May 7, 2013 / 11:29 AM / 4 years ago

UPDATE 3-WestJet says 2nd quarter revenue pressured, shares down

* Revenue per available seat mile to decline in Q2

* Sees smaller rise in cost per available seat mile in 2013

* Will buy 10 Boeing 737-800s, sell 10 737-700s

* First-quarter earnings/share C$0.68 vs C$0.63 estimate (Adds details of outlook, buy-side comment, closing stock price)

May 7 (Reuters) - Shares of WestJet Airlines Ltd, 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, 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.

"We've experienced the same soft patch in April as reported by other North American carriers," Chief Executive Officer Gregg Saretsky told analysts on a conference call. "We are, however, seeing stronger bookings in May and June, with a moderate decline in RASM."

The company said it expected its 2013 second quarter results to be among its best ever for a second quarter, even as capacity is expanding in excess of nine percent.

RECORD FIRST QUARTER

WestJet announced it would sell 10 Boeing 737-700 aircraft to an undisclosed third-party in 2014 and 2015, and it would buy 10 Boeing 737-800 aircraft. The airline owned 39 Boeing 737-700s and four 737-800s as of Dec. 31, 2012.

The company said it had deferred delivery of five Boeing 737-700s to 2016 and 2017 from 2014 and 2015.

The fleet upgrade is expected to reduce costs as the newer planes have a greater number of seats.

The company also forecast a smaller rise in cost for the full year. It expects costs per available seat miles (CASM), excluding fuel and employee profit-sharing costs, to be flat to up 1 percent, compared with a prior forecast of 2 percent to 3 percent.

It reported a record 33.3 percent rise in first-quarter profit, beating analysts' estimates, as it flew fuller planes.

Net earnings rose to C$91.1 million (US$90.3 million), or 68 Canadian cents per share, from C$68.3 million, or 49 Canadian cents per share, a year earlier.

Revenue rose 8.6 percent to C$967.2 million.

Analysts, on average, expected earnings of 63 Canadian cents per share on revenue of C$972.3 million, according to Thomson Reuters I/B/E/S.

$1 = 1.01 Canadian dollars Reporting by Solarina Ho in Toronto and Krithika Krishnamurthy in Bangalore; Additional reporting by Susan Taylor and John Tilak in Toronto; Editing by Chris Reese

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