Financial News

Aeroplan cardholders can once again cash in their reward points online following a three-day outage of the loyalty program’s website, but the meltdown has raised questions about the fortitude of the back-end systems that hold reams of data on Aeroplan members.

A spokesperson for the loyalty program, which has about five million active members, said yesterday the website is back up and running after "routine maintenance" caused a major system failure that lasted from Friday to Sunday night.

JoAnne Hayes said members weren’t able to use the site to access their accounts or redeem miles for rewards, but were able to contact call centres.

"Our top priority was to ensure that our data integrity was safeguarded, and that our systems were fully restored," Hayes said. "We took the time necessary to conduct thorough testing to make sure that, once back up, our systems would run smoothly."

Formerly Air Canada’s frequent-flyer program, Aeroplan sells "Miles" to a range of partner companies. Members "earn" points by purchasing goods and services from the loyalty program’s partners and then redeem them for everything from flights to home electronics quick payday. As a result, Aeroplan collects a significant amount of data about its members’ shopping habits, which can be analyzed and offered back to retailers to improve their marketing and sales.

However, Aeroplan stressed that members’ personal information was never put at risk.

At least one observer questioned whether the company had invested sufficiently in technology to back up its operations.

"This kind of outage, given the severity and length, is clearly unacceptable in any modern business," said Carmi Levy, the senior vice-president of strategic consulting for AR Communications Inc.

He said that’s particularly the case when you’re supporting a customer base that includes a large number of high-income earners and other time-pressed business people who are on the road and might need access to the website to book flights or other rewards.

Aeroplan claims that more than 80 per cent of its members earn in excess of $100,000 per year.

Air Canada parent ACE Aviation Holdings Inc. spun off Aeroplan as an income trust in June 2005.

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For a moment early this month it looked as if air travelers were in line for a reward for enduring a steady rise in fares, driven mostly by soaring fuel costs. WestJet Airlines Ltd. said it was converting its overhead luggage compartments into beds.

"By offering our existing overhead bins as sleeper cabins," the Calgary-based airline said in a press release, "guests will have the opportunity to lie down for a period of time and arrive at their destination refreshed, rested and ready to go."

Advertised price: just $12.

Date of press release: April 1.

Arggh. If only it were true.

Both WestJet and rival Air Canada have reason to indulge passengers with genuine treats rather than pull their legs on April Fools’ Day. Air Canada could at least waive its $2 fee for pillows and blankies. For in stark contrast to a troubled U.S. industry, both Canadian carriers have been posting respectable profits and robust traffic numbers despite repeated fare hikes to cover the near doubling in jet fuel costs in the past year.

"A traffic recession has not yet been evident in Canada and may not even occur (at least until the lucrative summer months have passed)," Ben Cherniavsky, airline analyst at Raymond James Ltd. wrote in a recent note to clients. "Our belief is that the increased airfares we’re seeing in the market will be sufficient to offset the higher cost of fuel."

The cozy Air Canada-WestJet duopoly, which accounts for about 93 per cent of domestic air travel, makes Canada an oasis of profitability in a global industry in turmoil, notably in the U.S., where four discount carriers have filed for bankruptcy in recent weeks.

The International Air Transport Association (IATA), the global industry’s trade group, this month lowered its forecast of total profits for major world airlines in 2008 to $4.5 billion (all figures U.S.), from an original $7.8 billion last fall when oil prices were lower and prospects of a severe U.S. recession were much slimmer than today.

And that’s the optimistic view. After a brief respite of back-to-back annual profits following several years of fiscal misery after the 9/11 terrorist attacks and the dot-com and tech-stock collapse, analyst Michael Linenberg of Merrill Lynch & Co. expects the industry to end up spilling $1.9 billion in red ink this year.

That worst-case scenario might have more credence, given that:

Planned merger partners Delta Air Lines Inc. and Northwest Airlines Corp. last week posted a combined Q1 loss of $10.5 billion.

American Airlines parent AMR Corp. warned of a possible annual loss after reporting a first-quarter deficit of $328 million, blaming a 45 per cent hike in fuel costs.

