(Reuters) - Air Canada expects revenue and passenger demand to improve in the last three months of 2018 even as costs rise, the carrier said on Wednesday, sending shares up 6 percent.
Canada’s largest airline also reported a slightly lower-than-expected quarterly profit, hurt by higher fuel costs.
Chief Commercial Officer Lucie Guillemette told analysts she expects Air Canada’s positive “performance from a traffic, revenue and yield perspective to continue,” into the fourth quarter, driving confidence that pricing is strong enough to offset fuel prices during the last three months of the year.
Air Canada and other carriers are contending with rising fuel costs that are weighing on profits, even as demand for air travel is strong. In response to the higher costs, airlines have increased ticket prices and baggage fees.
During the third quarter, Air Canada’s fuel costs per liter rose 39.7 percent from a year earlier.
Cost per available seat mile (CASM) excluding fuel and other expenses, a key industry metric, is expected to rise 1.5 percent to 2.5 percent during the last three months of the year, compared with the same period in 2017.
For the full year, it expects CASM to range between no increase to a rise of 0.75 percent. It previously expected a decline of 0.5 percent to a rise of 1.0 percent.
On Tuesday, rival WestJet beat on earnings but is also wrestling with higher fuel costs and other headwinds in the fourth quarter.
Both WestJet and Air Canada expect passenger revenue per available seat mile (PRASM) to rise on sales of ticket fares for premium seats.
Air Canada said third-quarter traffic rose 7.5 percent and PRASM, a key revenue measure for airlines, increased about 4 percent.
On an adjusted basis, the company earned C$2.03 per share, compared with the average analyst estimate of C$2.09, according to Refinitiv data.
The Montreal-based airline said its profit fell to C$645 million ($491 million), or C$2.34 per share, in the quarter ended Sept. 30, from C$1.72 billion, or C$6.22 per share, a year earlier.
In the year-ago quarter, Air Canada had recorded a tax gain of C$793 million.
Operating revenue rose nearly 11 percent to C$5.42 billion.
Reporting by Debroop Roy in Bengaluru and Allison Lampert in Montreal; Editing by James Emmanuel and Maju Samuel