But he said Air Canada was not following the same flight path. While WestJet will be held in a holding pattern until early next year, Air Canada was taking off. Based on solid traffic results and unit costs that are coming in better than expected, we believe that [third quarter] results will be very strong and likely ahead of the current market expectations, Mr. Doerksen said in a note to clients. The companys cost performance is outperforming expectations. He also noted that Air Canada was able to refinance high-interest debt during the quarter, which should afford it additional balance sheet flexibility to help finance new aircraft in the coming years, with a new narrow-body order expected soon and the delivery of its new 787s coming late next year. The changes underway will have a broader impact than just the third quarter, said Walter Spracklin, RBC Capital Markets analyst, who raised his price target on the stock to $5.50 a share from $4 previously. Mr. Spracklin, who has an outperform rating on the stock, said his primary concern for Air Canada had been that the too much capacity would be added to the market with the launch of its low-cost carrier, Rouge, and WestJets own Encore. This, in turn, he feared, would drag on prices. But Mr. Spracklins tracking of 12,000 random fares suggests that prices are actually up 1.5% year-over-year, which, combined with the strong load factor, has him switching his focus to the significant growth opportunities at the airline and the benefits from its cost-cutting measures. We believe Air Canada is in the early stages of a transformational change which will lead to vastly improved operating metrics and ultimately a step-function increase in profitability, Mr.
Air Canada shares soar 13% on improved cost estimates, analyst revisions
The airline’s class B shares closed up 52 cents, at $4.49 on the Toronto Stock Exchange, on very heavy volume of 10.3 million shares. The closing price was just pennies shy of the daytime high of $4.51 the highest level it’s been since the stock dropped below $5 in October 2008. Late Thursday, Air Canada (TSX:AC.B) said it now expects its third-quarter adjusted cost per available seat mile to be between three and 3.5 per cent lower than a year ago. The decrease compared with a drop in adjusted cost per available seat mile of 1.5 to 2.5 per cent projected in early August. Several banks raised their target price for the shares following the announcement. CIBC World Markets said the revised guidance by the airline indicates that Air Canada is making good progress on its cost-cutting plan. It raised its target price to $5, from $4.75. As a result, CIBC also updated its estimates for Air Canada’s adjusted earnings in the third quarter, which ended Monday, as well as for 2013 as a whole. National Bank Financial also maintained its outperform outlook for the shares, raising its target price from $3.75 to $4.75. Although it forecast that earnings would be stronger than earlier expected, National Bank cautioned that long-term investment in Air Canada is still “speculative.” “Indeed, we continue to have longer-term concerns over downward yield pressure as a result of increased competition and as Air Canada itself adds significant new capacity on international routes in the coming years,” the bank said in a note. “Nevertheless, over the short to medium term we expect the stock to move higher.” BMO Capital Markets also said it was maintaining its rating of outperform for the stock, and increasing its target price to $5 from $4. “While the stock has risen 35 per cent in the past month, the company is only starting to realize the benefits of its fairly sizable CASM (fuel and other unusual items) reduction opportunity over the next several years,” it said in a note. “We believe this would strengthen the companys competitive position and open up new revenue growth opportunities, particularly in international markets.” RBC Capital Markets added that the airline is in the early stages of a “transformational change” that will increase its profitability over the long term.