August 6, 2009 / 1:18 PM / in 8 years

UPDATE 3-WestJet profit falls but beats expectations

* EPS C$0.07 vs C$0.21 a year earlier

* Cuts aircraft utilization rate, capacity

* Sees no real improvement in rev per seat mile in 2009

* Results top estimates

* Shares climb 3.4 pct to C$11.05 (Adds quotes from CEO, analyst, details, stock price)

By Susan Taylor

OTTAWA , Aug 6 (Reuters) - WestJet Airlines Ltd (WJA.TO) posted a 66 percent drop in quarterly earnings on Thursday as a weak economy squeezed travel demand, and the carrier said it expects no real improvement this year in a key measure of revenue.

Still, Canada’s No.2 airline’s results were stronger than expected, and coupled with promising air traffic results, helped lift WestJet shares 3.4 percent higher.

“The air traffic numbers that were reported by WestJet and Air Canada were better than I would have expected and seemed to be showing a stabilization in the market,” said Genuity Capital Markets analyst David Tyerman in an interview. “Stabilization is the first thing that happens before recovery.”

The financial results also topped expectations, the analyst said, particularly after one-time items were stripped out.

Even with “possibly the toughest economic environment ever experienced by the airline industry,” WestJet said it has seen stability over the past six weeks.

“It seems like we’re dancing on the bottom right now; we’re not making the trek back up the hill,” Chief Executive Sean Durfy said in an interview.

“What we had seen, previous to six weeks ago, was it continued to drop and now we’ve sort of stabilized at the bottom over the last six weeks.”

To navigate the “short-term environment,” WestJet said it will use more efficient scheduling to eliminate unprofitable flight and reduce its aircraft utilization rate. That will result in a third-quarter capacity decline of between 1 percent and 2 percent, with full-year capacity now seen growing by 2 percent to 3 percent.

“Our consumer-driven economy isn’t a pretty place for any discretionary-spend company, as consumers are deploying the hunker-down-and-wait-out-the-storm mentality,” Durfy said during a conference call.

Versant Partners analyst Cameron Doerksen said the results outpaced his expectations, but the forecast was worse than anticipated.

“Visibility still remains limited, but management indicates that it does not expect any material improvement in RASM (revenue per available seat mile) in Q3 relative to the (15 percent) decline experienced in Q2,” he said in a note.

“Moreover, management is not anticipating any real recovery in Q4 either. This outlook is consistent with what many airlines globally are currently indicating.”

RESULTS BEAT EXPECTATIONS

The airline posted earnings of C$9.2 million ($8.59 million), or 7 Canadian cents a share, in the second quarter. That compares with a profit of C$26.8 million, or 21 Canadian cents, in the same period a year earlier.

Analysts, on average, had expected the airline to report earnings of 4 Canadian cents a share on revenue of C$529.5 million, according to Reuters Estimates.

WestJet’s revenue fell 13.8 percent to C$531 million.

Economic turmoil and aggressive pricing hurt quarterly results, WestJet said, though lower fuel prices slashed costs per available seat mile and reduced profit erosion, the company said.

The airline, which competes with Air Canada ACa.TO domestically and is one of the few profitable North American carriers, said its key revenue per available seat mile, or RASM, saw “an incredible drop” of 15.4 percent.

The airline increased capacity by 1.9 percent during the quarter, while its load factor, or the number of seats filled, fell by 3.4 percentage points to 76.1 percent.

The Calgary-Alberta based company said it plans to take delivery of two new aircraft in August and five aircraft in the fourth quarter, boosting its fleet to 86 planes.

The introduction of 11 new destinations and three new countries to the carrier’s winter schedule is expected to capture additional market share, WestJet said.

The Calgary-based company said it expects to cut about C$28 million in costs over the next six months. Next year, Durfy told Reuters that cuts could range between C$25 million and C$50 million.

WestJet also said it is in talks with Boeing and its leasing company to defer its aircraft delivery schedule over the next several years, starting in 2010. The company said it will announce more details when it strikes a deal.

Shares rose 36 Canadian cents to end at C$11.05 on the Toronto Stock Exchange on Thursday. ($1=$1.08 Canadian) (Reporting by Susan Taylor; editing by John Wallace and Peter Galloway)

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