November 1, 2016 / 11:12 AM / a year ago

UPDATE 3-WestJet's profit beats as it flies more passengers

* Estimates 2017 capex of C$880 mln-C$900 mln

* Q3 profit C$0.97 vs estimated C$0.94 (Adds executive comments from investor call, analyst comment)

By Allison Lampert

Nov 1 (Reuters) - WestJet Airlines Ltd on Tuesday reported a better-than-expected quarterly profit as it flew more passengers and expenses fell, sending shares of Canada’s second-largest carrier up 5 percent.

The company’s revenue per available seat mile (RASM), an indicator of an airline’s efficiency, has fallen for seven straight quarters and is expected to remain negative through year’s end before turning positive during the first three months of 2017, WestJet said in a statement.

“This year we’ve been challenged with the Alberta economy in particular,” WestJet Chief Financial Officer Harry Taylor told analysts.

WestJet anticipates some headwinds in the fourth quarter, with RASM expected to fall by a steeper 4-6 percent during the last three months of the year before making traffic gains at the start of 2017.

Macquarie analyst Konark Gupta wrote in a note that the fourth quarter “could disappoint,” but said a “silver lining” in expected positive first-quarter RASM “partially offsets cost inflation and could positively impact investor sentiment.”

Chief Executive Gregg Saretsky said the carrier now expects stronger demand in Western Canada.

WestJet, which uses Boeing 767s on international flights, is talking with Airbus Group SE and Boeing Co about adding either more of the second-hand widebodies, new planes, or a combination of the two, he said.

“We are engaging with Airbus and with Boeing, talking about how best to move forward.”

The airline’s RASM fell 2.7 percent in the third quarter.

WestJet said it expects cost per available seat mile (CASM), excluding fuel and employee profit share, to fall by 1-2 percent in the fourth quarter.

Fuel expenses, typically an airline’s largest variable cost, declined 0.3 percent in the quarter.

Airlines have benefited as crude prices remained low for more than 2 years. However, oil prices are now showing a slight recovery, indicating fuel costs may rise.

The airline flew 5.9 million passengers in the third quarter, up 7 percent from a year earlier. Load factor, which measures how effectively it filled seats, rose to 84 percent from 81.8 percent a year earlier.

WestJet’s net earnings rose to C$116 million ($86.68 million), or 97 Canadian cents per share, in the third quarter ended Sept. 30, from C$101.80 million, or 82 Canadian cents per share, a year earlier.

Analysts on average had expected a profit of 94 Canadian cents per share, according to Thomson Reuters I/B/E/S. ($1 = 1.3383 Canadian dollars) (Reporting by Ahmed Farhatha in Bengaluru; Editing by Shounak Dasgupta and Meredith Mazzilli)

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