Air Canada Reports Record Full Year 2015 Results
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Air Canada Reports Record Full Year 2015 Results
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Taken from the Canada News Wire
Record adjusted net income(1) of $1.222 billion or $4.18 per diluted share in 2015 versus record 2014 adjusted net income of $531 million or $1.81 per diluted share (an increase of $691 million, 130.1 per cent or $2.37 per diluted share versus the 2014 record)
Record operating income of $1.496 billion in 2015, an increase of $681 million or 83.6 per cent from the 2014 record
Record EBITDAR margin(1) of 18.3 per cent, exceeding 2014 by 5.7 percentage points and surpassing the 2015 Investor Day target
Return on Invested Capital(1) of 18.3 per cent in 2015, exceeding 2014 ROIC by 6.2 percentage points and surpassing the 2015 Investor Day target
MONTRÉAL, Feb. 17, 2016 /CNW Telbec/ - Air Canada today reported record full year adjusted net income(1) 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(1) (earnings before interest, taxes, depreciation, amortization and aircraft rent) amounted to $2.534 billion compared to EBITDAR of $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.
Full year Income Statement Highlights
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 (consistent with the anticipated yield impact stemming from the successful implementation of the airline's strategic plans) 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(1), 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.
Fourth Quarter Income Statement Highlights
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.
Financial and Capital Management Highlights
At December 31, 2015, unrestricted liquidity (cash, short-term investments and undrawn lines of credit) amounted to $2.968 billion (December 31, 2014 – $2.685 billion).
Adjusted net debt amounted to $6.291 billion at December 31, 2015, an increase of $1.159 billion from December 31, 2014 due to higher long-term debt and finance lease balances (including current portion) partly offset by higher cash balances. The increase in long-term debt and finance lease balances year-over-year was largely due to the unfavourable impact of a weaker Canadian dollar on foreign currency denominated debt and to the financing of aircraft purchases. The airline's adjusted net debt to EBITDAR ratio was 2.5 at December 31, 2015 versus a ratio of 3.1 at December 31, 2014.
In 2015, net cash flows from operating activities totaled $2.012 billion, an improvement of $1.058 billion from 2014. Free cash flow(1) of $197 million improved $744 million when compared to 2014, driven by higher cash flows from operating activities partly offset by higher capital expenditures. Air Canada took delivery of two Boeing 787 aircraft in the fourth quarter of 2015 (a total of six Boeing 787 aircraft in 2015).
For the 12 months ended December 31, 2015, return on invested capital (ROIC(1)) was 18.3 per cent versus 12.1 per cent for the 12 months ended December 31, 2014, higher than the ROIC of 13 to 16 percent projected in Air Canada's news release dated June 2, 2015.
Fleet Flexibility
Air Canada's fleet renewal program includes Boeing 787 aircraft as well as Boeing 737 MAX aircraft (with deferral rights). By mid-2016, Air Canada will also own outright 22 older wide-body and narrow-body aircraft (B767, A330, A319). In addition, the leases for 18 narrow-body aircraft expire later in 2016 and 2017. Together, these aircraft provide the airline with tremendous flexibility to implement its strategic plans and to adjust aircraft and capacity to better match passenger demand.
Right to Vote on the Remuneration of Executives
Air Canada recently changed its Advisory Vote on Executive Compensation ("Say on Pay") policy to allow shareholders to provide their views on the Corporation's approach to executive compensation on an annual basis rather than on a bi-annual basis, commencing with the Annual Meeting of Shareholders to be held on May 10, 2016 in Halifax. Air Canada is committed to demonstrating leadership in evolving governance issues including executive compensation as well as providing shareholders with clear, comprehensive and transparent disclosure relating to executive compensation and to receive feedback from shareholders on this matter.
Current Outlook
Reconfirming Three Key Financial Targets
At Air Canada's June 2015 Investor Day, the Corporation established three key financial targets which are being reconfirmed today:
Annual EBITDAR(1) margin of 15-18 per cent over the term of 2016-2018 (following on the achievement of an 18.3 per cent EBITDAR margin for 2015)
Year-over-year ROIC(1) of 13-16 per cent over the term of 2016-2018 (following on the achievement of an 18.3 per cent year-over-year ROIC for 2015)
A leverage ratio(1) not exceeding 2.2 by 2018 (measured by adjusted net debt over normalized EBITDAR)
In addition, Air Canada remains committed to reducing its unit cost and is on track to realizing CASM savings (excluding the impact of foreign exchange and fuel prices) of 21 per cent by the end of 2018 when compared to 2012.
Quarterly Reporting/Change to Guidance Practices
To better align Air Canada's reporting with the above-noted key financial targets, Air Canada will report on its progress against these targets on a quarterly basis at the same time as it provides actual traffic and capacity results for the quarter in its comprehensive quarterly and annual financial disclosures. Air Canada will no longer provide monthly traffic information nor will it provide forward-looking quarterly and annual capacity guidance as it believes that such information and guidance, without the context of a full quarterly review of other key financial metrics, risks distorting the proper understanding of Air Canada's progress against its key financial targets and long range plan.
