01/30/2015 03:40 EST | Updated 04/01/2015 05:59 EDT

Lower fuel prices expected to drive airline profits and stock prices: analysts

MONTREAL - After taking the stock market by storm in 2013, Air Canada's shares could double in the next year as low fuel prices boost profits at the airline and its rival WestJet, an industry analyst said Friday.

Chris Murray of AltaCorp Capital raised his 12-month target price for Air Canada to $24 from $21 in light of falling oil prices and the recent interest rate cut by the Bank of Canada.

Since trading at just 84 cents in 2012, the airline's shares (TSX:AC) have steadily increased to reach a high of $12.75 on Jan. 13. They were down 1.6 per cent at $11.90 in Friday trading.

The Montreal-based carrier will report its 2014 results on Feb. 11, the first since posting the most profitable quarter in its history. Adjusted net earnings for the year are expected to reach $383 million, up from $340 million in 2013, according to analysts polled by Thomson Reuters. Profits are forecast to more than triple to $1 billion in 2015.

Murray expects Air Canada's earnings will strengthen since spot jet fuel prices have dropped more than 30 per cent from the first quarter of last year. The lower Canadian dollar offsets some of the fuel gains because airlines pay for fuel, maintenance and airplane cost in U.S. dollars.

David Tyerman of Canaccord Genuity says Air Canada's earnings could improve a lot in the new few years as it expands its Rouge low-cost subsidiary, adds more lower-cost Boeing 787s and continues to cut costs.

Cameron Doerksen of National Bank Financial says Air Canada and WestJet Airlines (TSX:WJA) are his top picks for 2015.

However, he cautions the bullish outlook could wane later in the year as some fuel savings are passed on to passengers, oil prices move higher, a lot more seats are added to markets and a new ultra low-cost carrier starts up.

Murray anticipates WestJet will increase revenues from checked bag fees, upgrades and use of onboard Wi-Fi. But he says the Calgary-based airline could feel pressure to cut prices because of lower fuel costs and weaker demand in Western Canada. He increased his target price $2 to $45. That's above the issue's 52-week high of $34.95 and Friday's price of $31.02 on the Toronto Stock Exchange.

WestJet will report its latest results Tuesday. It is expected to earn $91.4 million in adjusted net profits in the fourth quarter and $293 million for the full year. In 2015, profits are forecast to grow to $431 million.