WestJet Airlines expects to end the year on a high note after slightly beating analyst forecasts in the third quarter, despite a drop in net income.

With the demand from summer flooding in the Calgary region behind it, Canada's second-largest airline said Tuesday it expects strong traffic and revenue growth in the fourth quarter on lower fuel costs.

The airline forecasts that capacity will increase by seven to 7.5 per cent in the quarter on flat revenue per available seat mile and lower unit costs.

The airline reported its 34th consecutive profitable quarter during the period ended Sept. 30, earning $65.1 million or 50 cents per diluted share. That was down 7.8 per cent from $70.6 million or 52 cents per share a year earlier.

Analysts had looked for 48 cents per share on an adjusted basis and 49 cents per share under standard accounting, according to estimates from Thomson Reuters.

Total revenue grew to $924.8 million from $866.5 million a year earlier, an increase of 6.7 per cent.

"We had a strong third quarter in which we flew a record number of guests...and reached our initial business transformation initiative milestone one year early by implementing and identifying various opportunities which we believe will result in approximately $100 million in future cost savings in 2014," stated president and CEO Gregg Saretsky.

WestJet (TSX:WJA) announced a three-year plan last January to reduce $100 million in annual costs by the end of 2015.

It is also expanding its operations by rolling out its new Encore regional service and it introduced, in August, a premium economy Plus program aimed at the business traveller. WestJet Encore added Brandon, Man., to its destinations on Sept. 3 and Terrace, B.C., will join the list on Nov. 25.

WestJet's operating expenses increased 8.9 per cent in the quarter to $825.8 million but its costs per available seat mile (CASM), excluding fuel and employee profit sharing, decreased 1.5 per cent.

Analysts welcomed the improved outlook and said the results were largely in line with expectations.

"It was another solid quarter for WestJet with demand trends appearing to remain intact. Expectations heading into the quarter were likely high and we believe were largely met," Walter Spracklin of RBC Capital Markets wrote in a report.

He said the airline's lower-than-expected yield was largely offset by slightly better CASM.

David Tyerman of Canaccord Genuity anticipates that WestJet's results will accelerate.

"We believe WestJet should continue to produce solid share price appreciation, mainly based on continued EPS growth (15 per cent annual growth over the next two years)," he wrote, adding that its Plus program should generate nearly $80 million in additional revenues.

Meanwhile, WestJet reported Tuesday its October load factor was 79.2 per cent, the second highest level after last year's record 81.2 per cent. Traffic increased 5.4 per cent while capacity grew 8.1 per cent. The airline flew a record 1.5 million passengers in the month, up 4.3 per cent from the prior year.

On the Toronto Stock Exchange, WestJet's shares gained one cent at $27.31 in Tuesday morning trading.