MONTREAL -- Air Canada plans to accelerate its international expansion after reporting the best quarter in the airline's 77-year history.
The Montreal-based company (TSX:AC) said Thursday that it plans to increase its overall capacity by nine to 10 per cent next year, compared with this year's projected increase of seven to eight per cent.
Much of the added capacity will be at Air Canada's international business, with domestic capacity being increased by four to five per cent in each of the years.
"We view the expansion of our international and leisure businesses as building blocks for making Air Canada sustainably profitable," CEO Calin Rovinescu said Thursday during a conference call.
Air Canada's third-quarter net income increased 24 per cent to $323 million in the third quarter as operating income hit an all-time high and margins grew to 13.8 per cent.
Adjusting for one-time items, the airline earned a record $457 million or $1.55 per share, up from $365 million or $1.29 per share a year earlier.
The adjusted profit was also 11 cents above an estimated $1.44 per share, according to Thomson Reuters data.
Air Canada's systemwide passenger revenue rose to a record $3.48 billion, up $299 million or 9.4 per cent from the same time last year.
"We believe our record performance in the quarter to be a positive reinforcement of our international growth strategy and the strategic deployment of Air Canada Rouge to compete more effectively in leisure markets," Rovinescu told analysts.
On the Toronto Stock Exchange, Air Canada's shares gained 36 cents, or more than four per cent, at $9.26 in Thursday morning trading.
The increased revenues were buoyed by a 31 per cent increase in international traffic passing through its Canadian hubs mainly from the United States. The airline hopes to eventually secure $400 million worth of this traffic destined to Europe and Asia.
Ben Smith, president passenger airlines, said the gains were better than it forecast, which along with other gains during the period ended Sept. 30 gave Air Canada confidence to accelerate its capacity growth.
David Tyerman of Canaccord Genuity said Air Canada's aggressive capacity expansion next year could "spook investors" over the negative impact on pricing and margins.
"That has not been the case so far at Air Canada, so we remain optimistic that Air Canada's strategy will produce additional financial gains," he wrote in a report.
He said the Air Canada's third-quarter results were better than expected as demand grew 11 per cent with the load factor coming in a very strong 87.2 per cent in the quarter.
Pricing or yields was better than expected, falling 1.6 per cent, compared to his forecast for a 3.5 per cent decrease.
