Shares of Canada's largest airline hit $6.19 in early morning trading on the Toronto Stock Exchange, a high not seen since mid-2008, before the recession. They closed at $5.99, up more than seven per cent, or 40 cents, on volume of more than 6.7 million shares, significantly above the usual daily volume of 3.7 million.
Investors have warmed to the Montreal-based airline over the past year as the shares have increased from a low of $1.59.
"While we have lots of work ahead, I am particularly pleased with the market's endorsement of our direction," CEO Calin Rovinescu said during a conference call to discuss what analysts described as "impressive results."
The carrier's adjusted net income rose to $365 million, an increase of nearly 60 per cent from last year's third quarter, which coincides with the months of July, August and September.
The adjusted earnings amounted to $1.29 per share, which was 26 cents above analyst estimates of $1.03 per share.
Under standard accounting, Air Canada had $299 million, or $1.05 per share, of net income, also above estimates but down from last year.
Analysts had already been optimistic about Air Canada's prospects for improvement over 2012's third quarter when the airline had $229 million, or 82 cents per share, of adjusted net income and $359 million of net income before adjustments.
"We are on a path to sustained profitability and positioning Air Canada as a stronger national and global competitor," Rovinescu told analysts.
Cameron Doerksen of National Bank Financial increased his target price for Air Canada's shares by 68 per cent to $8 on anticipation of strong results in the coming quarters.
"With very strong recent results, an improved liquidity and risk profile, and a positive outlook we are comfortable increase our multiple (and target price up from $4.75 previously)," he wrote in a report.
The analyst said the primary caveat is Air Canada's aggressive capacity growth plans for 2014 that could reduce yields or pricing on some international routes as competition next summer on transatlantic flights could be "particularly challenging."
Walter Spracklin of RBC Capital Markets was also bullish, raising his target price to $8 from $6, saying the company has the most significant upside potential of all the companies he covers.
"We believe the cost transformation story is in its early days . . . with substantial upside potential," he wrote.
The glowing outlook came after Air Canada recorded a 4.9 per cent increase in system-wide passenger revenues compared with the third quarter of last year.
Costs, excluding fuel and Air Canada Vacations, decreased by 3.4 per cent with the promise of more reductions to come — two to three per cent in the fourth quarter and an additional 1.5 to two per cent next year.
This year's third quarter included results from Air Canada Rouge, a new discount carrier that began flying in July. With just four planes, the operations are small but exceeded Air Canada's expectations, noted chief financial officer Michael Rousseau.
By the end of the winter season, Rouge is scheduled to have 14 narrowbody aircraft in its fleet jammed with more seats. Rouge will service 23 sun destinations previously operated at a higher cost by the mainline carrier.
Air Canada plans to transfer A319 and Boeing 767 aircraft to Rouge as it begins to receive delivery of fuel-efficient Boeing 787 Dreamliners early next year.
The aircraft and several new large Boeing 777 planes will help Air Canada to continue expanding its global reach. Plans to increase system-wide capacity by nine to 11 per cent next year signals that some international routes could surge by 20 to 30 per cent.
The Atlantic market performed very well in the third quarter but Air Canada is also focused on expanding its reach in Asia.
"Remember ... (some) of the biggest emerging markets anywhere are in Asia and... you can assume that there is going to be significant growth in the traffic that occurs in the Pacific," Rovinescu said.
However, he added that the airline does not plan any new routes to Asia next year beyond flying to a new airport in Japan.
In Canada, the airline said the start up of WestJet's (TSX:WJA) regional Encore service hasn't had a "significant impact" to date and will only be about one-third of the size of Air Canada's regional fleet at maturity.