(Adds Air Canada traffic numbers)
By Jeffrey Jones
CALGARY, Alberta, Oct 3 (Reuters) - Shares of WestJet Airlines Ltd (WJA.TO) sank to a two-year low on Friday after Canada's No. 2 carrier said its planes flew smaller passenger loads last month as the economy weakened and its capacity increased.
Air Canada ACa.TO, the country's biggest airline, reported a higher load factor, or percentage of seats filled, but it cut its capacity by nearly 7 percent.
WestJet said its load factor was 75.5 percent last month, down from a year-earlier 78.7 percent.
The dip came as capacity, measured by available seat miles, rose 15.8 percent to 1.417 billion, and revenue passenger miles climbed 11 percent to 1.069 billion.
WestJet shares, fell 48 Canadian cents, or 4 percent, to C$10.97 on the Toronto Stock Exchange, its lowest since Oct. 12, 2006.
On Wednesday, Chief Executive Sean Durfy told Reuters that he had seen bookings for October dip and blamed worries about the U.S. credit crisis that has enveloped financial and commodity markets.
However, Durfy said travel demand appeared to be staying strong for November and December, and he had no plans to adjust WestJet's capacity additions for 2008 and 2009.
Versant Partners analyst Cameron Doerksen said he remains positive on WestJet's long-term prospects as the carrier's low costs and strong balance sheet likely spell more gains in market share.
But he warned that the market uncertainty means further downside in the short term.
Doerksen cut his 12-month target share price to C$14.50 from C$19, but maintained a "buy" recommendation.
"Given the heightened degree of economic uncertainty facing the country, we believe that demand conditions for WestJet in upcoming quarters are going to be challenging," Doerksen wrote in a note to clients.
Air Canada reported a load factor of 80.9 percent for September, up 1.8 percentage points from a year earlier.
Capacity fell 6.9 percent to 4.854 billion miles and revenue passenger miles fell 4.8 percent to 3.928 billion.
The load factor at Jazz Air LP JAZ_u.TO, Air Canada's regional affiliate, fell 4.3 percentage points to 69.3 percent. Jazz reported a 1.6 percent drop in capacity to 478 million miles and 7.3 percent fall in revenue passenger miles to 331 million.
In June, Air Canada said it plans to cut its capacity by 7 percent for its winter schedule and chop 2,000 jobs to deal with high fuel prices and the weakening economy, especially in the United States.
But those reductions do not take effect until November, Air Canada spokeswoman Angela Mah said.
The lower capacity in the September numbers reflect plans that had been discussed earlier this year, Mah said.
Air Canada shares fell 9 Canadian cents, or 2 percent, to C$4.91 in Toronto. They have tumbled 46 percent this year.
$1=$1.08 Canadian Editing by Peter Galloway