(Adds comments from conference call)
By Allison Lampert
MONTREAL, Nov 7 (Reuters) - Air Canada reported a higher-than-expected quarterly profit on Monday as it flew more passengers, and the airline forecast lower costs for this quarter, sending its stock up nearly 7 percent.
Canada’s largest airline said it expected cost per available seat mile, excluding fuel expenses and unusual items, to decline 5 percent to 6 percent in the fourth quarter and by 2.75 percent to 3.75 percent this year.
Chief Financial Officer Michael Rousseau said he expected free cash flow to be more positive next year than this year but would provide more specifics in early 2017.
Rousseau also told analysts the carrier would take delivery of nine B787 Dreamliner aircraft in 2017. Of those, five will be debt-financed, and four are expected to be leased.
The arrival of the B787s will allow Air Canada to displace five B767s from the carrier’s mainline fleet to its low-cost Rouge line.
Chief Executive Officer Calin Rovinescu said the company was studying the impact of the possible privatization of Canada’s airports, which are now operated by non-profit bodies under long-term leases with the federal government.
He said Air Canada would have an official position in the coming weeks but stressed that it would only support privatization if the country’s already comparatively high aviation costs, including fees and surcharges, did not rise further.
“We know that aviation has continued to be a cash cow (for Canada) for many years,” he said.
Rovinescu said Air Canada could handle any new competition from low-cost startups hoping to start scheduled service in 2017, after the federal government recently agreed to raise foreign investment limits for airlines to 49 percent from 25 percent.
Air Canada said adjusted cost per available seat mile, a measure of how much an airline spends to fly a passenger, fell 5.9 percent in the third quarter.
The company also benefited from a nearly 19 percent rise in passenger traffic on its routes.
Air Canada said there was a 27.9 percent increase in international-to-international passengers connecting via Canada.
Fuel costs per liter fell 10.2 percent.
Montreal-based Air Canada said net income jumped 75.7 percent to C$768 million ($573 million), or C$2.74 per share, from a year earlier.
Excluding special items, earnings of C$2.93 per share exceeded the analysts’ average estimate of C$2.55, according to Thomson Reuters I/B/E/S.
Revenue rose 10.6 percent to C$4.45 billion, beating analysts’ expectations of C$4.30 billion.
$1 = C$1.34 With additional reporting by Ahmed Farhatha in Bengaluru; Editing by Maju Samuel and Lisa Von Ahn