WestJet warns on outlook but optimistic on costs

Tue Jul 30, 2013 3:42pm EDT
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By Solarina Ho

TORONTO (Reuters) - WestJet Airlines Ltd posted a slightly higher-than-expected quarterly profit on Tuesday but warned that a key measure of airline efficiency would decline in the near term as it launches its Encore regional carrier.

Canada's No. 2 airline said revenue per available seat mile (RASM) fell 4.6 percent in the second quarter and would show a similar drop in the current quarter. But it cut its costs in the latest quarter and issued an improved cost outlook.

WestJet reduced its estimate for cost per available seat mile for the full year, excluding fuel and employee profit-sharing costs. It now expects a decline of 0.5 percent to 1 percent, compared with a prior forecast of flat to up 1 percent.

"On the positive side of the ledger, investors will be comforted by the solid cost-control efforts," Walter Spracklin, an analyst with RBC Dominion Securities Inc, said in a note. "On the negative side are the declines in yields and RASM..."

Competition among Canadian airlines is ramping up, with Air Canada, the country's largest airline, boosting capacity with the launch of its Rouge airline this summer. The new low-cost carrier is aimed at high-volume leisure travel in the Caribbean, United States and other international markets.

WestJet executives said Encore would add value over time, even though the launch of the regional carrier would mean lower efficiency for the company overall in the near term.

WestJet shares were up 5 Canadian cents at C$20.18 in afternoon trading in Toronto.

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