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

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

Air Canada says its financial turnaround will accelerate by 2018 with lower costs and a higher profit margin.

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

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

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 nearly 27 per cent above Monday’s closing price of $14.19.

Air Canada says it will 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.

Chief executive Calin Rovinescu says the Montreal-based airline is permanently reducing its cost structure while growing its business, especially international routes.

In addition to starting up low-cost leisure subsidiary Air Canada Rouge, the airline’s financial performance has been helped by the addition of large Boeing 777 aircraft with more seats and the rollout of new cost-efficient Boeing 787s.

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

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