(Adds Transat stock move, details on quarterly results)
TORONTO, June 13 (Reuters) - Canadian travel operator Transat AT Inc said it expects to return to profitability this year, sending its shares up more than 10 percent.
The Montreal-based company, which offers holiday air fares and package deals, reported a smaller-than-expected second-quarter loss on Thursday and said prices and margins had improved from a year earlier.
Transat has reduced capacity on its main routes, which caused a slip in revenue, but efforts to cut costs helped the bottom line.
"We reached our cost-reduction targets, and despite a challenging winter, selling prices were higher than last year, hence the improvement in our results," Chief Executive Jean-Marc Eustache said in a statement.
"The summer is looking fairly good and we expect to be back to profitability this year," he added.
Investors reacted to the profit forecast by pushing the stock as high as C$6.15. The stock later pared some of those gains and was trading at C$5.91, up 11.3 percent from Wednesday's close.
Transat, which also holds an interest in a hotel business that owns and operates properties in Mexico and the Dominican Republic, said fares in the transatlantic market rose about 5 percent in the second quarter, ended April 30.
The company's adjusted after-tax loss was 4 Canadian cents per share. On that basis, analysts on average had expected a loss of 26 Canadian cents, according to Thomson Reuters I/B/E/S.
The net loss widened to C$22.8 million ($22.4 million), or 59 Canadian cents per share, from C$13.2 million, or 35 Canadian cents per share, a year earlier.
Quarterly revenue fell 8.3 percent to C$1.11 billion. The number of passengers fell 13.7 percent.
$1 = 1.0183 Canadian dollars Reporting by Alastair Sharp in Toronto and Vijay Vishwas in Bangalore; editing by John Wallace