August 5, 2010 / 9:57 PM / 7 years ago

WRAPUP 1-Air Canada, WestJet see operating earnings rise

* Both airlines benefit from international travel

* Air Canada gets boost from business class clients

* WestJet to up capacity on international routes

* Defers some plane orders from Boeing

* Air Canada to increase China service

By John McCrank

TORONTO, Aug 5 (Reuters) - Air Canada ACa.TO ACb.TO and WestJet WJA.TO reported stronger quarterly operating results on Thursday, as Canada’s two biggest airlines benefited from more traffic, especially on international flights.

Air Canada, the country’s No. 1 airline, posted a quarterly net loss on Thursday, hurt by foreign exchange, but its operating results improved as a rebounding economy boosted high-end business travel.

“The recovery in business travel that we are seeing, I think, is pretty typical of a pattern of recovery post-recession,” said Chris Murray, an analyst at PI Financial.

Passenger revenue at the Montreal-based carrier rose 12 percent to C$256 million. Almost half of that came from higher revenue from the more lucrative “premium cabin” sector, which saw usage up 31 percent.

Calgary-based WestJet, which focuses more on leisure travel, saw a big jump in profit from a year earlier, but said that with uncertainty lingering in Canada’s economy it would focus on building its capacity on nondomestic routes.

“We are seeing continued strengthening in the Canadian domestic market but it’s a slow recovery,” Gregg Saretsky, WestJet’s chief executive, said on a call with analysts. “It hasn’t been a fast rebound.”

Citing the recent downward revision of Canadian GDP growth estimates, WestJet said it deferred delivery from Boeing BA.N of one plane to 2017 from 2011 and two other planes to 2017 from 2012. It will take delivery of six planes in 2011 and five planes in 2012.

Air Canada also plans to look abroad for growth. It has seen its Pacific routes surge, and said it plans on doubling its capacity between Toronto and China this autumn.

JULY LOAD FACTORS

In July, load factors -- which measure the percentage of available seats that were full -- were nearly 92 percent on the Pacific routes, something analyst Cameron Doerksen at Versant Partners said was “almost unheard of in the airline business.”

He said that shows that momentum has carried into the third quarter, which is seasonally the airline’s strongest period.

Both airlines saw passenger revenue per available seat mile (RASM), an industry performance benchmark, rise.

At Air Canada, RASM was up 6.6 percent.

That helped the airline turn in second-quarter operating income of C$75 million, compared with an operating loss of C$113 million a year earlier.

At WestJet, RASM was up 4 percent. While that was its first year-over-year increase in the benchmark in eight quarters, some analysts had forecast more.

Doerksen said he had expected a 5.5 percent increase. He put the discrepancy down to lower prices on expansion routes.

“Clearly, on the international, they’ve added a lot of capacity, and because they are new routes, they take a while to mature and they tend to be lower priced and so, I think, that had a bit of a drag on their unit revenue.”

PI Financial’s Murray said he had expected a 6.4 percent increase in WestJet’s RASM.

He pointed to Air Canada which said its Canada-only per-unit revenue was up 7 percent.

“The majority of WestJet’s traffic is still in Canada,” he said. “Now, don’t get me wrong, but I would have thought they would have done a little bit better.”

WestJet said it expects its per-unit revenue to be positive again in the current quarter.

FOREIGN EXCHANGE HIT

During the second quarter, a stronger Canadian dollar and a number of other nonoperating items helped push Air Canada to a second-quarter net loss of C$203 million ($199.6 million), or 72 Canadian cents a share.

Stripping out all the items, Doerksen said Air Canada’s results were positive.

“They appear to be on the right track,” he said.

WestJet earned C$21 million, or 14 Canadian cents a share, in the second quarter, up from C$9.2 million, or 7 Canadian cents a share, last year.

Stripping out one-time items, the company’s profit rose to C$23.4 million, or 16 Canadian cents a share, from C$9.2 million, or 7 Canadian cents a share.

Murray said that because WestJet has far less foreign debt than Air Canada, it is far less susceptible to fluctuations in the Canadian dollar.

Shares of WestJet closed 1 Canadian cent lower at C$12.98 on the Toronto Stock Exchange on Thursday. Air Canada ended down 10 Canadian cents at C$2.20.

$1=$1.02 Canadian Reporting by John McCrank; editing by Rob Wilson

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