And US Airways Group Inc. last week posted a $236 million loss.

Discounter Southwest Airlines Co. alone managed a slender profit in the quarter, benefiting from its industry-leading fuel-hedging program.

Just when air travelers might have thought conditions can’t get worse, they must now brace for fuel surcharges by U.S. airlines on European flights this summer that will be 10 per cent higher than last year. And on the cost-cutting side, large U.S. and European carriers are taking planes out of service, despite growing demand in some regions, which means they will be cramming more passengers on to fewer planes.

Layoffs and wage "givebacks" are sweeping the industry, so travelers can expect continued, if not accentuated, surliness from boarding personnel and flight attendants. Airlines are stretching their imagination in search of new revenue sources. Many U.S. carriers have hit on charging a $50 roundtrip fee for checking a second piece of baggage. Air Canada now offers an insurance policy – at $25 for a short flight and $35 for long-haul trips – that covers alternative-flight booking assistance, meals and hotels for passengers stranded by a delayed or cancelled flight creditreports. Many travelers assume these "amenities" are still free. The U.K. Financial Times wonders if observers will now dub Air Canada the "world’s stingiest airline."

Conditions are set to worsen in the medium term if the proposed Delta-Northwest pairing wins regulatory approval and kicks off a new round of industry consolidation. In order to make financial sense, this deal to create the world’s largest airline will require deep cuts in service.

Indeed, that is the chief legacy of airline mergers, apart from demoralizing culture clashes and combined fleets with, in this case, nine different airplane types to maintain. Invariably, the merged airline resulting from a takeover eventually shrinks to about two-thirds the size of the combined operations of the original carriers, reducing consumer choice as money-losing and marginally profitable flights and routes are dropped.

The most recent merger, of US Airways and America West Holdings Corp. in 2005, has been marred by an increase in delayed flights and lost baggage, and has not insulated the combined airline from the vagaries of the industry. Yet the architect of the deal, now CEO of the combined US Airways, said recently that after imposing layoffs, service cuts and other economies, the industry has "run out of ideas" save for mergers.

So United Airlines parent UAL Corp. and AMR have their takeover sights set on Continental Airlines Inc., while US Airways is now a consolidation target for larger carriers. Consolidation is encouraged by IATA chief Giovanni Bisignani, now lobbying governments to lift restrictions on foreign ownership of national airlines.

"A fragmented industry of over 1,000 players is generating net profit margins around 1 per cent – in a good year," he said recently. "There is no secure long-term future for an industry that is constantly on the verge of intensive care."

That may be so, but the industry wasn’t in a constant state of jeopardy before it was deregulated in the U.S. in the late 1970s, nor in Europe and Asia, where until recent years flagship carriers were government-owned. Air Canada’s history as a private company is one of declining service standards, ill-conceived mergers, chronic losses, a stay in bankruptcy protection and the destruction of shareholder value.

There’s no turning back to either of those flawed models, though, by which the industry avoided the periodic chaos that now characterizes it, but which also restricted competition and kept fares artificially high. Yet a dramatically new model needs to be developed, possibly a hybrid of earlier ones with current practice.

The industry has lacked sustainable viability since its inception. The $67.3 billion market capitalization of McDonald’s Corp. – an enterprise, whatever its other merits, that no one would describe as an essential-service provider – is more than three times that of the seven major U.S. airlines combined.

If only mergers were a panacea. Most of the major U.S. carriers are the product of multiple mergers, and still they are an investor’s nightmare. That they would now seek refuge in yet another round of mergers only proves that the earlier ones failed, and offers scant hope that future combinations will bring stability. On the face of it, merging Delta and Northwest, each of them recently emerged from bankruptcy protection, appears to be the yoking of two troubled enterprises to create a larger troubled company. Or, as Sam Goldwyn had it, you can’t save a lousy picture with a bigger screen. It just becomes a lousier picture.

"There is no history of anything good that happens in mergers," U.S. airline analyst Adam Pilarski of Avitas Inc. told the Wall Street Journal this month. "Two drunks holding each other up is not a good idea."

