(Adds quote, detail from conference call, estimates, market reaction)
By Allison Martell
TORONTO, Nov 6 (Reuters) - Air Canada on Thursday reported a jump in third-quarter earnings that topped analyst expectations thanks to a firmer handle on costs, sending shares higher, and the company forecast a significant increase in capacity next year.
The airline has been expanding its low-cost vacation carrier Rouge and boosting what it calls density, squeezing more passengers onto planes.
The Montreal-based company said it expects capacity, or available seat miles, to rise between 9 and 10 percent in 2015, with 55 percent of the growth coming from Rouge.
"Rouge has been more successful than we expected," said Chief Executive Calin Rovinescu on a call with analysts and investors.
The capacity growth forecast was significantly higher than BMO Capital Markets analyst Fadi Chamoun expected, he said in a note to clients.
Benjamin Smith, Air Canada's president of passenger airlines, said the company could react quickly and slow down capacity growth if demand softens.
Separately, the airline said it would buy two more Boeing 777-300ER planes, bringing its fleet to 25. It also said it would put its new "international business class" seats in all its 777-300ER jets, seven more than previously announced.
Cost per available seat mile, a key measure of efficiency, fell 2.6 percent from a year earlier, to 15.4 cents, more than offsetting a slight decline in yield, which measures average fares.
For the current quarter, the company forecast a drop of 1 to 2 percent in adjusted cost per available seat mile, which excludes fuel costs.
Net income rose to C$323 million ($283.4 million), or C$1.10 per share, in the third quarter, from C$299 million, or C$1.05 per share, a year earlier.
Adjusted earnings rose to C$457 million, or C$1.55 a share, from C$365 million, or C$1.29 a share. Analysts had expected earnings of C$1.44 a share, according to Thomson Reuters I/B/E/S.
Revenue rose 9.2 percent to C$3.8 billion.
The company's load factor, which measures how effectively it filled seats during the quarter, rose to 87.2 percent from 86.2 percent.
Air Canada's shares rose 3.7 percent to C$9.23 on the Toronto Stock Exchange. ($1 = C$1.1398) (Additional reporting by Tanvi Mehta in Bangalore; Editing by Savio D'Souza, Maju Samuel and James Dalgleish)