Air Canada has reported record full year adjusted net income of $1.222 billion or $4.18 per diluted share compared to record adjusted net income of $531 million or $1.81 per diluted share in 2014, an improvement of $691 million or $2.37 per diluted share. EBITDAR was $2.534 billion compared to $1.671 billion in 2014, an improvement of $863 million or 51.6 per cent.
On a GAAP basis, Air Canada reported operating income of $1.496 billion in 2015, an increase of $681 million or 83.6 per cent from 2014. The airline reported net income of $308 million or $1.03 per diluted share in 2015 compared to net income of $105 million or $0.34 per diluted share in 2014.
"In 2015, we achieved the best financial results in Air Canada's history for a second year in a row, by a substantial margin, underscoring the effectiveness of our business strategy and enhanced competitive position. Our results reflect the significant progress being achieved through our various value-enhancing initiatives, including fleet modernization, international expansion, the roll-out of rouge and our network diversification," said Calin Rovinescu, President and Chief Executive Officer.
"As I have said previously, our plan is not dependent on fuel prices staying at current levels, and the transformative changes we've made in recent years provide us with a cost structure, fleet and flexibility to respond, as we did in 2015, to competitive market conditions, fluctuations in the Canadian dollar and to economic weakness. Moreover, we have a proven track record of proactively managing and allocating capacity to meet demand, as we did last year upon seeing signs of weakness in Western Canada; and we will continue to adjust capacity to maximize profitability.
"Looking forward, we are committed to maintaining the strong momentum that we achieved in 2015 and we remain firmly on track to execute on all of our key objectives. We are therefore reconfirming today the three key financial targets established at our June 2015 Investor Day: namely an annual EBITDAR margin of 15 to 18 per cent from 2015 to 2018; a year-over-year return on invested capital of 13 to 16 percent from 2015 to 2018; and reducing our leverage ratio(1) to 2.2 or less by 2018. These metrics are the main financial indicators we use to measure the continuing success of our long range plan which is focused on margin expansion and sustained profitability. In addition, we remain committed to reducing our unit costs and are on track to realizing CASM savings of 21 per cent, excluding the impact of foreign exchange and fuel prices, by the end of 2018 when compared to 2012.
"We've transformed and created a solid financial framework for our airline. We have remarkable employees who are rising to the challenge and I would like to thank and acknowledge their dedication and efforts to deliver exceptional customer service and an excellent financial performance in 2015," concluded Mr. Rovinescu.
In 2015, system passenger revenues of $12.420 billion increased $616 million or 5.2 per cent from 2014. Traffic growth of 9.6 per cent reflected traffic increases in all of Air Canada's five geographic markets. A yield decline of 4.6 per cent reflected an increase in average stage length of 3.2 per cent, which had the effect of reducing system yield by 1.8 percentage points, a higher proportional growth of lower-yielding international-to-international passenger flows supporting the airline's international expansion strategy and higher EBITDAR margins, a higher proportion of seats into long-haul leisure markets and a reduction in carrier surcharges relating to lower fuel prices, particularly where carrier surcharges are regulated. Passenger revenue per available seat mile (PRASM) decreased 4.4 per cent on the lower yield, which was more than offset by the 9.3 per cent CASM decline discussed below.
In 2015, operating expenses of $12.372 billion decreased $85 million or 1 per cent from 2014. This decrease was mainly due to lower aircraft fuel expense of $924 million, largely offset by the impact of a 9.4 per cent growth in capacity and the unfavourable impact of a weaker Canadian dollar on foreign currency denominated non-fuel operating expenses of $326 million. Special items increased operating expenses by $8 million in 2015 while special items reduced operating expenses by $11 million in 2014.
Air Canada's cost per available seat mile (CASM) decreased 9.3 per cent from 2014. The airline's adjusted CASM, which excludes fuel expense, the cost of ground packages at Air Canada Vacations and special items, decreased 0.2 per cent from 2014, in line with the decrease of up to 1.0 per cent projected in Air Canada's news release dated November 5, 2015. Had the Canadian-U.S. dollar exchange rate remained at the 2014 level, adjusted CASM would have decreased 3.6 per cent when compared to 2014.
In 2015, Air Canada recorded EBITDAR of $2.534 billion versus EBITDAR of $1.671 billion in 2014, an increase of $863 million.
In the fourth quarter of 2015, system passenger revenues of $2.836 billion increased $81 million or 3.0 per cent from the fourth quarter of 2014. Traffic growth of 8.6 per cent reflected traffic increases in all of Air Canada's five geographic markets. A yield decline of 5.5 per cent, consistent with the anticipated yield impact stemming from the successful implementation of the airline's strategic plan, reflected an increase in average stage length of 2.6 per cent, which alone had the effect of reducing system yield by 1.5 percentage points. PRASM decreased 5.3 per cent on the lower yield, which was more than offset by a 7.0 per cent CASM decline discussed below.
In the fourth quarter of 2015, operating expenses of $3.024 billion increased $26 million or 1 per cent from the fourth quarter of 2014. This increase was mainly due to the impact of an 8.4 per cent growth in capacity and the unfavourable impact of a weaker Canadian dollar on foreign currency denominated non-fuel operating expenses of $105 million, largely offset by lower aircraft fuel expense of $183 million. In the fourth quarters of 2015 and 2014, special items increased operating expenses by $31 million and $30 million, respectively.
CASM decreased 7.0 per cent from the fourth quarter of 2014. Adjusted CASM increased 0.8 per cent from the fourth quarter of 2014, in line with the increase of up to 1.0 per cent projected in Air Canada's news release dated November 5, 2015. Had the Canadian-U.S. dollar exchange rate remained at the fourth quarter 2014 level, adjusted CASM would have decreased 3.5 per cent when compared to the fourth quarter of 2014.
Excluding special items in both periods, EBITDAR amounted to $456 million in the fourth quarter of 2015 versus EBITDAR of $349 million in the fourth quarter of 2014, an improvement of $107 million. Excluding special items, EBITDAR margin was 14.3 per cent in the fourth quarter of 2015 versus 11.2 per cent in the fourth quarter of 2014, an improvement of 3.1 percentage points. Including special items, EBITDAR amounted to $425 million in the fourth quarter of 2015 compared to EBITDAR of $319 million in fourth quarter of 2014.
In the fourth quarter of 2015, taking into account the special items for both periods, Air Canada recorded operating income of $158 million in the fourth quarter of 2015 compared to operating income of $106 million in the fourth quarter of 2014, an increase of $52 million or 49.1 per cent. Air Canada recorded an operating margin of 5.0 per cent in the fourth quarter of 2015 compared to an operating margin of 3.4 per cent in the fourth quarter of 2014, an improvement of 1.6 percentage points.
For the fourth quarter of 2015, adjusted net income of $116 million or $0.40 per diluted share increased $49 million or $0.17 per diluted share from the same quarter of 2014.