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Feb 7 Reuters) - Helped by tighter cost controls and fuller flights, Air Canada's ACb.TO operations returned to profit in the fourth quarter, and the airline said it would launch premium economy services on overseas flights to try to woo more higher-paying travelers.
Canada's biggest carrier also posted a net profit for 2012, its first annual profit in five years, in what analysts saw as a sign that management's 3-year-old plan to stabilize the high-cost, debt-laden airline is bearing fruit.
"Everything that you want to see from a fundamental standpoint was trending well," RBC Capital Markets analyst Walter Spracklin said of the results, pointing to higher load factors, traffic and yields at the airline.
Emboldened by new labor contracts with all its unions, Air Canada launched a number of initiatives to cut costs and boost revenue over the past year, outsourcing more regional flights, adding international routes and revising maintenance contracts. It plans to launch a lower-cost carrier, Rouge, in July.
"They are re-making the airline and that will take 2-3 years to complete. From what I am hearing, they are making all the right moves," said Toll Cross Securities analyst Jacques Kavafian.
Air Canada joins several other major airlines introducing "premium economy" seating, which offers more leg room, priority boarding and refundable tickets at higher prices.
The premium cabin will be introduced on Air Canada's Montreal-Paris flights on July 11, and added onto more routes as new aircraft enter the carrier's mainline fleet.
Air Canada, whose main domestic competitor is WestJet Airlines Ltd (WJA.TO), also said it would add five new Boeing 777-300ER aircraft to its fleet.
Air Canada's stock, which has surged 74 percent in the past year, was unchanged at C$2.45 on the Toronto Stock Exchange on Thursday.
Air Canada Chief Executive Calin Rovinescu said the carrier, which has 37 Boeing Co (BA.N) 787 Dreamliners on order, had "complete confidence" in the planemaker's ability to resolve the lithium-ion battery issues "quickly and safely".
Regulators have grounded the Dreamliners while they investigate the batteries.
Rovinescu said Boeing had given it Air Canada indication of any changes to the plane's delivery schedule, which in Air Canada's case, starts in 2014.
Air Canada said its operating income was C$46 million ($46 million) in the quarter, compared with a loss of C$98 million a year earlier.
Net income was C$8 million, or 3 Canadian cents per share, compared with a loss of C$60 million, or 22 Canadian cents per share, a year earlier. Adjusted to remove the impact of gains and losses on financial instruments, foreign exchange and other unusual items, the airline lost 2 Canadian cents per share.
For 2012, Air Canada reported net income of C$131 million compared to a net loss of $249 million in 2011. The last time the airline made an annual profit was in 2007.
Operating revenue in the fourth quarter rose 5 percent to C$2.84 billion, helped by a strong international performance, especially on its Pacific routes and across the Atlantic.
"The Pacific is the part of the world where revenue and yield growth is strong... That is also going to help propel the company down the road," said Robert Kokonis, managing director of Toronto-based airline consultant AirTrav Inc.
In November, Air Canada unveiled a major expansion of its flights to Asia, adding flights to Beijing, Seoul and Narita, Japan.
Operating expenses in the quarter fell C$2 million, mainly due to lower aircraft maintenance costs and a drop in ownership costs.
Air Canada's load factor, a measure of how many passengers its aircraft carried compared with capacity, rose to 81.2 percent in the fourth quarter from 78.9 percent in the same period the previous year.
Reporting By Nicole Mordant in Vancouver and Bhaswati Mukhopadhyay in Bangalore; Editing by Saumyadeb Chakrabarty, Grant McCool and M.D. Golan