May 3, 2016 / 10:57 AM / in a year

Canada's WestJet reports higher-than-expected profit

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

(Reuters) - Canada’s WestJet Airlines Ltd (WJA.TO) on Tuesday reported a higher-than-expected quarterly profit, helped by lower fuel costs.

Calgary-based WestJet’s fuel expenses, typically an airline’s largest variable cost, fell nearly 21 percent to C$166.4 million ($132.4 million).

WestJet has shifted its focus to eastern Canada and suspended nearly a dozen daily flights in January from Alberta’s airports after airlines operating in the oil-rich province started recording a significant decline in passenger traffic.

On a conference call with analysts, Chief Financial Officer Harry Taylor said the airline would continue with efforts to control its costs, including renegotiating contracts with vendors.

“We are not going to leave any stone unturned,” Taylor said.

The company’s cost per available seat mile, a measure of how much an airline spends to fly a passenger, fell 4.2 percent to 12.45 Canadian cents in the first quarter, from a year earlier.

WestJet’s full-year CASM is projected to rise 0.5 percent to 2.5 percent, higher than the carrier’s previous guidance.

However, WestJet’s revenue per available seat mile (RASM), an indicator of an airline’s efficiency calculated by dividing operating income by available seat miles, fell 11 percent to 14.14 Canadian cents. WestJet projects RASM to be down between 7.5 percent and 9.5 percent in the second quarter.

“While we sense that full year expectations are reasonable particularly given the pullback in capacity, the bar was higher following the strong Air Canada results and guidance,” wrote BMO analyst Fadi Chamoun in a note to clients on Tuesday. “Reception of these results is likely to be muted.”

The company’s earnings fell nearly 38 percent to C$87.6 million, or 71 Canadian cents per share, in the first quarter ended March 31.

Analysts on average had expected earnings of 65 Canadian cents, according to Thomson Reuters I/B/E/S.

“The favorable variance on an EPS basis was largely due to lower interest costs,” Chamoun wrote.

Revenue fell 4.8 percent to C$1.03 billion.

Up to Monday’s close, WestJet’s stock had fallen 22 percent in the past 12 months.

“We remain cautious on Canadian airlines due to tough macro tape including continued weakness in Alberta, intense competition, and pricing pressure,” wrote Macquarie analyst Konark Gupta in a note to clients.

($1 = 1.25 Canadian dollars)

Reporting by Manish Parashar in Bengaluru; Editing by Maju Samuel

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