WestJet disappoints with outlook, shares dip

Wed Feb 6, 2013 4:19pm EST
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By Nicole Mordant

(Reuters) - Canada's WestJet Airlines Ltd (WJA.TO: Quote) offered a disappointing revenue outlook for the current quarter on Wednesday, sending its shares lower, even as it posted a stronger-than-expected jump in profit for the final three months of 2012 and boosted its dividend.

The outlook raised concerns that Canada's No. 2 air carrier could find it hard to maintain its record of strong growth against the backdrop of a tempered economic outlook for Canada and heightened competition.

"Revenue growth is clearly decelerating. They are talking about modest growth in Q1. By the time you get to the fourth quarter they will be lucky to be flat," said Raymond James analyst Ben Cherniavsky.

After a strong 2012, Cherniavsky is forecasting a tougher, more competitive 2013 for Canada's airlines as both WestJet and bigger rival Air Canada ACb.TO launch lower-cost subsidiaries. At the same time, the Bank of Canada has lowered its 2013 GDP forecast and Canadian household debt is at record levels.

National Bank Financial analyst Cameron Doerksen was more sanguine about WestJet's prospects, saying a 71 percent rise in fourth-quarter profit and expectations of a moderate increase in revenue for the first quarter were enough for him to re-affirm his positive view on the stock. He increased his target price to C$27 from C$26.

After starting the session firmer, the shares later fell 21 Canadian cents to close at C$22.34 on the Toronto Stock Exchange. The stock has risen 66 percent in the past year.

In a note to clients, Doerksen forecast a 21 percent rise in WestJet's earnings in 2013, driven by strong demand for air travel and WestJet's introduction of several revenue-generating initiatives this year, including premium economy seating in the second quarter.

COST-CUTTING PLAN   Continued...