(Reuters) - WestJet Airlines Ltd (WJA.TO), Canada’s second-largest carrier, reported a forecast-beating quarterly profit as costs fell, but increased capacity, competition and Calgary floods in July dented the bottom line.
WestJet said it was hitting its three-year targets a year earlier than planned and its newly launched Encore regional carrier was flying full planes and beating expectations.
Cost per available seat mile (CASM), excluding fuel and employee profit-sharing costs, declined 1.5 percent in the third quarter ended September 30.
The company said the fall in costs would be 0.5 percent for the full year, at the low end of its summer estimate of a 0.5 percent to 1 percent decline.
It expected capacity growth to hit between 8 and 8.5 percent for 2013, while domestic capacity growth was expected to be between 4.5 and 5 percent.
The airline also said its 2013 capital spending was slightly higher than its forecast, at C$720 million, because one of its Bombardier Q400 planes would be delivered in the fourth quarter instead of the first quarter of next year.
WestJet said it was on track to save $100 million in costs by the end of 2014, partly from better fuel savings.
The company expected 2014 CASM excluding fuel and profit share to remain flat to up 1 percent. It expects 2014 capacity growth between 4 and 6 percent.
“To the extent that the economy and the demand environment continue to progress, even at a moderate pace, the company appears well positioned to continue to deliver robust earnings growth,” BMO analyst Fadi Chamoun said in a client note.
WestJet, which also launched its “Plus” fare product option in August, is facing increased competition after bigger rival Air Canada ACb.TO boosted capacity with the summer launch of its discount vacation airline, Rouge.
Air Canada reported strong third-quarter traffic last month and said its cost-control measures had exceeded expectations.
Executives told analysts that the Encore regional operations were beating targets, although that was unlikely to continue long-term as the carrier adds new routes with more competition.
“When we analyze the numbers ... we (are) ahead of our base or plan, and very excited about how it’s tracking to date, and how that projects into 2014. So, so far so good on really all fronts,” said Bob Cummings, executive vice-president of sales, marketing and guest experience.
WestJet’s revenue per available seat mile, the key measure of an airline’s efficiency, fell about 4 percent in the third quarter and the company said it would remain at a similar level in the current quarter.
The low-cost airline said its load factor, a measure of how full its planes are, fell to 82.8 percent in the third quarter from 84.6 percent a year earlier. Traffic increased by 8.7 percent during the quarter as capacity increased by 11 percent.
Net income dropped to C$65.1 million, or 50 Canadian cents per share, in the quarter from C$70.6 million, or 52 Canadian cents per share, a year earlier.
Analysts on average had expected earnings of 48 Canadian cents, according to Thomson Reuters I/B/E/S.
Revenue grew nearly 7 percent to C$924.8 million ($888.5 million), but was slightly below the average analyst estimate of C$925.6 million.
WestJet shares, which have risen some 25 percent in the last three months, were up 5 Canadian cents at C$27.35 on the Toronto Stock Exchange by mid afternoon.
($1 = 1.04 Canadian dollars)
Reporting by Susan Taylor and Solarina Ho in Toronto; Additional reporting by Swetha Gopinath in Bangalore; Editing by Joyjeet Das and Kirti Pandey and Chizu Nomiyama