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Air Canada (AIDIF.PK) posted a 6% drop in its third quarter net income on Thursday, but operating profit increased nearly five-fold as airline traffic improved.

In the third quarter, the company recorded net income of $261 million, or $0.91 per diluted share, which includes $90 million of foreign exchange gains. This compares to profits of $277 million, or $2.44 per diluted share in the same period last year, which included $295 million of foreign exchange gains, Air Canada said.

Excluding these gains, the company earned $0.64 per diluted share during the period, up from a loss per share of $0.19 in the third quarter of 2009. Operating income at the company soared by 381% to $327 million during the period.

"This progress is evidence that our revenue generation initiatives are working, and the cost transformation of Air Canada is on track," said president and CEO, Calin Rovinescu.

According to Thomson Reuters, analysts expected adjusted net income of $0.66 per share.

Passenger revenues increased by 13% from last year, due to a 9.7% growth in traffic, or revenue passenger miles, and a 3.2% improvement in yield during the third quarter, the company said.

The airline's capacity, or available seat miles, grew 8.2% in the period, as the company has worked to leverage its Toronto and other Canadian hubs as transfer points for travelers en route to domestic, U.S. and international destinations.

Revenue from premium cabin, or business, travelers increased nearly 26% in the period.

Air Canada, the country's largest airline, and its regional partner, transport roughly 31 million passengers per year to more than 170 destinations on five continents.

The company said it has plans to increase its full year 2010 system capacity, as measured by available seat miles (ASM), by 6.5 to 7.0%, and plans to raise its 2010 domestic ASM capacity by up to 1.0% from a year earlier.

The capacity increase is expected to be acheived without adding incremental aircraft to Air Canada's fleet, but rather through increased use, it said.

Last year, the company launched CTP, a cost-savings initiative, which has helped generate revenue through operating improvements and productivity gains.

At quarter-end, the company had approximately $2.2 billion in cash and equivalents. Air Canada's shares have soared nearly 200% this year as the airline sector begins to slowly recover from the downturn. Its stock closed at $3.84 Wednesday, compared to its 52-week low of $1.11.

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Source: Air Canada's Operating Income Soars as Traffic Grows 10%

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