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Air Canada reports first quarter results
In accordance with Canadian GAAP Accounting Guideline No. 15, Air Canada
consolidates the financial statements of Jazz and certain leasing entities and
fuel facility corporations into its financial statements. Air Canada does not
have any ownership interest in Jazz. The financial statements of Air Canada
excluding Jazz are termed Air Canada Services. With a view to ensure greater
clarity, this press release highlights the performance of Air Canada Services
and Jazz separately.

    Air Canada Services
    -------------------

    2007 FIRST QUARTER OVERVIEW

    - Passenger revenues up $135 million or 7 per cent over the first quarter
      of 2006, driven by a 5 per cent growth in traffic on a capacity growth
      of 3 per cent and a 2 per cent yield improvement.
    - Passenger load factor at 80.2 per cent, a record load factor for the
      first quarter.
    - EBITDAR of $123 million in the quarter compared to EBITDAR (excluding
      special charges) of $102 million in the 2006 first quarter, an
      improvement of $21 million.
    - Operating loss of $78 million compared to an operating loss (excluding
      special charges) of $96 million in the first quarter of 2006, an
      improvement of $18 million.
    - Net loss of $34 million in the first quarter of 2007 compared to a net
      loss of $126 million in the 2006 quarter.MONTREAL, May 11 /CNW Telbec/ - Air Canada reported today its first
quarter results with the Air Canada Services segment recording an operating
loss of $78 million, an improvement of $18 million from the operating loss
(excluding first quarter 2006 special charges) of $96 million recorded in the
first quarter of 2006. Air Canada Services EBITDAR amounted to $123 million,
an improvement of $21 million from the same period in 2006, after removing
special charges of $28 million in the first quarter of 2006.
    Passenger revenues increased $135 million or 7 per cent over the first
quarter of 2006 due to traffic growth of 5 per cent reflecting stronger market
demand and a yield improvement of 2 per cent. Passenger revenue improvements
were reported in all markets. RASM rose 4 per cent compared to the first
quarter of 2006 due equally to a 1.5 percentage point improvement in passenger
load factor and the growth in yield.
    Unit cost, as measured by operating expense per ASM, increased 1 per cent
from the first quarter of 2006. Excluding fuel expense and the special charge
for labour restructuring of $28 million in 2006, unit cost increased 2 per
cent over the first quarter of 2006 and included the impact of arbitrated wage
increases, weather-related challenges during the first quarter of 2007,
increased aircraft maintenance expenses and other factors. While the one-time
impact of the weather will not carry forward, Air Canada expects the increases
in aircraft maintenance, materials and supplies expense to continue into the
second quarter as it expects to record additional costs associated with
satisfying customary conditions on aircraft leases scheduled to be returned to
lessors.
    The Air Canada Services segment recorded a net loss for the quarter of
$34 million compared to a net loss of $126 million in the first quarter of
2006. The net loss in the 2007 quarter included gains of $34 million relating
to fair value adjustments on certain derivative financial instruments and
gains on the revaluation of foreign currency monetary items of $33 million.
    "I am pleased to report a solid first quarter with encouraging year-over-
year performance during what is traditionally the industry's weakest period
for travel demand," said Montie Brewer, Air Canada's President and Chief
Executive Officer. "Performance in the domestic market, in particular,
excelled. In the quarter, domestic load factor increased 3.8 percentage points
on 2.2 per cent more capacity while passenger revenue grew 9 per cent and unit
revenue (RASM) grew 6 per cent over the previous year's first quarter.
Moreover, we are now seeing the tangible benefits of our fleet renewal with
markedly reduced Embraer trip costs." In the quarter, the Embraer E190 fleet
produced direct operating costs 20 per cent lower than the Airbus A319 fleet
on a per trip basis.
    "We continued to report record breaking load factors in the quarter, with
traffic outpacing capacity growth as we added new aircraft to the fleet. With
consumers increasingly choosing Air Canada's innovative fare products,
including subscription passes and à la carte pricing features, we have grown
our domestic capacity share by five percentage points over the past three
years."
    In the first quarter, domestic sales made directly with Air Canada,
online or through call centres, rose by 11 percentage points to 73 per cent of
sales in Canada. Overall distribution costs declined 11 per cent from the
previous year's quarter.
    "Customer reaction has been very positive as we renew the fleet with new
Embraer and Boeing aircraft, while the existing fleet undergoes major
refurbishment to provide customers with a streamlined on board product. In
March, we took delivery of our first Boeing 777-300 aircraft, now operating on
the Toronto-London route, and we plan to have a total of eight in our fleet by
the end of 2007. As we continue to take delivery of these fuel efficient
aircraft, we are removing older aircraft from the fleet to create one of the
youngest and most efficient fleets in the world." The per-seat cash operating
cost of the Boeing 777-300 aircraft is expected to be 14 per cent cheaper as
compared to the Airbus A340-300.
    In April, Air Canada exercised options and purchase rights for an
additional 23 Boeing 787 Dreamliners, bringing its order to 37 for this next-
generation widebody aircraft, the most of any airline in the Americas. Air
Canada expects that the per-seat cost of fuel and maintenance of the Boeing
787 aircraft will be approximately 30 per cent cheaper than the Boeing 767-300
aircraft they will replace. The Boeing 787 aircraft also feature better
operational performance in terms of speed and flight range and provide Air
Canada with the ability to serve new markets that could not be previously
served in an efficient manner. The fleet structure simplification is also
focused on reducing the number of aircraft types in order to reduce the costs
over time related to maintenance and pilot training. In addition, the Export-
Import Bank of the United States provided the carrier with a final commitment
for loan guarantees for seven Boeing 777 aircraft which will be delivered in
2007 and a preliminary commitment covering the remaining Boeing 777 aircraft
which will be delivered in 2008 and 14 Boeing 787 aircraft which will be
delivered in 2010 and 2011.
    "While fuel prices remain of concern, we continue to manage our exposure
to changes in fuel prices through our fuel hedging strategy." As of today, Air
Canada has hedged 38 per cent of its fuel requirements for the remainder of
the year, and 6 per cent of the first semester 2008 requirements. The value of
the airline's portfolio position was favourable by $31 million on April 30th.
    "Looking forward, the Canadian domestic market remains robust and we're
successfully managing exposure to a softening U.S. market through our ability
to shift capacity as required in order to meet growing demand in our domestic
and international networks. Furthermore, booking trends in the coming months
remain strong," said Mr. Brewer.