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Shares in mining companies active in Ecuador mostly perked up yesterday after executives conferred with President Rafael Correa and said he assured them that "responsible" mining will be allowed in the South American country.

The companies said they were told the purpose of an unnerving new mining mandate passed last week, suspending industry activity for six months, is to enable the government to get organized and pass new mining laws.

The meeting was attended by executives of Corriente Resources Inc., Aurelian Resources Inc., Cornerstone Capital Resources Inc., Dynasty Metals & Mining Inc., Ecometals Ltd., Iamgold Corp., International Minerals Corp. and Salazar Resources Ltd. Shares in Corriente, for example, which has spent $80 million on Ecuadorian copper exploration and development, rose 62 cents, or 19 per cent, to close at $3.85 on the Toronto Stock Exchange yesterday.

The price was still down substantially from last week.

Corriente closed at $5.50 before investors fled from the action of the Ecuadorian constitutional assembly.

Shares in miners exposed to Ecuador were heavily sold down earlier this week amid fears the companies would lose their property rights under the administration of the populist president who took office in January 2007.

"The companies welcomed President Correa’s repeated statements that responsible mining will go ahead in Ecuador," according to corporate statements issued yesterday.

"He said that the purpose of the mining mandate was to allow the government time to draft and implement a new mining law so that responsible mining can proceed freecreditreport. The president invited the mining companies to meet with the ministry (on Monday) to help formulate the new mining law … "

The companies said Canada’s ambassador to Ecuador, Christian LaPointe, accompanied their executives to Thursday’s meeting and presented Ottawa’s concerns about a fair and stable investment environment.

The Canadian Press

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Celestica Inc. shares shot up 26 per cent to their highest price in more than a year today after the contract manufacturer reported a first-quarter profit that beat analyst expectations and said it is "cautiously optimistic" about 2008 despite the U.S slowdown.

"Our demand outlook for the next three months is in line with our previous outlooks," CEO Craig Muhlhauser said in an interview following the company's annual meeting in Toronto.

"We haven't seen any material changes to the demand outlook."

Furthermore, the company's restructuring plan, to be completed by mid-2009, is working and operating margins are improving, said Muhlhauser.

For the past several years the company has undergone a series of significant restructurings, cutting thousands of jobs in the United States, Canada and Western Europe while adding employees in other areas of the world to get its capacity in line with its business strategy and the markets.

The company now "has the most simplified network in the industry which gives us the advantage of having more flexibility and the ability to deal with the amount of turbulence in markets" beset by a worldwide credit crisis, said Muhlhauser.

Celestica's (TSX: CLS) operating margins in the first quarter were 2.7 per cent up from 1.7 per cent in the same quarter in 2007, Paul Nicoletti, the company's CFO, said during the interview.

That's "versus our goals of short term operating margins of three per cent to 3.5 per cent," he said. "That's where we are targeting to achieve for the second half of the year."

Muhlhauser predicted that "as a result of .. pay day loan. the implementation of our lean operating system you will continue to see our operating margins improve as we go through the year."

On Wednesday, the global provider of electronics manufacturing services, reporting in U.S. dollars, reported net income of US$28.9 million, up from a year-earlier loss of $34.3 million.

Net earnings of 13 cents per share compared with a year-ago loss of 15 cents per share, as quarterly restructuring costs abated to $3.3 million from $8 million.

Revenue for the January-March period was flat at $1.84 billion.

Earnings per share adjusted for non-operating items came to 15 cents, handily outpacing the Thomson Financial analyst consensus expectation of eight cents.

Looking ahead, said Muhlhauser "given the number of new programs and the current book of business that we have, we see revenue continuing to grow throughout the year, operating margins continuing to improve and the working capital performance of the company continuing to improve."

"We see an excellent year ahead," he said. "With our strong financial position … we feel Celestica is well positioned for continued progress in 2008 and beyond."

"We're a global company, so we enjoy the opportunity and the benefit of serving a global group of customers."

Second-quarter revenue is forecast at $1.8 billion to $2 billion, with adjusted net earnings per share between 13 and 19 cents.

