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Air Canada Jumps to 5-Year High as Profit Exceeds Estimates

Air Canada (AC/B) increased to a five-year high after the nation’s largest carrier reported third-quarter profit that beat analysts’ estimates amid progress in its cost-cutting plan.

The shares jumped 7.2 percent to close at C$5.99 in Toronto, the highest price since July 2008. The Montreal-based carrier more than tripled this year compared with a 7.6 percent gain for the Standard & Poor’s/Toronto Stock Exchange Composite Index.

Chief Executive Officer Calin Rovinescu is working to reduce costs at the carrier by about 15 percent in the medium term with the help of higher-density aircraft, new maintenance agreements and the July start of the Rouge leisure unit. Costs for each seat flown a mile, a measure of airline efficiency, are projected to drop as much as 2 percent this year.

Air Canada has seen “solid progress” in its cost cutting plan, Rovinescu said on today on a conference call. “We’re on a path to sustained profitability.”

Adjusted earnings in the third quarter were C$365 million ($349 million), or C$1.29 a share, beating the C$1.04 average of nine analyst estimates compiled by Bloomberg. On that basis, profit in the year-earlier quarter was C$229 million, or 82 cents, the company said in a statement today.

Adjusted costs for each seat flown per mile decreased 3.4 percent in the quarter from a year earlier.

Domestic Competition

Despite increased domestic competition from WestJet Airlines Ltd.’s (WJA) regional line Encore, Air Canada’s market share remained consistent in the quarter, said executives on the call.

Air Canada is focusing on the more profitable international market, a strategy that is “extremely rational,” said Walter Spracklin, an analyst at RBC Capital Markets in Toronto.

“They’re focusing on an area where there is less competition,” said Spracklin, adding that carrier has 37 percent of the international market share flying out of Canada. “That kind of dominant market share and long stage length is highly profitable.”

The company also received two high-density Boeing Co. 777-300 ER aircraft this year, and is expecting three more by February next year, Rovinsecu said on the call.

To contact the reporter on this story: Caroline Chen in New York at cchen509@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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