November 4, 2014 / 2:23 PM / in 3 years

UPDATE 3-WestJet earnings up, CEO still committed to low fares

(Recasts after conference call, adds market reaction.)

By Allison Martell

Nov 4 (Reuters) - WestJet Airlines Ltd, Canada's No. 2 airline, reported higher third-quarter adjusted earnings on Tuesday and forecast a jump in capital expenditure in 2015, but shares slipped after Chief Executive Gregg Saretsky vowed to keep fares low.

The Calgary-based airline is growing beyond its roots as a no-frills domestic carrier, boosting capacity and adding more international flights. But on a call with analysts and investors on Tuesday, Saretsky said cheap fares are still a top priority.

"I am loathe to take any fare increases. Our whole ethos here is to provide Canadians with access to affordable travel, so we are all motivated to continue to move fares down, and that requires us to take cost out of our business," he said.

Shares dropped after the comments and were down 3.9 percent at C$30.77 by midday. Rival Air Canada also fell, sliding 2.8 percent to C$9.22.

RBC Capital Markets analyst Walter Spracklin said in a note to clients that the focus on cost control instead of revenue growth was not what investors wanted to hear, and suggested that a new bag fee might not significantly boost profits after all.

WestJet announced the new fee for checked bags on Sept. 15, and its shares rallied on hopes the charge would boost revenue and earnings. But a day later, Saretsky said the fee would make it possible to cut fares.

WestJet said it sees 2015 capital expenditures between C$820 million and C$840 million, up from an estimated C$660 million in 2014. The carrier is replacing seats across its fleet.

It improved 2014 cost guidance, saying it now expects cost per available seat mile, excluding fuel and profit sharing, to rise between 1.0 percent and 1.5 percent. It had previously seen an increase between 1.5 percent and 2.0 percent.

Excluding a non-tax charge, WestJet earned 66 Canadian cents per share in the third quarter, up from 50 cents a year earlier, missing the average analyst estimate of 68 cents a share, according to Thomson Reuters I/B/E/S.

But AltaCorp Capital Research analyst Chris Murray said the results were in line with his expectations: "All the performance metrics look to be in pretty good shape," he said. RBC's Spracklin also said the results were in line, and called the quarter "strong across the board."

Net earnings fell 19.8 percent to C$52.2 million, or 40 Canadian cents per share, dragged down by a pre-tax non-cash charge of C$45.5 million related to the sale of 10 old Boeing 737 aircraft. Revenue rose 9.2 percent to C$1.01 billion.

The company's revenue passenger miles rose nearly 7 percent to 5.40 billion in the third quarter. Revenue passenger miles is calculated by multiplying the number of revenue-paying passengers by distance traveled.

Revenue per available seat mile, a key measure of an airline's efficiency, increased 2.6 percent. ($1 = C$1.1391) (Additional reporting by Anannya Pramanick in Bangalore; Editing by Savio D'Souza, Meredith Mazzilli and Alan Crosby)

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