5 Min Read
(Reuters) - WestJet Airlines (WJA.TO) is targeting annual revenue of C$100 million from code-share agreements with other airlines within the next few years, a figure that suggests such tie-ups will have a minimal impact on the carrier's overall growth.
For the past two years, WestJet, Canada's second biggest airline, has strongly promoted the idea of code-share pacts with partner airlines as a way to expand its business as it bumps up against a mature airline market at home.
But the C$100 million figure, mentioned publicly by the airline for the first time on Wednesday, will represent only a small increase on its revenue, which analysts expect will top C$3 billion this year.
If C$100 million is the target, "then code shares and interlines are not going to change WestJet in a meaningful way," said Canaccord-Genuity analyst David Tyerman.
"The bigger things will just be their normal growth and things like the future decisions on do they bring into the fleet a larger or smaller aircraft," Tyerman said.
WestJet Chief Executive Gregg Saretsky said the carrier is targeting about C$100 million annually in extra revenue "when the full network of code-share partners are filled out and when each of them has reached maturity". He said that usually takes about five years.
The 15-year-old airline, which is modeled on U.S. low-cost carrier Southwest Airlines Co (LUV.N), has signed code-share agreements with three carriers: Cathay Pacific (0293.HK), American Airlines AMR.N and Air France-KLM (AIRF.PA).
It expects to ink another in December and another three or four in 2012, Saretsky said on a conference call to discuss WestJet's third-quarter results. Earnings fell 10 percent and were weaker than the market had expected.
Code sharing is the practice in which airlines sell space on each other's flights. It can help to boost revenues as they can offer passengers more destinations while keeping a lid on costs as they don't have to fly to all the places themselves.
WestJet operates a single fleet of Boeing Next-Generation 737 aircraft. The uniform fleet, which brings with it lower maintenance, training and other costs, is often cited as a major reason why WestJet's expenses are one-third lower than bigger rival Air Canada's ACb.TO.
But the 737's limited range prevents WestJet from flying to destinations across the Atlantic and Pacific. Currently it flies only within Canada and to the United States, Mexico and the Caribbean.
Asked if WestJet had any plans to add other aircraft, Saretsky said it was "consistently studying" which markets would be better served by smaller and larger planes.
"But, at this point, no decisions have been made by management and the board on which direction and when," he said.
Earlier on Wednesday, WestJet reported its quarterly profit fell to C$39.3 million, or 28 Canadian cents a share, from C$43.8 million, or 30 Canadian cents, a year earlier.
The drop came on the back of higher jet fuel and maintenance costs and brought earnings per share below analysts' expectations of 33 Canadian cents.
Revenue rose 13 percent to C$775.3 million.
WestJet said revenue per available seat mile (RASM) - an industry measure to compare revenue performance among airlines - rose 5.8 percent in the third quarter, and that it expects similar growth in the fourth quarter.
Costs per available seat mile (CASM) increased 9 percent as fuel prices remained "stubbornly high", the airline said. At 89 cents a liter in the third quarter, they were 27 percent higher than a year earlier.
The company said it expects fuel costs to rise to 90 cents to 93 cents a liter in the fourth quarter.
"All in, a reasonably okay quarter. The outlook was good," said PI Financial analyst Chris Murray. "There seems to be some issues with maintenance costs, which was a little surprising."
WestJet said that even though economic uncertainty was making consumer confidence shaky, its forward bookings were not being hit significantly.
WestJet shares were down 43 Canadian cents, or 3 percent, at C$12.71 on the Toronto Stock Exchange on Wednesday afternoon, deeper than the overall market's 2 percent fall.
Additional reporting by Bhaswati Mukhopadhyay in Bangalore; editing by Peter Galloway and Rob Wilson