By Adriano Marchese
Air Canada shares rose Friday after the company said it now expects adjusted earnings to be higher than previously anticipated and to bring it above its pre-pandemic levels.
At 9:53 a.m. ET, shares were trading over 10% higher at C$20.19 a share ($14.91).
Late Thursday, the Canadian airline said it now expects 2023 adjusted earnings before interest, taxes, depreciation and amortization to range from C$3.5 billion to C$4 billion, exceeding the company's benchmark levels in 2019, before pandemic-related restrictions grounded planes and stifled travel demand.
Previously, the airline expected its 2023 adjusted Ebitda to range from C$2.5 billion to C$3 billion. Its new annual guidance is also more than analysts anticipated for the year.
National Bank of Canada analyst Cameron Doerksen said the higher 2023 outlook exceeds the Canadian bank's forecast of C$2.8 billion.
"The mid-point of the new guidance is also higher than the C$3.6 billion in Ebitda the company generated in 2019 despite flying only 90% of 2019 capacity with a workforce that is back to 2019 levels," Mr. Doerksen said.
Air Canada credits its new 2023 outlook to better traffic and yield from a stronger-than-anticipated demand environment and assumptions of lower fuel costs.
Mr. Doerksen said Air Canada is now assuming a fuel price for the year of about C$1.09 a liter, down from the airline's prior estimate of C$1.30 a liter.
"We estimate that the lower fuel assumption is driving less than 60% of the guidance increase with at least 40% coming from better than forecasted demand and prices," Mr. Doerksen said.
However, Air Canada is still operating in a high-cost environment. The airline changed the year with which it compares the progress of its financial results to 2022 from 2019. A 2019 baseline doesn't meaningfully support a new cost environment, the airline said.
Air Canada also expects in 2023 that adjusted cost per available seat mile, a metric which tracks the cost-to-capacity of an airline, to fall 0.5% to 2.5% below 2022 levels. The airline previously expected the metric to rise 13% to 15% above 2019 levels.
The updated cost guidance implies that the new 2023 cost guidance is about 7% higher than the prior guidance at the low end of the range, but Mr. Doerksen thinks that Air Canada's costs are trending lower and its prices are offsetting operational costs.
Mr. Doerksen added that 2024 unit costs should also trend lower from increased capacity, which is currently about 90% of 2019 levels.
With Air Canada's new earnings targets, the National Bank of Canada is increasing its target price of the stock to C$32.00 from C$29.00.