Adjusted CASM
For the first quarter of 2016, Air Canada expects adjusted CASM (which excludes fuel expense, the cost of ground packages at Air Canada Vacations and special items) to increase between 7.0 to 8.0 per cent when compared to the first quarter of 2015, of which 3.5 to 4.5 per cent is estimated to result from a weaker Canadian dollar versus the U.S. dollar relative to the first quarter of 2015. The remaining increase is largely due to Boeing 777 aircraft being removed from operations for conversion into more competitive configurations, as previously announced, in support of Air Canada's business strategy.
For the full year 2016, Air Canada projects adjusted CASM to vary between ± 0.5 per cent from the full year 2015. If the value of the Canadian dollar were at 2015 levels, adjusted CASM for the full year 2016 versus the full year 2015 would be projected to decrease 2.0 to 3.0 per cent.
Major Assumptions
Air Canada assumes relatively low to modest Canadian GDP growth for the period 2016 to 2018. Air Canada also assumes a continuing relationship between the price of jet fuel and the value of the Canadian dollar whereby declines in the cost of fuel continue to be associated with decreases in the value of the Canadian dollar.
Air Canada expects that the Canadian dollar will trade, on average, at C$1.41 per U.S. dollar for the first quarter and for the full year of 2016 and that the price of jet fuel will average 50 cents per litre for the first quarter of 2016 and 52 cents per litre for the full year 2016.
For the full year 2016, Air Canada also expects:
Depreciation, amortization and impairment expense to increase by $150 million from the full year 2015. This increase is mainly due to new deliveries of Boeing 787 and 777 aircraft, as well as the Boeing 777 fleet reconfiguration program.
Employee benefits expense to increase $35 million from the full year 2015. This increase is mainly due to changes in discount rate assumptions related to pension and post-employment benefits.
Aircraft maintenance expense to increase $250 million from the full year 2015, of which approximately $100 million is estimated to be due to the weaker Canadian dollar when compared to the U.S. dollar. The remaining increase is mainly due to higher end-of-lease maintenance provisions, which is due to fewer lease extensions in 2016 versus 2015 and to the impact of a higher number of operating leases; and an increase in maintenance expense due to Boeing 787 aircraft flying under power-by-the-hour arrangements.
Taken from the Canada News Wire
Record adjusted net income(1) of $1.222 billion or $4.18 per diluted share in 2015 versus record 2014 adjusted net income of $531 million or $1.81 per diluted share (an increase of $691 million, 130.1 per cent or $2.37 per diluted share versus the 2014 record)
Record operating income of $1.496 billion in 2015, an increase of $681 million or 83.6 per cent from the 2014 record
Record EBITDAR margin(1) of 18.3 per cent, exceeding 2014 by 5.7 percentage points and surpassing the 2015 Investor Day target
Return on Invested Capital(1) of 18.3 per cent in 2015, exceeding 2014 ROIC by 6.2 percentage points and surpassing the 2015 Investor Day target
MONTRÉAL, Feb. 17, 2016 /CNW Telbec/ - Air Canada today reported record full year adjusted net income(1) 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(1) (earnings before interest, taxes, depreciation, amortization and aircraft rent) amounted to $2.534 billion compared to EBITDAR of $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.
Full year Income Statement Highlights
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 (consistent with the anticipated yield impact stemming from the successful implementation of the airline's strategic plans) 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(1), 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.
Fourth Quarter Income Statement Highlights
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.
Financial and Capital Management Highlights
At December 31, 2015, unrestricted liquidity (cash, short-term investments and undrawn lines of credit) amounted to $2.968 billion (December 31, 2014 – $2.685 billion).
Adjusted net debt amounted to $6.291 billion at December 31, 2015, an increase of $1.159 billion from December 31, 2014 due to higher long-term debt and finance lease balances (including current portion) partly offset by higher cash balances. The increase in long-term debt and finance lease balances year-over-year was largely due to the unfavourable impact of a weaker Canadian dollar on foreign currency denominated debt and to the financing of aircraft purchases. The airline's adjusted net debt to EBITDAR ratio was 2.5 at December 31, 2015 versus a ratio of 3.1 at December 31, 2014.
In 2015, net cash flows from operating activities totaled $2.012 billion, an improvement of $1.058 billion from 2014. Free cash flow(1) of $197 million improved $744 million when compared to 2014, driven by higher cash flows from operating activities partly offset by higher capital expenditures. Air Canada took delivery of two Boeing 787 aircraft in the fourth quarter of 2015 (a total of six Boeing 787 aircraft in 2015).