    Jazz
    ----

    As reported by Jazz on May 9, 2007, for the first quarter of 2007, the
Jazz segment recorded operating income of $36 million, an improvement of
$1 million from the operating income of $35 million recorded in the first
quarter of 2006. EBITDAR increased $5 million over the first quarter of 2006
mainly due to a 13 per cent increase in capacity.

    Air Canada Consolidated (including Jazz)
    ----------------------------------------

    On a consolidated basis, Air Canada reported an operating loss of
$42 million in the first quarter of 2007 compared to an operating loss of
$88 million in the first quarter of 2006. Net loss for the quarter amounted to
$34 million compared to a net loss of $126 million in the first quarter of
2006.Air Canada's strong revenue performance showed significant improvement as
evidenced by the following:
    - Traffic improved by 5 per cent with domestic, U.S. transborder and
      Atlantic traffic growing at 7, 6 and 5 per cent, respectively.
    - Capacity increased 3 per cent and was deployed to match demand with
      domestic, U.S. transborder and Atlantic capacity growing 2, 8 and
      2 per cent, respectively.
    - Yield grew at 2 per cent with domestic, Atlantic and Pacific yield
      growing at 1, 2 and 5 per cent, respectively.
    - Strong load factor at 80.2 per cent was unprecedented for the first
      quarter. Growth spurred at 1.5 percentage points with domestic and
      Atlantic load factors growing by 3.8 and 2 percentage points,
      respectively.