On the TSX, Celestica shares were up $1.75, or 26.32 per cent, at $8.40 in early afternoon trading.

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NEW YORK–Wal-Mart Stores Inc.'s Sam's Club warehouse division said Wednesday that it is limiting sales of Jasmine, Basmati and long grain white rices "due to recent supply and demand trends."

The news comes a day after Costco Wholesale Corp, the largest U.S. warehouse club operator, said it had seen increased demand for items like rice and flour as customers, worried about global food shortages, stock up.

Sam's Club said it is limiting sales of the rices to four bags per customer per visit, and it is working with its suppliers to ensure the products remain in stock.

Sam's Club, the No. 2 U.S. warehouse club operator, said it is not limiting sales of flour or cooking oil at this time.

Costco said some of its stores had put limits on sales of items such as rice and flour, but it was trying to modify those restrictions to meet customer demand.

Food costs have soared worldwide, spurred by increased demand in emerging markets like China and India, competition with biofuels, high oil prices and market speculation.

Rice prices in the United States and around the world have more than doubled in the last year, and U.S no fax payday advances. rice futures rose to a fresh all-time high Wednesday on worries about supply shortages.

Trade bans have been put in place by India, the world's second largest rice exporter in 2007, and Vietnam, the third biggest, in the hopes of cooling domestic prices of the staple. Thailand is the largest rice exporter.

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Canadian pension plans have lost ground for a third consecutive quarter as financial woes depressed stock markets worldwide, according to a survey by RBC Dexia Investor Services.

Its survey of pension funds found their assets declined 1.9 per cent in the January-March period, pushing the sector's 12-month loss to 2.7 per cent.

Global equity suffered most among the asset classes surveyed, mitigated somewhat by a weaker loonie.

"The MSCI World Index plunged 11.9 per cent in local currency terms. Performance nearly matched the index, but Canadian pensions lost only 5.5 per cent once exchange rates are taken into account," RBC Dexia's Don McDougall, director of advisory services, said in a statement.

McDougall noted that the Canadian dollar depreciated almost seven per cent versus a basket of world currencies during the period, falling 2.7 per cent against the U.S bad credit payday loans. dollar, 10 per cent against the euro and 13 per cent against the Japanese yen.

The Canadian stock market was down 2.8 per cent during the period, bolstered somewhat by strong commodity prices, the report stated, with gold and crude oil reaching record highs.

The materials sector was up 7.3 per cent and energy 1.2 per cent, “unfortunately, Canadian pensions had generally reined in their exposure to both growth sectors and underperformed the S&P TSX Composite Index by 1.6 per cent this quarter – and by 3.8 per cent over the year," McDougall said.

Domestic bonds were the top quarterly performer, earning 2.8 per cent.

"Spreads varied considerably. Real return bonds generated 5.9 per cent, while longer maturity corporate bonds lost 0.3 per cent," McDougall said.

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Crocs Inc., the maker of the colourful plastic clogs, has stumbled again after the company said it would miss its own sales and profit forecast this quarter and will shut a plant in Quebec to cut costs.

Shares in the Niwot, Colo.-based company hit a new 52-week low yesterday, plunging 43 per cent to close at $10.11 (U.S.) on the Nasdaq Stock Market.

The Quebec plant employs 670 people. Crocs said 262 people had already been laid off and the rest will lose their positions by the end of July.

Chief executive Ron Snyder blamed "the challenging retail environment" in the United States, adding that, "colder than normal temperatures across much of the U.S. delayed the start of the spring season."

Some analysts, however, believe the fad that drove Crocs shares to a high of $74 six months ago may be over.

"Crocs bites the dust," Robert Samuels, an analyst at J.P. Morgan Securities Inc., wrote in a note to clients.

"Revenue guidance will give further fuel to the argument that the brand’s popularity is in sharp decline, and it is tough to argue otherwise."

The company said first-quarter sales could fall as low as $195 million, down from a previous forecast of $225 million.

Earnings could swing to a loss of five cents a share from a previously forecast 46 cent gain, the company also said.