For the 12 months ended December 31, 2015, return on invested capital (ROIC(1)) was 18.3 per cent versus 12.1 per cent for the 12 months ended December 31, 2014, higher than the ROIC of 13 to 16 percent projected in Air Canada's news release dated June 2, 2015.
Fleet Flexibility
Air Canada's fleet renewal program includes Boeing 787 aircraft as well as Boeing 737 MAX aircraft (with deferral rights). By mid-2016, Air Canada will also own outright 22 older wide-body and narrow-body aircraft (B767, A330, A319). In addition, the leases for 18 narrow-body aircraft expire later in 2016 and 2017. Together, these aircraft provide the airline with tremendous flexibility to implement its strategic plans and to adjust aircraft and capacity to better match passenger demand.
Right to Vote on the Remuneration of Executives
Air Canada recently changed its Advisory Vote on Executive Compensation ("Say on Pay") policy to allow shareholders to provide their views on the Corporation's approach to executive compensation on an annual basis rather than on a bi-annual basis, commencing with the Annual Meeting of Shareholders to be held on May 10, 2016 in Halifax. Air Canada is committed to demonstrating leadership in evolving governance issues including executive compensation as well as providing shareholders with clear, comprehensive and transparent disclosure relating to executive compensation and to receive feedback from shareholders on this matter.
Current Outlook
Reconfirming Three Key Financial Targets
At Air Canada's June 2015 Investor Day, the Corporation established three key financial targets which are being reconfirmed today:
Annual EBITDAR(1) margin of 15-18 per cent over the term of 2016-2018 (following on the achievement of an 18.3 per cent EBITDAR margin for 2015)
Year-over-year ROIC(1) of 13-16 per cent over the term of 2016-2018 (following on the achievement of an 18.3 per cent year-over-year ROIC for 2015)
A leverage ratio(1) not exceeding 2.2 by 2018 (measured by adjusted net debt over normalized EBITDAR)
In addition, Air Canada remains committed to reducing its unit cost and is on track to realizing CASM savings (excluding the impact of foreign exchange and fuel prices) of 21 per cent by the end of 2018 when compared to 2012.
Quarterly Reporting/Change to Guidance Practices
To better align Air Canada's reporting with the above-noted key financial targets, Air Canada will report on its progress against these targets on a quarterly basis at the same time as it provides actual traffic and capacity results for the quarter in its comprehensive quarterly and annual financial disclosures. Air Canada will no longer provide monthly traffic information nor will it provide forward-looking quarterly and annual capacity guidance as it believes that such information and guidance, without the context of a full quarterly review of other key financial metrics, risks distorting the proper understanding of Air Canada's progress against its key financial targets and long range plan.
Adjusted CASM
For the first quarter of 2016, Air Canada expects adjusted CASM (which excludes fuel expense, the cost of ground packages at Air Canada Vacations and special items) to increase between 7.0 to 8.0 per cent when compared to the first quarter of 2015, of which 3.5 to 4.5 per cent is estimated to result from a weaker Canadian dollar versus the U.S. dollar relative to the first quarter of 2015. The remaining increase is largely due to Boeing 777 aircraft being removed from operations for conversion into more competitive configurations, as previously announced, in support of Air Canada's business strategy.
For the full year 2016, Air Canada projects adjusted CASM to vary between ± 0.5 per cent from the full year 2015. If the value of the Canadian dollar were at 2015 levels, adjusted CASM for the full year 2016 versus the full year 2015 would be projected to decrease 2.0 to 3.0 per cent.
Major Assumptions
Air Canada assumes relatively low to modest Canadian GDP growth for the period 2016 to 2018. Air Canada also assumes a continuing relationship between the price of jet fuel and the value of the Canadian dollar whereby declines in the cost of fuel continue to be associated with decreases in the value of the Canadian dollar.
Air Canada expects that the Canadian dollar will trade, on average, at C$1.41 per U.S. dollar for the first quarter and for the full year of 2016 and that the price of jet fuel will average 50 cents per litre for the first quarter of 2016 and 52 cents per litre for the full year 2016.
For the full year 2016, Air Canada also expects:
Depreciation, amortization and impairment expense to increase by $150 million from the full year 2015. This increase is mainly due to new deliveries of Boeing 787 and 777 aircraft, as well as the Boeing 777 fleet reconfiguration program.
Employee benefits expense to increase $35 million from the full year 2015. This increase is mainly due to changes in discount rate assumptions related to pension and post-employment benefits.
Aircraft maintenance expense to increase $250 million from the full year 2015, of which approximately $100 million is estimated to be due to the weaker Canadian dollar when compared to the U.S. dollar. The remaining increase is mainly due to higher end-of-lease maintenance provisions, which is due to fewer lease extensions in 2016 versus 2015 and to the impact of a higher number of operating leases; and an increase in maintenance expense due to Boeing 787 aircraft flying under power-by-the-hour arrangements.
