November 8, 2013 / 5:53 PM / 4 years ago

UPDATE 2-Air Canada profit beats estimates, stocks jumps

(Updates with market reaction, conference call details, CEO and analyst comments)

By Solarina Ho

TORONTO, Nov 8 (Reuters) - Air Canada's third-quarter results handily beat analysts' estimates on Friday as a key measure of costs fell, helping to push its stock to levels not seen since the financial crisis.

Shares of Canada's largest airline jumped more than 9.5 percent at one point after it reported a 59.4 percent surge in adjusted net income. Year-to-date, the stock has soared nearly 250 percent.

Results exceeded analysts' expectations set after Air Canada said last month that cost control measures were having a better-than-expected impact and that adjusted net income and earnings before interest, taxes, depreciation, amortization, impairment and aircraft rent (EBITDAR) were expected to be above 2012 levels.

"The strength was across the board - better revenue, better costs, better yield," RBC Capital Markets analyst Walter Spracklin wrote in a client note.

"Overall, it was a very strong quarter in which (Air Canada) did a solid job in managing controllable costs while shoring up its underlying business."

Apart from launching the low-cost Rouge carrier, which has surpassed the airline's targets, Air Canada beefed up its international network and boosted capacity to fend off intensifying competition.

The company expects its system capacity, as measured by available seat miles, to increase in the range of 3 to 4 percent in the fourth quarter. Next year, system capacity is still expected to increase by 9 to 11 percent compared with 2013.

Most of the increase will come from the planned delivery of the first six Boeing 787 Dreamliner aircraft, growth from its discount Rouge carrier and the addition of five high-density Boeing 777-300ER aircraft - three of which will be delivered between this month and next February.

Adjusted cost per available seat mile (CASM), a key measure of the cost incurred to fly a single seat one mile, was expected to decrease 2 to 3 percent in the fourth quarter from a year-ago. Full-year adjusted CASM was still expected to fall between 1.5 to 2 percent this year.

BEST QUARTER ON RECORD

"We are on a path to sustain profitability and positioning Air Canada as a stronger national and global competitor," Chief Executive Officer Calin Rovinescu told analysts on a conference call. He said this was Air Canada's best quarterly performance ever.

"You saw in this last quarter the beginnings of many of the strategies that we have been outlining for the last little while," he added.

The company's CASM fell 3.4 percent in the third quarter.

CASM excludes fuel, the cost of ground packages at Air Canada Vacations and special items, Air Canada said.

Net income fell 17 percent to C$299 million, or C$1.05 per share, from C$359 million, or C$1.28 per share.

Adjusted net income was C$365 million ($349 million), or C$1.29 per share, up from C$229 million, or 82 Canadian cents per share.

On average, analysts were expecting earnings of C$1.03 per share, according to Thomson Reuters I/B/E/S.

EBITDAR was C$626 million compared to C$551 million a year ago. Operating revenue was C$3.48 billion, up from C$3.33 billion a year ago.

The company's main domestic rival, WestJet Airlines Ltd , reported a better-than-expected quarterly profit earlier this week as costs fell.

Air Canada's shares were up 7.5 percent at C$6.01 at midday on the Toronto Stock Exchange. They briefly touched C$6.19, their highest level since 2008.

At least two analysts raised their target price after the results. Fadi Chamoun of BMO Nesbitt Burns raised it to C$7.50 from C$6.00, while Cameron Doerksen of National Bank Financial raised the target to C$8.00 from C$4.75.

$1 = 1.0448 Canadian dollars Additional reporting by Sayantani Ghosh in Bangalore; Editing by Maju Samuel, Bernard Orr

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