Part of the loss would be due to the decision to close the Quebec plant, which is expected to create one-time charges of $16 million, or 13 cents a share, in the current quarter and another $4 million, or three cents a share, in the next quarter easy payday loans.

The plant employs about 11 per cent of the Crocs workforce.

The company plans to retain its Canadian sales and marketing office.

The Canadian production would be moved to lower-cost plants in Mexico, Snyder said. The company also has contracts with third-party plants in China, Romania, and Brazil.

"The Canadian factory had higher costs than any other factory we have in the world," Snyder said.

Snyder said he remained bullish about the company’s prospects, saying full-year sales are expected to grow between 15 per cent and 30 per cent. Broken down, U.S. sales would rise 4 per cent, while international sales would grow 20 to 30 per cent on a smaller base.

Earnings per share could rise between $1.54 and $1.64 by year end.

"We remain optimistic about our future," Snyder said. "We’re hearing we’re still one of the best-selling items in the footwear category, whether it’s in shoe stores, independent retailers, department stores or sporting-goods stores."

The company also plans to buy back five million shares, and reduce its dependency on air freight, Snyder said.

The maker of the widely copied shoe continues to wage legal battles to protect its intellectual-property rights. U.S. International Trade Commission Judge Charles Bullock found on April 11 no violation of Crocs’ patent.

With files from The Canadian Press

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AMSTERDAM, Netherlands – Royal Philips Electronics NV reported a sharp drop in first-quarter profits Monday, with falling television sales in North America offsetting growth in its health care and lighting industries.

The world's largest maker of lighting said its net income was 219 million euros ($347 million U.S.), down from 875 million euros in the first quarter of 2007, when it had reported a net gain of 733 million euros for selling a stake in a Taiwanese semiconductor manufacturer, TSMC.

Overall sales rose 1 percent to 5.96 billion euros ($9.44 billion), but comparable sales fell 9 percent in North America, mainly in televisions and videos, Philips said.

The recent quarter included a gain of 83 million euros ($131 million) for the partial sale of LG Display, Philips said.

Chief executive Gerard Kleisterlee said performance was strong across most sectors. "Unfortunately our results are clouded, more than we like, by the adverse situation in our TV business" and lower revenue from license agreements.

Shares fell 3.1 percent to 23.15 euros ($36.65) in early trading.

Analyst Jurgen Smits van Oyen of Petercam said the results were unimpressive, but no cause for excessive concern. Consumer products were disappointing, but that was balanced by "positive surprises'' in health care. "On balance, we believe the company has released a fairly decent set of results given the economic circumstances," he said.

The company, which makes a broad range of products from simple kitchen juicers to lifesaving medical imaging systems, said it expected a further softening in mature markets, and will focus on investing in emerging areas and on integrating recent acquisitions.

"Essentially, it was a good start to the year," said Chief Financial Officer Pierre-Jean Sivignon, excluding offloading stakeholdings and disappointing TV sales check cash advance. "We look forward to an encouraging second quarter," he said in a conference call.

China was a target for its expanding health care sector, as Philips closed a 25 million euros ($40 million) deal with Ascent Profit to sell digital radiography systems.

Lighting grew 3 percent, and Sivignon said energy-saving devices now comprise half of its lighting sector. "The green portfolio is starting to get traction," he said, with sales growing 12 percent in the quarter.

Last week Philips announced it will license its North American television business to the Japanese company Funai Electric Co. Ltd., in a five-year agreement effective Sept. 1, to counter what Kleisterlee called the unacceptable level of profits.

Sivignon said that while the losses in the American TV market were stark, they also were down in Europe where the company will focus on cost-cutting and improving efficiency. "It was a tough quarter all across," he said.

Kleisterlee said he was confident about Philips' progress in 2008 and that it was on target to meet its 2010 goals to increase earnings per share before interest, taxes and amortization to 10 percent or more.

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DENVER–Frontier Airlines sought bankruptcy protection yesterday, the fourth carrier to do so in the past few weeks as exorbitant fuel prices eat into earnings and a weak U.S. economy keeps more people grounded.

Frontier says it will continue operations as it reorganizes.