    First Quarter 2007 Air Canada Services Accomplishments
    ------------------------------------------------------

    - Recorded another three consecutive months of record load factors, for
      year-to-date load factor of 80.2 per cent.
    - Took delivery of the first Boeing 777-300, with a second joining the
      international fleet April 30th.
    - Introduced 4 Embraer E190 aircraft, of a total of 45 on order, joining
      18 E190 and 15 E175 aircraft already in service in the North American
      fleet.
    - 48.5 per cent of domestic consumers chose a branded fare higher than
      the everyday low Tango fare available, compared to 42 per cent in the
      previous year's quarter.
    - Continued to expand its line of multi-flight pass products, more than
      doubling pass sales revenue from the previous year's quarter.
    - Introduced the first flat fee subscription Flight Pass for sale in the
      United States, allowing for unlimited flights within a choice of
      geographical zones and periods of time.
    - Web penetration for domestic Canada sales in the first quarter was
      61.4 per cent. Web penetration for combined Canada and U.S. transborder
      sales was almost 50 per cent - an 11.3 percentage point increase over
      the previous year's quarter.
    - 73 per cent of domestic Canada sales for the first quarter were made
      directly with Air Canada, either online or through call centres.
    - Consolidated all U.S. flights in Toronto under the same roof as its
      domestic and international operations in Terminal One at Pearson
      Airport.
    - Awarded 2006 "Airline of the Year" by Airfinance Journal.
    - Received Air Transport World magazine's Airline Industry Achievement
      Award for Market Leadership.
    - Launched celebrations marking Air Canada's 70th anniversary year of
      service.

    (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 and
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.
    Operating income excluding special charges for labour restructuring is a
non-GAAP financial measure. Air Canada Services uses operating income
excluding the special charge for labour restructuring to assess the operating
performance of its ongoing business without the effects of these special
charges. These special charges are excluded from Air Canada Services' results
as they could potentially distort the analysis of trends in business
performance.
    Readers should refer to Air Canada's Quarter 1 2007 Management's
Discussion and Analysis (MD&A), which will be filed on SEDAR, for a
reconciliation of EBITDAR to operating income (loss) and for a reconciliation
of operating income (loss) excluding special charges for labour restructuring
to operating income (loss).
    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.

    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 to
Air Canada's 2006 Annual Management Discussion & Analysis dated February 14,
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                           Quarter 1   Quarter 1
                                              2007        2006
    -------------------------------------------------------------------------
    Air Canada Services (1)
    -------------------------------------------------------------------------
    Financial (Canadian dollars in
     millions unless stated otherwise)                            $ Change
    -------------------------------------------------------------------------
    Operating revenues                       2,534       2,394         140
    Operating loss                             (78)       (124)         46
    Operating loss, excluding special
     charges (3)                               (78)        (96)         18
    Non-operating income (expense)               8         (40)         48
    Loss before non-controlling interest,
     foreign exchange and recovery of
     income taxes                              (70)       (164)         94
    Loss for the period                        (34)       (126)         92
    Operating margin %                        (3.1)%      (5.2)%       2.1 pp
    Operating margin %, excluding
     special charges (3)                      (3.1)%      (4.0)%       0.9 pp
    EBITDAR (4)                                123          74          49
    EBITDAR, excluding special
     charges (3) (4)                           123         102          21
    EBITDAR margin %                           4.9%        3.1%        1.8 pp
    Cash, cash equivalents and
     short-term investments                  1,969       1,622         347
    Cash flows from operating
     activities                                207         291         (84)
    -------------------------------------------------------------------------

