February 3, 2015 / 11:59 AM / 4 years ago

Lower fuel costs help Canada's WestJet post higher profit

(Reuters) - Cheaper fuel helped WestJet Airlines Ltd (WJA.TO) report a 34 percent jump in quarterly profit and the Canadian carrier said it expected fuel costs to fall by up to 30 percent in the current quarter.

A Westjet Boeing 737-700 takes off at the International Airport in Calgary, Alberta, May 3, 2011. REUTERS/Todd Korol

The No. 2 Canadian airline by revenue behind Air Canada (AC.TO), said costs per available seat mile, a measure of how much an airline spends to fly a passenger, declined 3.5 percent in the fourth quarter ended Dec. 31 as fuel costs fell 6.4 percent.

Fuel prices have fallen over the past few months, reflecting a 50 percent slump in global crude oil prices LCOc1 since June due to excess supply and weak demand from Europe.

WestJet, however, ramped up its 2015 capital budget by $100 million to C$920 million-C$940 million due to a weak Canadian dollar.

A fall in the Canadian dollar hurts Canadian airlines as they make major purchases such as planes and fuel in U.S. dollars. A stronger dollar also often curbs travel.

The U.S. dollar strengthened to C$1.14 on an average in the fourth quarter CAD= from C$1.05 in the year-earlier quarter.

“So far the demand for travel seems to be pretty stable. We are not seeing any fall outs,” Altacorp Capital analyst Chris Murray said.

Calgary-based WestJet has been boosting capacity and adding more international flights, but has stressed that cheap fares are still a top priority for the airline, which began as a no-frills carrier.

While it announced a new fee for checked-in bags in September, it slashed fares for economy passengers on several routes by as much as 15 percent two months later.

Fourth-quarter ancillary revenue rose 46 percent to C$67 million, mainly helped by the introduction of the first-bag fee, Chief Financial Officer Vito Culmone said on a conference call with analysts.

Fees linked to baggage, advance seat selection and other options are a growing source of revenue for airlines.

Net profit rose to C$90.7 million ($72.4 million), or 70 Canadian cents per share, from C$67.8 million, or 52 Canadian cents per share, a year earlier.

Total revenue rose 7.3 percent to C$994.4 million, marginally beating analysts’ estimate of C$992.2 million.

Writing by Sayantani Ghosh in Bengaluru; Editing by Kirti Pandey

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