By Allison Lampert and Muvija M
Aug 1 (Reuters) - Canada's two major airlines reported stronger-than-expected quarterly earnings on Tuesday on higher passenger traffic and indicated an improved operating environment for the rest of the year, sending both stocks sharply higher.
Air Canada AC.TO and smaller rival WestJet Airlines WJA.TO benefited from strong air travel demand during the quarter and said the momentum would continue. have been cutting costs and upgrading their fleets with fuel-efficient aircraft amid higher fuel costs after oil prices rebounded from multi-year lows in 2016.
Montreal-based Air Canada's passenger traffic rose 13.6 percent in the second quarter ended June 30, while revenue from passengers increased 11.9 percent to C$3.52 billion ($2.82 billion).
Calgary-based low-cost carrier WestJet lowered its guidance for cost per available seat mile (CASM), excluding fuel and employee profit share, a key measure of how much an airline spends to fly a passenger. It now expects CASM to be up 1.5 percent to 2.5 percent from an earlier forecast of a rise of 2.5 percent to 3.5 percent. said it expects capacity, or available seat miles (ASMs), to rise between 5 percent and 6 percent in 2017, compared with an earlier forecast of a 3.5 percent to 5.5 percent rise.
With Canada's largest carrier revising its guidance for the year upwards, the results "indicated that the demand environment remains robust into (the third quarter)," wrote RBC analyst Walter Spracklin in a note to clients.
Air Canada shares surged nearly 10 percent to C$21.71 and WestJest jumped 4.6 percent to C$26.00, while the benchmark Canada share index fell 0.6 percent.
"Demand continues to be robust in a stable fuel and pricing environment as we move into what has historically been our most important quarter given the travel demands and patterns of our North American customers," Air Canada Chief Executive Calin Rovinescu said.
Air Canada raised its projections for return on invested capital (ROIC) to be between 11 percent and 14 percent in 2017 and 2018, compared with a May forecast of 9 percent to 12 percent.
The company now expects its margin for earnings before interest, taxes, depreciation, amortization and rent and restructuring costs (EBITDAR) of 17 percent to 19 percent for the full year 2017 and 2018, up from the margin of 15 percent to 18 percent announced in May.
Air Canada's CASM fell 3.5 percent in the quarter while
net earnings rose to C$300 million, or C$1.08 per share, from C$186 million, or 66 Canadian cents per share, a year earlier. one-time items, the airline earned 78 Canadian cents per share. Analysts on average expected a profit of 36 Canadian cents per share, according to Thomson Reuters I/B/E/S.
Operating revenue climbed 13 percent to C$3.91 billion.
Fuel costs rose by 17.4 percent in the reported quarter, lower than the 48 percent rise it saw in the quarter ended March 31. = 1.2457 Canadian dollars)