WestJet Airlines scales back 2019 capacity growth, beats on profit

(Reuters) - WestJet Airlines Ltd will scale back capacity growth this year to focus on more profitable routes, as it looks to cut costs and lure higher-paying customers to turn it around after a turbulent 2018, Chief Executive Ed Sims said on Tuesday.

A WestJet airplane lands at Vancouver's international airport in Richmond, British Columbia, Canada, February 5, 2019. REUTERS/Ben Nelms

Shares of the second-largest Canadian carrier surged more than 3 percent in late morning trading in Toronto, after it beat analyst estimates for profit in the fourth quarter by containing costs and said it anticipates strong 2019 bookings.

Calgary-based WestJet aims to broaden its share of higher-paying passengers by introducing fees for perks like priority boarding and added legroom, along with its new Dreamliner business class service.

The airline will take a “prudent approach” to capacity as it grows its budget carrier Swoop and Dreamliner business class service this year, said Chief Financial Officer Harry Taylor.

WestJet will boost capacity by between 6 percent and 8 percent in 2019, down from its previous forecast of 6.5 percent to 8.5 percent.

Investors have been concerned the airline has been overly ambitious as it introduces the Dreamliners, grows Swoop and negotiates with a unionized workforce in 2019.

Competition, higher costs and the threat of a strike by WestJet’s pilots last year helped drag down the stock by 32 percent over the past 12 months.

“We know we have to earn the right to grow, particularly in our premium cabins,” Sims told analysts.

WestJet is expecting revenues per available seat mile (RASM), a key industry metric, to rise 0.5 percent to 2.5 percent in the first quarter, and 2.0 percent to 4.0 percent on an annual basis, driven by demand.

The carrier has committed to reducing costs by C$200 million by 2020.

During the fourth quarter, costs per available seat mile (CASM), excluding fuel and employee profit share, increased 0.3 percent, below previous guidance 1 percent to 2 percent, Taylor told analysts.

RASM - which measures how much the airline makes from each seat on the plane - rose almost 1 percent to C$14.72 in the fourth quarter. Revenue from customers grew 7 percent, while total revenue increased 6.6 percent to C$1.19 billion ($906.39 million).

The company earned 26 Canadian cents a share in the quarter ended Dec. 31. That was double analyst estimates of 13 Canadian cents per share, according to IBES data from Refinitiv.

Net profit, however, dipped to C$29.2 million from C$47.8 million a year earlier, reflecting pressure on airlines from higher fuel costs over the past year.

Reporting by Shradha Singh in Bengaluru and Allison Lampert in Montreal; Editing by Maju Samuel and Bernadette Baum