)                        338         333         1.5
    Average fleet utilization
     (hours per day) (5)                     10.7        10.4         2.9
    Average aircraft flight
     length (miles) (5)                       911         920        (1.0)
    Fuel price per litre (cents) (6)         64.7        69.9        (7.4)
    Fuel litres (millions)                  1,102       1,085         1.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                                          YTD
    ($ millions, except per share figures)   2007        2006      Change $
    -------------------------------------------------------------------------

    Financial
    Operating revenues                      8,133       7,741         392
    Operating income                          361         119         242
    Operating income, excluding
     special charges (1)                      361         249         112
    Non-operating expenses                    (70)       (139)         69
    Income (loss) before non-controlling
     interest, foreign exchange
     and provision for income taxes           291         (20)        311
    Income for the period                     394          70         324
    Operating margin %                        4.4%        1.5%        2.9 pp
    Operating margin %,
     excluding special charges (1)            4.4%        3.2%        1.2 pp
    EBITDAR (2)                               989         735         254
    EBITDAR, excluding
     special charges (1) (2)                  989         865         124
    EBITDAR margin %                         12.2%        9.5%        2.7 pp
    EBITDAR margin %,
     excluding special charges (1)           12.2%       11.0%        1.2 pp
    Cash, cash equivalents and
     short-term investments                 1,502       1,422          80
    Cash flows from operating
     activities                               347         371         (24)
    Earnings per share -
     basic and diluted (3)                 $ 3.94      $ 0.79      $ 3.15
    -------------------------------------------------------------------------

                                                                   Change %
    -------------------------------------------------------------------------

    Operating Statistics
    Revenue passenger miles
     (millions) (RPM)                      39,183      37,833         3.6
    Available seat miles
     (millions) (ASM)                      48,099      46,740         4.7
    Passenger load factor                    81.5%       80.9%        0.6 pp
    Passenger revenue yield
     per RPM (cents)                         18.1        18.0         1.0
    Passenger revenue per ASM (cents)        14.8        14.5         1.7
    Operating revenue per ASM (cents)        16.9        16.6         2.1
    Operating expense per ASM
     ("CASM") (cents)                        16.2        16.3        (0.9)
    CASM, excluding fuel expense (cents)     12.1        12.1           -
    CASM, excluding fuel expense and
     the special charge for labour
     restructuring (cents) (1)               12.1        12.1         0.7
    Average number of
     full-time equivalent
     (FTE) employees (thousands)             23.9        23.7         0.9
    Aircraft in operating fleet
     at period end (4)                        338         333         1.5
    Average fleet utilization
     (hours per day) (5)                     10.0         9.6         4.2
    Average aircraft flight
     length (miles) (5)                       881         882        (0.1)
    Fuel price per litre (cents) (6)         65.0        67.0        (3.0)
    Fuel litres (millions)                  2,968       2,907         2.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) A special charge for labour restructuring of $28 million was recorded
        in the first quarter of 2006. The fourth quarter of 2006 includes a
        favourable adjustment of $8 million relating to the special charge
        for labour restructuring recorded in the first quarter of 2006. A
        special charge of $102 million was recorded to operating revenues in
        the third quarter of 2006 in connection with Air Canada's obligation
        for the redemption of pre-2002 Aeroplan miles.

    (2) See section 14 "Non-GAAP Financial Measures" of Air Canada's third
        quarter 2007 MD&A for a reconciliation of EBITDAR to operating
        income.

    (3) Earnings per share - basic and diluted are the consolidated Air
        Canada figures as reported under GAAP.

    (4) Operating fleet excludes chartered freighters in 2007 and 2006.
        Includes Jazz aircraft covered under the Jazz CPA.

    (5) Excludes third party carriers operating under capacity purchase
        arrangements other than Jazz aircraft covered under the Jazz CPA
        (which are included).

    (6) Includes fuel handling and fuel hedging expenses.


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