November 5, 2015 / 11:30 AM / in 2 years

UPDATE 2-Air Canada's profit beats estimates as costs fall; stock up

(Adds quote from CEO, analyst’s commentary)

By Allison Lampert

MONTREAL, Nov 5 (Reuters) - Air Canada, the country’s biggest airline, reported a better-than-expected quarterly profit on Thursday, helped by lower fuel costs and higher-than-anticipated demand.

Lower costs boosted the company’s operating margin by 6.5 percentage points during the third quarter ended Sept. 30.

Montreal-based Air Canada said it now expected its adjusted cost per available seat mile, which excludes fuel expenses, to decline by up to 1 percent in 2015 as a weaker Canadian dollar increases some expenses. The carrier had previously forecast a 1 percent to 2 percent decrease.

Air Canada chief executive Calin Rovinescu said Canadians continued to travel in the quarter despite a weaker economy, and the carrier received a boost from its U.S. operations.

“Even if we were in what the Bank of Canada deemed a recessionary environment, people were still traveling,” Rovinescu told analysts on a conference call.

Rovinescu said “it’s too early to say” what action Air Canada will take following Tuesday’s Quebec Court of Appeal decision, which ordered the carrier to keep heavy maintenance operations in Montreal.

Air Canada stock rose 4.3 percent to C$11.33 in morning trading.

In 2013, Air Canada appealed the case first brought to court by the province of Quebec, which argued the carrier breached its legal obligations to keep heavy maintenance operations in Quebec, Manitoba and Ontario.

In a note to clients BMO analyst Fadi Chamoun said the main driver of Air Canada’s performance was a more moderate decline than expected in the key performance measure passenger RASM, or revenue per available seat mile. Generally, the higher the RASM, the more profitable the airline.

“Air Canada continues to deliver record results amid a demand environment that continues to surprise to the upside,” Chamoun wrote.

On an adjusted basis, the company earned C$2.50 per share in the quarter, higher than the average analyst estimate of C$2.21, according to Thomson Reuters I/B/E/S.

The company’s net income rose 35 percent to C$437 million ($332 million), or C$1.48 per share.

Operating revenue rose nearly 6 percent to C$4.02 billion, above analysts’ estimate of C$3.94 billion. ($1 = C$1.31) (Reporting by Allison Lampert in Montreal and Sneha Banerjee in Bengaluru; Editing by Saumyadeb Chakrabarty, Sriraj Kalluvila and Andrew Hay)

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