After a better-than-expected finish to 2008, the Street continued to revise its estimates for the Canadian airline industry Monday. Chris Murray, CIBC World Markets analyst, upgraded his earnings estimates for both Air Canada (AIDIF.PK) and WestJet Airlines Ltd. (OTC:WJAVF) after both reported record load factors – or average amount of seats filled on their planes – in December.
He raised his price target for WestJet to C$23 from C$19, primarily on the assumption that a weaker demand and pricing environment will be offset somewhat by a dip in fuel prices.
He also raised his price target on Air Canada to C$10 a share from C$9, again on the lower fuel assumptions, but also on its ongoing capacity management, increased liquidity, and the fact that its parent company, ACE Aviation Holdings Inc. (OTC:ACEAF), plans to unwind itself early this year.
He said in a note to clients:
We also believe the wind-down of ACE Aviation and the distribution of its holdings, which we anticipate will occur early in March will improve Air Canada’s trading liquidity significantly and remove any holding company discount. We do caution that we expect significant short-term selling pressure on Air Canada shares as the 75 million shares are distributed to ACE shareholders, who may not have an interest in owning the operating airline.
The improved operating results at Air Canada had Nick Morton, RBC Captial Markets analyst, also updating his price target for ACE. With Air Canada doing better, the potential returns for ACE shareholders also improve.
Mr. Morton said he assumes ACE’s wind down will occur by March 31, at which time he expects Air Canada to be trading at C$3.50 a share. He increased his price target for ACE to C$15 a share from C$12.75 and expects Air Canada will rise to C$7.