Air Canada fell the most in almost four weeks after the country’s biggest carrier said yields would continue to decline this year as it packs fuller planes.[np_storybar title=”Airline investors enjoying the flight, but for how long?” link=”https://business.financialpost.com/2014/07/26/airline-investors-enjoying-the-flight-but-for-how-long/”%5DInvestors might be in a mood to celebrate the increased cash flowing back to them and stock gains, but there are concerns that the airlines are rushing too quickly to reward shareholders. Keep reading. [/np_storybar]The shares fell as much as 7.1% in Toronto, their biggest intraday drop since June 12. They were trading at $8.92 at 10:48 a.m., paring a 25% gain this year through yesterday.Yield, or average fare per mile, declined 2.1% in the second quarter, the company said today. Chief Executive Officer Calin Rovinescu said yields will continue to fall this year as the airline adds more economy class seats and operates longer flights with a view to boosting profit.“We are purposely looking at having a lower yield,” Rovinescu said on a conference call. “That is part of the strategy here as we look to have a greater bottom line.”The average length of flights increased 2.5% in the second quarter from the same period a year earlier, reducing yield by 1.5 percentage point, Air Canada said in its earnings statement.Air Canada’s yields in the second quarter were lower than Fadi Chamoun, an analyst at BMO Capital Markets in Toronto, had estimated, “implying a weaker-than-expected June month” particularly in U.S. transborder yields, he said in a note to clients.Air Canada also boosted its 2014 cost-cutting target this year. Rovinescu is working to increase profit by about 15% over five years by expanding the company’s Rouge low- cost unit after deploying five Boeing Co. 777 aircraft with 31% more seats than the plane’s standard version. Air Canada said in May it was planning to refurbish another 12 of its 777s by adding more seats starting next year.The Montreal-based company reported the most profitable quarter in the airline’s history, crediting a demand in all markets, the contribution of its low-cost Rouge subsidiary and falling costs.Air Canada said net income grew to $223 million, or 75 cents per share for the period ended June 30. That compared to a loss of $23 million, or nine cents per share, a year ago.It benefited from a $41-million tax gain, which partially offset higher fuel costs and the impact of lower foreign currency.Adjusting for one-time items, its profit soared 21% to $139 million or 47 cents per share. That compared to $115 million or 41 cents per share a year earlier.Revenues increased 8.1% to $3.3 billion on an 8.5% increase in capacity. However, yield or pricing line declined 2.1%.Air Canada was expected to earn 51 cents in adjusted profits on $3.3 billion of revenues, according to analysts polled by Thomson Reuters.“These financial results highlight the significant and incremental progress being achieved through our various value-enhancing strategies,” Rovinescu said during the conference call.He said investments into providing seamless transfers at Canada’s major hubs is starting to show results.Rovinescu added that Rouge, which has carried two million passengers to leisure routes at lower cost, is exceeding financial expectations.“From a financial point of view, the performance of these routes since the transfer clearly validates our decision.”He also told analysts that the subsidiary is doing a better job of communicating the changes in service levels to premium customers, some of whom have complained.Although it is adding new routes, Air Canada said Rouge will end the year with 28 aircraft — eight Boeing 767s and 20 Airbus 319s — down from its prior forecast of 33. The reduction is being driven to ensure the mainline fleet has enough capacity because 20 Embraer E190 planes are ending service later than planned.David Tyerman of Canaccord Genuity said the results were “up nicely” and in line with expectations.“Overall, the second-quarter results and 2014 guidance might have a positive implication for our outlook,” he wrote in a report.Compiled with files from Bloomberg.com, The Canadian Press

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