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Air Canada’s 1.3-per-cent gain this year trails Canada’s benchmark stock index, signalling the big runup may be over after a quintupling in the company’s shares since chief executive officer Calin Rovinescu announced a cost-cutting strategy in June, 2013.

Matthew Sherwood/The Globe and Mail

Air Canada's turnaround plan has won over analysts – but the airline has yet to get investors back on board.

The stock boasts the highest rating among North American airlines, according to data compiled by Bloomberg, and analysts are projecting a 48-per-cent rally in the next 12 months. That's the best return among the 10 biggest carriers in the region.

Investors are showing less enthusiasm. Air Canada's 1.3-per-cent gain this year trails Canada's benchmark stock index, signalling the big runup may be over after a quintupling in the company's shares since chief executive officer Calin Rovinescu announced a cost-cutting strategy in June, 2013.

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"There's still room for the stock to rise, but a good chunk of the journey has been done," said Marc-Andre Robitaille, who holds Air Canada stock among the $800-million he oversees at AGF Investments Inc. in Montreal. "The easy money has been made."

Mr. Rovinescu is working toward a goal of cutting operating expenses, as measured by the cost to fly each seat a mile, by as much as 15 per cent through 2018. He's packing more seats on long-haul aircraft, expanding the low-cost Rouge leisure unit and ordering new fuel-efficient jets such as Boeing Co.'s 787 Dreamliner.

The airline is set to release first-quarter results on May 12. Expected earnings will be 16 cents a share, based on the average of 14 analysts' estimates compiled by Bloomberg, which would be its first profit to start the year – the slowest travel period for North American airlines – since Air Canada's public offering in November, 2006.

Investors may get their next glimpse of Air Canada's longer-term outlook at a presentation to investors in Toronto on June 2. Mr. Rovinescu unveiled his five-year operating expense and cost goals at the last investor day two years ago.

"The shares have had a tremendous recovery in the last couple of years, but now we're at a point where people are looking for the next leg of growth, and how we move higher from here," said Chris Murray, an AltaCorp Capital analyst in Toronto.

Air Canada doesn't comment on analyst reports or the future direction of the company's share price, said Peter Fitzpatrick, a spokesman for the company.

Investors are willing to pay about 3.5 times Montreal-based Air Canada's expected earnings per share for the stock, according to data compiled by Bloomberg. That's less than half the average price-earnings ratio of 8.8 of its peers. It also trails the 8.1 ratio of smaller Calgary-based rival WestJet Airlines Ltd., which has been ratcheting up competition at home by adding short-haul routes through its Encore unit.

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Air Canada plans to increase capacity 9 per cent to 10 per cent this year, with much of the growth coming at Rouge, which serves leisure destinations in North America, Europe and the Caribbean.

Fuel costs, which represent about 30 per cent of all expenses, are another target of the CEO. The new Dreamliners will have 29 per cent lower fuel and maintenance expenses than the Boeing 767s they replace, Air Canada has said.

Further savings will result from Air Canada's decision to shrink its fleet of Embraer SA E190s by 20 aircraft and replace them with five Airbus narrow-body jets and five Boeing 767s. The switch will cut operating costs by 10 per cent, according to the airline.

Air Canada also renegotiated a deal with partner Chorus Aviation Inc., the operator of several short-haul flights for the company, which will result in benefits of $550-million from 2015 to 2020. Of that total, $50-million will materialize this year, the company said in announcing the deal in February. "The fundamental changes they've made are starting to bear fruit," AltaCorp's Mr. Murray said.

For all of Mr. Rovinescu's efforts, Air Canada still remains the second least-efficient airline in North America. Costs for each seat for a mile, a key measure of airline profitability, were 15.1 cents (U.S.) in the fourth quarter, 13th among 14 North American airlines tracked by Bloomberg. That compares with a 12.4 cent average for the 14 airliners included in the group, and WestJet's 11.8 cents. Delta Air Lines Inc. fared worst at 17.7 cents.

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