July 30, 2013 / 2:24 PM / in 4 years

UPDATE 2-WestJet warns on outlook but optimistic on costs

* Profit rises 5 percent, helped by cost-cutting

* Earnings top estimates, but near-term outlook worries

* Average revenue per seat declines 4.6 percent

* Roll-out of regional carrier Encore hits efficiency

By Solarina Ho

TORONTO, July 30 (Reuters) - WestJet Airlines Ltd posted a slightly higher-than-expected quarterly profit on Tuesday but warned that a key measure of airline efficiency would decline in the near term as it launches its Encore regional carrier.

Canada’s No. 2 airline said revenue per available seat mile (RASM) fell 4.6 percent in the second quarter and would show a similar drop in the current quarter. But it cut its costs in the latest quarter and issued an improved cost outlook.

WestJet reduced its estimate for cost per available seat mile for the full year, excluding fuel and employee profit-sharing costs. It now expects a decline of 0.5 percent to 1 percent, compared with a prior forecast of flat to up 1 percent.

“On the positive side of the ledger, investors will be comforted by the solid cost-control efforts,” Walter Spracklin, an analyst with RBC Dominion Securities Inc, said in a note. “On the negative side are the declines in yields and RASM...”

Competition among Canadian airlines is ramping up, with Air Canada, the country’s largest airline, boosting capacity with the launch of its Rouge airline this summer. The new low-cost carrier is aimed at high-volume leisure travel in the Caribbean, United States and other international markets.

WestJet executives said Encore would add value over time, even though the launch of the regional carrier would mean lower efficiency for the company overall in the near term.

WestJet shares were up 5 Canadian cents at C$20.18 in afternoon trading in Toronto.

LOAD FACTOR FALLS

The Calgary, Alberta-based company said load factor, the percentage of available seats filled with paying customers, fell to 79.4 percent in the second quarter from 81.6 percent a year earlier.

It said the introduction of larger, higher-priced premium economy seats next month should give revenue per seat a lift in the second half.

Analysts said they were encouraged by the company’s expectations that capacity growth would slow next year, to a range of 4 to 6 percent.

Net income in the second quarter rose to C$44.7 million ($43.5 million), or 34 Canadian cents per share, from C$42.5 million, or 31 Canadian cents per share, a year earlier.

Analysts on average had expected 33 Canadian cents per share.

Revenue increased 4.3 percent to C$843.7 million.

Executives said bookings in June and July experienced some weakness due to flooding in Calgary, Alberta. The impact was estimated at C$6 million to C$10 million.

Executives at WestJet, which is not unionized, said they were addressing employee concerns following media reports of a unionization drive by flight attendants.

One potential issue is that the company is set to open new bases in other cities beyond its Calgary headquarters, which could affect where staff are based.

“Change is going on at WestJet, creating a certain level of uncertainty,” Chief Executive Gregg Saretsky said during a conference call with analysts. “We are trying to get that uncertainty behind us as quickly as possible.”

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