Canadian airline sector poised for downturn: analyst

Fri Jan 18, 2008 5:09pm EST
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CALGARY, Alberta (Reuters) - Canada's airline industry looks set to finally join the downturn in the United States, an analyst said on Friday as he cut his outlook on the country's major carriers, Air Canada ACb.TO and WestJet Airlines Ltd (WJA.TO: Quote).

Of the two, Air Canada, with its higher cost structure, will be particularly hard hit by lofty fuel prices and a slowing economy, Raymond James analyst Ben Cherniavsky wrote in a report projecting a tough 2008 for the sector.

He predicted a return to red ink for Canada's biggest carrier this year.

Cherniavsky also downgraded WestJet to account for higher crude oil price assumptions.

The analyst chopped his 12-month price target on Air Canada to C$7 from C$13.50 and maintained an "underperform" rating.

He downgraded WestJet to "market perform" from "outperform" with a new target price of C$20, down from C$27.

Air Canada B series shares tumbled, 62 Canadian cents, or more than 6 percent, to C$9.33 on the Toronto Stock Exchange on Friday. They have fallen by half in the past 12 months.

WestJet sank 55 Canadian cents, or 3 percent, to C$17.50. That represents an increase of more than 18 percent in the past year.

Both carriers benefited in 2007 from a strong domestic market and high demand for travel, which yielded strong load factors as both increased their capacities.   Continued...

<p>Air Canada passengers wait in long lines for boarding passes at Pearson International Airport in Toronto November 16, 2007. REUTERS/ Mike Cassese</p>