July 26, 2016 / 10:42 AM / 3 years ago

WestJet Airlines profit slumps, but beats estimates

(Reuters) - WestJet Airlines Ltd’s (WJA.TO) quarterly profit slumped 40.5 percent and the carrier said Tuesday that costs would rise this year due to the timing of maintenance expenses on its widebody aircraft and extra charges incurred on a new London route.

A West Jet Boeing 737-700 aircraft (L) departs Vancouver International Airport in Richmond, British Columbia February 9, 2011. REUTERS/Andy Clark

WestJet said it expected cost per available seat mile (CASM), excluding fuel and employee profit share, to rise by 2.5 to 3.5 percent in 2016, higher than the 0.5 to 1.5 percent anticipated earlier. The company forecast a 1.0 to 1.5 percent increase in current-quarter adjusted CASM, a measure of how much an airline spends to fly a passenger.

Still, WestJet beat analysts’ estimates as the Canadian carrier flew more passengers and its fuel costs declined.

Macquarie Capital Markets analyst Konark Gupta said the cost increase was not “overly concerning” as it related to “teething issues” on London flights.

WestJet Chief Executive Gregg Saretsky told analysts on a conference call that the carrier’s performance recently improved on trips to London after previously incurring charges for irregular operations, such as when a flight fails to operate on schedule.

“It was a blip and the blip is behind us,” Saretsky said.

Britain’s recent vote to leave the European Union should not affect flights into London, Saretsky said, adding that as a low-cost carrier, WestJet could attract more customers.

“To the extent that the Brits become more price sensitive, that plays really to the strength of our model.”

The company expects added fourth-quarter maintenance costs as it does the work late this year to free up planes for flights to Hawaii in the first quarter of 2017.

The company said it expected the decline in revenue per available seat mile (RASM) to slow to 1 to 3 percent in the current quarter from 5.8 percent in the second quarter.

RASM, an indicator of airline efficiency, is calculated by dividing operating income by available seat miles.

WestJet’s fuel expenses, typically an airline’s largest variable cost, declined 15 percent in the quarter ended June 30.

Load factor, which measures how effectively the airline filled seats, rose to 80.8 percent from 78.1 percent a year earlier.

Net earnings fell to C$36.7 million ($27.8 million), or 30 Canadian cents per share, due to higher operating expenses excluding fuel costs. Analysts on average had expected a profit of 29 cents per share, according to Thomson Reuters I/B/E/S.

Revenue rose slightly to C$949.3 million, topping the average estimate of C$945.8 million.

Reporting by Anet Josline Pinto in Bengaluru and Allison Lampert in Montreal; Editing by Kirti Pandey and Matthew Lewis

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