I noticed that too.
Air Canada mentioned EBITDAR 9 times in their first quarter press release. The next highest was Hawaiian with 5 mentions.
No other airline even used the term in their release.
You can imagine how some unsophisticated investors might start to compare Air Canada's "EBITDAR" margins with other airlines "E" margins.
This was in a news story published on Tuesday:
Air Canada raised the bar for itself Tuesday, announcing ambitious new financial targets but promising it will stick to the strategy that has helped lift its shares 1,600 per cent since 2009.
“Drawing on the lessons of New Coke, we’re not about to fiddle with a recipe that has proven successful,” CEO Calin Rovinescu said at the company’s investor day in Toronto.
Air Canada easily exceeded the targets it set at its last investor day in 2013 thanks to a wholesale restructuring that is still underway, and said it’s “confident enough” in its ongoing transformation to predict further improvement for the 2015-18 period.
Specifically, the airline is targeting an annual margin of 15 to 18 per cent, return on invested capital of 13 to 16 per cent and, by 2018, a leverage ratio of 2.2.
By comparison,
Air Canada’s margin in 2014 was 12.6 per cent, return on invested capital was 12.1 per cent and the leverage ratio was 3.1.
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Anyone reading that might think Air Canada had an operating margin of 12.6% in 2014 and think, "wow, that's pretty good. I better call my broker and buy shares".
The only problem is that according to Air Canada's own audited 2014 financial statements found on page 89 of their Annual Report, the company earned $815m on sales of $13.272b, or an operating margin of
6.14%, less than half of what was stated in print.
If you include interest expense in the expense column, and let's face, it aircraft lessors and bankers are never happy when they don't get paid for the use of their money, the margin drops to
3.71%.
Perhaps the margin refers to an EBITDAR margin, but when virtually no one else in North America uses that metric when they discuss their margin, it opens up all kinds of opportunities to confuse both existing and potential investors.
If you exclude all kinds of expenses in your margin calculation, then use the term near interchangeably to a constituency who likely don't understand the difference between EBITDAR margin and every other airlines far more conservative definition of "margin", it has the potential of causing all kinds of confusion.
This is probably what happened here, with a reporter and editors being unaware of the mistake that was made. By the same token, I didn't see any press release to correct or clarify this statement by anyone. There may very well be people out there who actually believe Air Canada's operating margins in 2014 were higher than WestJet's on the basis of this story and as a result, called their broker and bought shares, pushing the stock price higher.
For those who are writing obituaries for Air Canada's principal competitor, and according to the audited statements on page 55 of their Annual Report, their operating margin percentages were
11.96% and
10.65% respectively during the same period.
As far as I can see, there is no mention at all of an "EBITDAR" margin in their report.
