July 29, 2014 / 9:39 AM / 5 years ago

WestJet results top estimates; airline plots expansion

TORONTO (Reuters) - Lifted by strong demand and market-beating quarterly results, WestJet Airlines Ltd (WJA.TO) on Tuesday laid out growth plans including increased capacity and new turboprops for its regional carrier.

A Westjet aircraft is seen through a rain-covered window at Trudeau airport in Montreal May 16, 2011. REUTERS/Shaun Best

Canada’s No. 2 carrier, which is also plotting expansion into overseas markets with wide-body planes next year, said higher ticket prices and tight cost controls more than offset pressure from climbing fuel prices in the second quarter.

Shares of the Calgary-based airline, which said it exercised options to buy five Q400 planes from Bombardier Inc (BBDb.TO) for its growing Encore subsidiary, touched an all-time high of C$29.11 before paring gains.

WestJet said it is now sourcing four Boeing 767-300ERW to use on long-haul routes, a market dominated by its bigger rival, Air Canada ACb.TO. Service will start with two planes operating an Alberta-Hawaii route next winter, with expansion into overseas markets in the summer of 2016.

“We are seeing positive momentum as a result of the robust demand environment, the further roll-out of WestJet Encore plus the continued success of our fare bundles,” WestJet Chief Executive Gregg Saretsky said on a conference call with analysts. “For the third quarter, we are expecting strong traffic and revenue growth.”

The airline said it will increase full-year capacity by 6 percent to 7 percent, a percentage point above its previous forecast. Costs, excluding fuel and profit share, are expected to rise just 1.5 to 2 percent, an improvement from its earlier view of a 2 percent to 2.5 percent gain.

“While WestJet is rolling out new capacity, the current demand environment remains well supportive and we do not see any market disruptions,” RBC Capital Markets analyst Walter Spracklin said in a note.

The carrier is moving beyond its roots as a domestic, no-frills carrier by extending its reach, while adding service fees, tiered ticket pricing, and onboard sales.

This summer, it expanded its one-year-old Encore into central and eastern Canada and launched its first trans-Atlantic service to Dublin.

WestJet reported a record net profit of C$51.8 million ($47.9 million), or 40 Canadian cents per share, in the quarter ended June 30, from C$44.7 million, or 34 Canadian cents a share, in the same period last year.

Revenue rose 10 percent to C$930.7 million.

Analysts on average had expected a profit of 28 Canadian cents per share on revenue of C$913.9 million, according to Thomson Reuters/I/B/E/S.

Costs excluding fuel and profit sharing rose 1.9 percent in the quarter, well below the company’s forecast of an increase of 3 percent to 4 percent.

A recovering Canadian dollar helped to clamp increases, WestJet said, along with a lower cost of sales, advertising and technical expenses.

($1 = 1.0805 Canadian dollars)

Additional reporting by Sneha Banerjee and Anannya Pramanick; Editing by Ted Kerr, Simon Jennings, Nick Zieminski and Paul Simao

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