Frontier Airlines Holdings Inc., the low-fare carrier’s parent, said it was forced into protection after its principal credit card processor announced it would begin withholding a greater share of proceeds from ticket sales.

Denver-based Frontier said it will continue to operate a full schedule of flights and pay suppliers and employees as it reorganizes. The filing in U.S. Bankruptcy Court in New York prevents the card processor from increasing its "hold back," Frontier CEO Sean Menke said.

"By filing for Chapter 11, we will now have the time and legal protection necessary to obtain additional financing and enhance our liquidity," Menke said in a statement. "Fortunately, we believe that we currently have adequate cash on hand to meet our operating needs while we take steps to further strengthen our company."

ATA Airlines, Skybus and Aloha Airgroup have also filed for bankruptcy in the past three weeks, but Menke said Frontier’s reasons for doing so were different.

"Unfortunately, our principal credit card processor very recently and unexpectedly informed us that, beginning on April 11, it intended to start withholding significant proceeds received from the sale of Frontier tickets," he said.

"This change in established practices would have represented a material change to our cash forecasts and business plan no qualifying payday advance. Unchecked, it would have put severe restraints on Frontier’s liquidity and would have made it impossible for us to continue normal operations."

The card processor, First Data Corp., had no immediate comment.

The creditor listed in bankruptcy court documents as having by far the largest general unsecured claim against Frontier was Wells Fargo, with $93.5 million (U.S.).

Frontier, which has about 350 flights to more than 60 cities and some 6,000 employees, has struggled amid rising fuel prices and aggressive competition at Denver Airport from both United and Southwest Airlines. It blamed a 16.3 per cent jump in fuel costs for a fiscal third-quarter loss that more than doubled from the previous year.

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WINNIPEG – CanWest Global Communications Corp. (TSX: CGS) improved its revenues by nine per cent in the second quarter thanks to a large acquisition, but fell to a loss as one-time charges added to the impact of a soft advertising environment and the strike by Hollywood writers.

The Winnipeg-based broadcasting and newspaper conglomerate reported Friday a net loss of $34 million or 19 cents per share in its second quarter ended Feb. 29. This compared with net income of $7 million or four cents per share in the year-ago period.

Quarterly revenue increased to $702 million from a year-before $644 million.

Analysts surveyed by Thomson Financial were on average expecting a loss of seven cents per share on revenue of $718 million.

Excluding long-term liabilities, foreign currency items and restructuring costs, CanWest said it earned $4 million or two cents per share, compared with a break-even ex-items result a year earlier. Earnings before interest, taxes, depreciation and amortization rose 15 per cent to $92 million.

"Overall results are good, with most of our business units performing well despite a tepid advertising market and in spite of the impact of the writers’ strike, which did affect of course our conventional television business," CEO Leonard Asper said on a conference call with analysts.

"We maintain our focus of strong cost containment, as is evidenced by our operating profit margins which improved year to date from 22 per cent in 2007 to 24 per cent in 2008."

Revenue from publishing operations, which include many of Canada’s largest daily newspapers, edged up one per cent from a year earlier to $306 million, while the segment’s EBITDA rose 13 per cent to $59 million.

Canadian television operations including CW Media – the newly acquired Alliance Atlantis specialty television division – had $234 million in revenue, up 41 per cent, and EBITDA increased to $20 million from $3 million.

Excluding CW Media, Canadian TV revenue was down almost 10 per cent to $150 million and there was a BITDA loss of $7 million.

"The integration of Alliance Atlantis is well underway, synergies are tracking as planned and on budget and the executive team is fully in place and in full swing," Asper said.

"Investing in digital (television) .. payday loans. will be a big priority for us going forward, continuing to do that and planning to ensure that we market and promote our schedule in the spring to set us up for a strong fall."

CanWest said it expects second-half operating results to improve, depending upon the state of the advertising market and the impact of the Summer Olympics.

Shares in CanWest were down 14 cents or about three per cent at $4.61 in morning trading on the Toronto Stock Exchange, close to the bottom of their 52-week trading range between $4.50 and $11.74.

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