February 2, 2016 / 11:46 AM / 3 years ago

WestJet says weak Alberta economy weighing on demand

(Reuters) - WestJet Airlines Ltd’s (WJA.TO) quarterly revenue per available seat mile, a key measure of profitability, is poised for its steepest decline since 2009, as Alberta’s weakening economy weighs on leisure and business travel from the western Canadian province.

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

The company’s shares fell as much as 11.5 percent to a more than three-year low of C$16.55.

Alberta, known for its oil-rich resources, has been hit by a near 70 percent plunge in oil prices since June 2014.

Airlines in western Canada that were once blooming in the oil-rich region have been recording a significant decline in passenger traffic to and from and within Alberta.

The company said it expects its revenue per available seat miles to decline as much as 12 percent in the current quarter.

Unlike in 2009, when Canada was hit by a recession and a swine flu outbreak, the current weakness in demand is restricted to Alberta, the company said, adding that it expects demand to improve after the first quarter.

“ ... We are moving capacity around, with other regions being very healthy,” Bob Cummings, executive vice-president of sales and marketing, said on a post-earnings call.

WestJet, which has shifted its focus to eastern Canada, suspended nearly a dozen daily flights from Alberta’s largest airports, Calgary and Edmonton, last month.

Western Canada historically accounted for about a quarter of WestJet’s operations, according to AltaCorp Capital analyst Chris Murray.

The company said it was not seeing any impact from Zika, the mosquito-borne virus that has quickly spread through Latin America.

The Calgary-based company also cut its full-year system-wide capacity growth forecast to 7-10 percent from 8-11 percent on Tuesday, and said it sees domestic capacity growing at 3-4 percent.

WestJet said it expects system-wide capacity to grow between 6.0 percent and 6.5 percent in the first quarter and domestic capacity to grow between 10.0 percent and 10.5 percent.

The amount of capacity growth that WestJet is forecasting could be difficult to achieve at a profitable level, AltaCorp analyst Murray said.

The company’s profit was 51 Canadian cents per share in the fourth quarter, way below the average analyst estimate of 63 Canadian cents, according to Thomson Reuters I/B/E/S.

Revenue fell 3.6 percent to C$958.7 million, while operating margins fell to 11.8 percent from 14 percent.

Reporting By Allison Lampert in Montreal and Anet Josline Pinto in Bengaluru; Editing by Anil D'Silva and Maju Samuel

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