Air Canada: turnaround is accelerating, costs going down more than expected

MONTREAL – Air Canada says its financial turnaround will accelerate by 2018 with lower costs and a higher profit margin than it forecast two years ago.

“We’re again raising the bar with new, more ambitious targets that are significantly higher than those we set in 2013,” CEO Calin Rovinescu said Tuesday during an investor day in Toronto.

The country’s largest airline said it expects its pre-tax operating margin will reach 15 to 18 per cent in three years, up from 12.6 per cent achieved in 2014 and the 15 per cent target set in 2013.

Air Canada’s shares (TSX:AC), which have been among the country’s best performers in the past couple of years, hit its highest level since 2007 in Tuesday trading.

A number of analysts have raised their target price for the stock. Cowen and Company, for instance, sees room for a further increase to $18 per share, which would be 25 per cent above the $14.38 price set in Tuesday trading on the Toronto Stock Exchange after reaching an intraday high of $15.09.

Air Canada said it plans to exceed a cost-reduction target set last year. Instead of cutting costs by 15 per cent, excluding the impact of foreign exchange and fuel prices, it now says they will drop by 21 per cent between 2012 and the end of 2018.

Rovinescu told analysts that the Montreal-based airline is permanently reducing its cost structure while growing its business, especially international route.

Last week, Air Canada said it is opting out of federal pension regulations — a move that will free up about $1.1 billion in deficit funding contributions over the next six years.

The company said it also continues to evaluate its operations at Toronto’s Billy Bishop airport.

Benjamin Smith, vice-president of passenger services, said it wants significantly lower terminal rates and more slots so it can start service to Ottawa, New York and other short-haul markets.

Air Canada said it opposes the downtown airport’s runway extension, which would allow rival Porter Airlines to operate jets.

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