WestJet says second quarter revenue pressured, shares down

Tue May 7, 2013 5:56pm EDT
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(Reuters) - Shares of WestJet Airlines Ltd WJA.TO, Canada's second-largest airline, fell as much as 13 percent on Tuesday after it warned it was likely to earn less revenue from every seat in the coming quarter, partly due to softer demand.

The company, based in Calgary, Alberta, said second-quarter revenue per available seat mile (RASM), a key measure of an airlines' efficiency, was likely to decline moderately.

It partly attributed that to the Easter and Passover holidays, which traditionally bring higher passenger numbers, falling within the first quarter this year.

"You're seeing capacity in Canadian airlines starting to increase. Obviously that puts downward pressure on ticket prices. So the revenue per available seat mile goes down," said Luciano Orengo, a portfolio manager with Manulife Asset Management, who owns WestJet shares.

WestJet also said its aircraft were less full in April, falling 3.5 percentage points on the year to 82.7 percent. RBC Capital Markets analyst Walter Spracklin called the traffic data results "negative" because WestJet's capacity growth of 7.4 percent far exceeded demand growth of 3.2 percent.

"While management is optimistic that what it terms as a 'soft patch' and several timing-related issues will revert in the rest of the quarter, we are mindful of the trends in higher capacity, slowing traffic, lower loads and lower yields," Spracklin wrote in a note to clients. RBC cut its price target to C$23 from C$27 on Tuesday.

WestJet shares, which have risen some 110 percent since the beginning of 2012, finished down 7.5 percent at C$22.87 on the Toronto Stock Exchange. The shares of Air Canada ACb.TO, the country's largest airline, closed 7.6 percent lower at C$2.32.

"The earnings were not too bad, but they did rattle the confidence of investors because the stocks were priced for perfection," said Diana Avigdor, portfolio manager and head of trading at Barometer Capital Management, referring also to Air Canada. Avigdor owns WestJet shares, but it has been discarding airline stocks recently.

The cancellation of some business through the Thomas Cook travel agency was also expected to impact second quarter results. WestJet noted that last year's results also benefited from Air Canada's labor uncertainty.   Continued...

A Westjet Boeing 737-700 takes off at the International Airport in Calgary, Alberta, May 3, 2011. REUTERS/Todd Korol