November 3, 2015 / 12:10 PM / in 2 years

UPDATE 2-WestJet 3rd-qtr profit beats estimates as fuel costs fall

(Adds quotes from conference call, remark from analyst)

By Allison Lampert

Nov 3 (Reuters) - Canada’s WestJet Airlines Ltd reported a better-than-expected profit in the third quarter ended Sept. 30, helped by lower fuel costs and improved operating margins.

WestJet’s fuel costs fell 27.9 percent to C$206.9 million ($157.8 million) in the quarter.

Fuel is usually an airline’s largest variable cost, accounting for a third or more of operating expenses.

Calgary-based WestJet also announced it would introduce a new C$25 fee for checked bags on its international economy fares, starting in January 2016, as the airline challenges rival carrier Air Canada with recently introduced flights to international destinations including Europe.

“We’ve made this decision that we will unbundle certain services,” WestJet President and Chief Executive Gregg Saretsky told a conference call with analysts.

“We’re busting up the model for long-haul flying,” he added.

Net earnings in the quarter rose 95 percent to C$101.8 million, or 82 Canadian cents per share, from a year earlier.

Analysts on average had expected earnings of 75 Canadian cents per share, according to Thomson Reuters I/B/E/S.

Revenue rose 3.5 percent to C$1.05 billion, beating the average analyst estimate of C$1.02 billion.

Cost per available seat mile, a measure of how much an airline spends to fly a passenger, fell 5.7 percent to 12.83 cents.

The airline’s operating margin rose to 15.3 percent from 12.5 percent.

In a note to clients, Macquarie analyst Konark Gupta said WestJet’s October traffic growth was only 0.3 percent compared to 4.2 percent during the first nine months of 2015.

“We believe the market could be disappointed with October traffic,” he wrote. ($1 = C$1.31) (Reporting by Allison Lampert in Montreal and Amrutha Gayathri in Bengaluru; editing by G Crosse)

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