Air Canada shares up 12 pct on load figures, cost outlook

Fri Oct 4, 2013 12:25pm EDT
 
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TORONTO Oct 4 (Reuters) - Shares of Air Canada surged more than 12 percent on Friday after the company reported strong third-quarter traffic and said its measures to control costs are having a better-than-expected impact.

The announcement, late on Thursday, prompted several firms to raise their price targets on the stock. BMO lifted its target to C$5 from C$4 with a rating of "outperform," while RBC increased its target to C$5.50 from C$4.

The stock was up 12.6 percent at C$4.47 by midday, after earlier hitting a peak of C$4.51, its highest level in nearly five years.

"We believe Air Canada is in the early stages of a transformational change which will lead to vastly improved operating metrics - and ultimately a step-function increase in profitability," Walter Spracklin, analyst at RBC Capital Markets, wrote.

Air Canada said its system load factor - a measure of how full its planes are - was 86.2 percent in the third quarter, close to the record 86.3 percent in the same quarter a year ago.

September's load factor was 83.2 percent, down slightly from 84.9 percent in September last year.

The airline said it expects cost cuts to push its adjusted costs per available seat mile (CASM), a key industry measure, down between 3 percent and 3.5 percent in the third quarter, better than the previously forecast reduction of 1.5 percent to 2.5 percent.

That should lower its full-year adjusted CASM by 1.5 percent to 2 percent, also above its earlier guidance.

Based on the new figures, Air Canada said it expects its adjusted net income for the third quarter to be above last year's level for the same period.

Air Canada, Canada's largest airline, competes with WestJet on many domestic and international routes. WestJet shares were off 0.2 percent at C$25.24 after the Calgary-based airline said its load factor decreased to 82.8 percent in the third quarter from 84.6 percent. Its load factor for September fell to 76.6 percent from 79.1 percent.

National Bank Financial raised its price target for WestJet to C$27 from C$25, though it cut its rating to sector perform from outperform. (Reporting by Leah Schnurr)