    Operating Statistics                                          % Change
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Revenue passenger miles
     (millions)(RPM)                        11,814      11,240           5
    Available seat miles
     (millions)(ASM)                        14,735      14,287           3
    Passenger load factor                    80.2%        78.7%        1.5 pp
    Passenger revenue yield per
     RPM (cents)                             18.0         17.8           2
    Passenger revenue per ASM (cents)        14.5         14.0           4
    Operating revenue per ASM (cents)        17.2         16.8           3
    Operating expense per ASM (cents)        17.7         17.6           1
    Operating expense per ASM,
     excluding fuel expense (cents)          13.8         13.6           1
    Operating expense per ASM,
     excluding fuel expense and
     the special charge for labour
     restructuring (cents) (3)(5)            13.8         13.5           2
    Average number of full-time
     equivalent (FTE) employees
     (thousands)                             23.4         23.9          (2)
    Aircraft in operating fleet
     at period end (6)                        332          326           2
    Average aircraft utilization
     (hours per day) (7) (8)                 10.8         10.1           7
    Average aircraft flight length
     (miles) (8)                              875          860           2
    Fuel price per litre  (cents) (9)        62.9         63.5          (1)
    Fuel litres  (millions)                   925          890           4
    -------------------------------------------------------------------------

    Air Canada Combined Consolidated (2)
    -------------------------------------------------------------------------
    Financial (Canadian dollars in
     millions unless stated otherwise)                            $ Change
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Operating revenues                       2,510      2,376          134
    Operating loss                             (42)       (88)          46
    Operating loss, excluding
     special charges (3)                       (42)       (60)          18
    Loss for the period                        (34)      (126)          92
    Operating margin %                        (1.7)%     (3.7)%        2.0 pp
    Cash, cash equivalents and
     short-term investments                  2,101      1,708          393
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    ---------------------------------
     (1) In accordance with Canadian GAAP ACG-15, Air Canada is required to
         consolidate the financial statements of Jazz Air LP ("Jazz"),
         certain leasing entities and fuel facility corporations into
         its financial statements. Air Canada does not have any ownership
         interest in Jazz.  The financial statements of Air Canada, the
         mainline airline, are termed "Air Canada Services".
     (2) Air Canada's combined consolidated results include the financial
         position, results of operations and cash flows of the various
         components and entities (including Jazz) as described in Note 1
         to Air Canada's 2006 combined consolidated financial statements. Air
         Canada has two business segments:  Air Canada Services and Jazz.
         Refer to section 1 of Air Canada's Quarter 1 2007 Management
         Discussion and Analysis of Results ("MD&A").
     (3) A special charge for labour restructuring of $28 million was
         recorded in Quarter 1 2006. In Quarter 4 2006, the charge was
         reduced by $8 million to $20 million due to the favourable impact of
         attrition and other factors.
     (4) EBITDAR (earnings before interest, taxes, depreciation, amortization
         and obsolescence and aircraft rent) is a non-GAAP financial measure
         commonly used in the airline industry to view operating results
         before aircraft rent and 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 likely to be comparable to similar measures
         presented by other public companies.


         EBITDAR is reconciled to operating loss as follows:
         ($millions)
                                          Quarter 1 2007      Quarter 1 2006
                                       --------------------------------------
         Operating loss                              (78)               (124)
         Add back:
           Aircraft rent                              73                  83
           Depreciation,
            amortization & obsolescence              128                 115
                                       --------------------------------------
         EBITDAR                                     123                  74
                                       --------------------------------------
         Add back:
           Special charge for labour
            restructuring (3)                          -                  28
                                       --------------------------------------
         EBITDAR, excluding special
          charges                                    123                 102
                                       --------------------------------------
                                       --------------------------------------

     (5) Operating expense per available seat mile, before fuel expense and
         the special charge for labour restructuring, is calculated as
         operating expense, removing fuel expense and the special charge
         for labour restructuring, divided by ASMs.  Refer to section 14
         "Non-GAAP Financial Measures" of Air Canada's Quarter 1 2007 MD&A
         for additional information.
     (6) Operating fleet excludes chartered freighters in 2007 and 2006.
     (7) Excludes maintenance down-time.
     (8) Excludes third party carriers operating under capacity purchase
         arrangements.
     (9) Includes fuel handling and fuel hedging expenses.%SEDAR: 00024384EF



For further information:
For further information: Isabelle Arthur (Montréal), (514) 422-5788;
Peter Fitzpatrick (Toronto), (416) 263-5576; Angela Mah (Vancouver), (604)
270-5741; Internet: aircanada.com