July 26, 2019 / 10:20 PM / a year ago

UPDATE 2-Canada's WestJet posts surprise profit despite sector's 737 MAX woes

(Adds comments from CEO, background on Boeing MAX grounding)

July 26 (Reuters) - WestJet Airlines Ltd, which is being acquired by Onex Corp, reported a surprise quarterly profit and better-than-expected revenue on Friday while many airlines have warned of financial hits from the grounding of the Boeing Co 737 MAX jets.

WestJet, which has grounded its 13 737 MAX jets, said it had been able to re-accommodate the majority of passengers on alternate flights.

That and higher domestic traffic at its budget airline Swoop and regional carrier WestJet Link helped boost the company’s load factor by 3.3 basis points to 87.2% in the second quarter.

Yield, or the average fare per passenger per mile, rose 4.5% in the second quarter ended June 30, while traffic increased 6.8%.

The 737 MAX, which had been Boeing’s fastest-selling aircraft thanks to its fuel-efficient engines and longer range, was grounded worldwide in March after an Ethiopian Airlines plane plunged to the ground soon after take-off, five months after a similar Lion Air fatal crash off the coast of Indonesia.

CEO Ed Sims said WestJet was still in talks with Boeing about the costs of grounding its aircraft.

Operating expenses per available seat mile rose 4 percent, primarily because the rest of the airline’s fleet was not as fuel efficient as the grounded Boeing 737 MAX jets.

Sims also said the airline had not yet seen the need to lease additional aircrafts to offset the capacity lost due to grounding, adding that the market was charging an “absolute premium” to lease aircrafts.

“Even if we felt the need to plug the 2% of our capacity that we haven’t been able to operate, we’ll being doing it at such a premium that would likely make (its) way through higher air fares.”

WestJet has currently taken the Boeing 737 MAX out of its schedule until August, and Sims expects the company to review that in the next couple of days.

The U.S. Federal Aviation Administration has distanced itself from suggestions by Boeing that its grounded 737 MAX could resume flying passengers in October, saying regulators do not have a timeline for vetting safety upgrades.

WestJet reported a net profit of C$44.3 million, in the quarter, compared with a loss of C$15.8 million, a year earlier.

On a per share basis, it earned 38 Canadian cents, while analysts’ had on average estimated a loss of 14 Canadian cents, according to IBES data from Refinitiv.

Revenue rose 11.5% to C$1.21 billion, beating estimates of C$1.17 billion.

WestJet’s shareholders voted earlier this week in favor of its acquisition by billionaire Gerry Schwartz’s private equity firm Onex for C$3.5 billion.

In a separate statement on Thursday, the company said it had received final approval from the Court of Queen’s Bench of Alberta and expected the deal to close later this year if it receives remaining regulatory approvals. ($1 = 1.3166 Canadian dollars) (Reporting by Shanti S Nair in Bengaluru; Editing by Anil D’Silva)

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