Air Canada shares shot up 10 per cent in early trading, rising to their highest price in nearly five years, after the airline said it expected its costs to be lower than expected.

The airline's Class B shares were up 43 cents at $4.40 in trading on the Toronto Stock Exchange after going for as much as $4.51 — the highest since dropping below $5 in October 2008.

CIBC World Markets raised its target price for Air Canada's B share to $5, from $4.75 following the announcement by the airline late Thursday.

CIBC said the revised guidance by the airline indicates that Air Canada is making good progress on its cost-cutting plan.

As as result, CIBC updated its estimates for Air Canada's adjusted earnings in the third quarter, which ended Monday, as well as for 2013 as a whole.

Air Canada said Thursday it now expects its third-quarter adjusted costs per available seat mile to be between three and 3.5 per cent lower than a year ago.

The decrease compared with a drop in adjusted costs per available seat mile of 1.5 to 2.5 per cent projected in early August.