November 10, 2008 / 2:27 PM / 10 years ago

UPDATE 2-WestJet flush with cash as profit falls 28 percent

* Earnings fall 28 percent

* Growth plans tempered by Boeing strike

* Ends quarter with hefty C$800 million in cash

* Shares down 3 percent

By Jeffrey Jones

CALGARY, Alberta, Nov 10 (Reuters) - WestJet Airlines Ltd (WJA.TO), Canada’s No. 2 carrier, has tempered its plans to boost capacity but remains cash-rich and expects to grab more market share as the North American economy sputters.

While reporting a 28 percent drop in third-quarter profit due to sky-high fuel costs, WestJet said it now expects its capacity to rise by 5 percent in 2009, down from its previous outlook of 8 percent.

But it blamed aircraft delivery delays due to the recently settled strike among machinists at Boeing Co (BA.N) for the pullback, not weak industry conditions. Its main competitor, Air Canada ACa.TO, and numerous U.S. airlines have chopped capacity over the past several months.

WestJet, one of just a few airlines that have stayed profitable during the industry downturn and credit crunch, plans a 2007 capacity increase of 18 percent.

“It will come off next year, but at the same time, we think it’s prudent to continue to grow and we’re growing profitably — we wouldn’t do it if we weren’t making money,” WestJet Chief Executive Sean Durfy told analysts. “So we continue to do that and continue to take market share.”

In addition, the carrier ended the quarter with C$800 million ($672 million) of cash on its balance sheet and has minimal capital expenditures in 2009, giving it a thick cushion as rivals burn through their reserves.

Last week, Air Canada said it had it had C$1.114 billion on its balance sheet, just C$114 million more than is considered comfortable.

“They’re strong financially. Their outlook is more positive than I would have expected — that’s the bottom line for me,” analyst Cameron Doerksen of Versant Partners said. “They have a decent view of what the fourth quarter looks like. Perhaps the first quarter and second quarter are a little more uncertain.”

The company had to deal surging oil prices early in the quarter, pushing its fuel bill to 40 percent of overall costs, up from 27 percent a year earlier.

WestJet said it has begun hedging a portion of its fuel costs to deal with oil-market volatility. It has hedged 20 percent of its fuel needs in 2009 and 8 percent in 2010.

Excluding fuel, costs fell 4.7 percent in the quarter.

WestJet shares were down 32 Canadian cents, or 3 percent, at C$10.33 on the Toronto Stock Exchange on Monday, less than half their value at the start of 2008.

The company earned C$54.7 million, or 42 Canadian cents a share, in the quarter, down from a year-earlier profit of C$76.1 million, or 58 Canadian cents a share.

It had been expected to earn 40 Canadian cents a share, according to a Reuters Estimates survey of analysts’ forecasts.

Revenue rose 18.5 percent to C$718.4 million from C$606.2 million.

WestJet begins a partnership with Southwest Airlines Co (LUV.N) in 2009. It will start selling seats on Southwest’s website before the end of this year and code-sharing is slated to begin in late 2009, Durfy said.

WestJet also said it signed a deal with Sabre Holdings for a new reservation system after it was forced to walk away from a failed attempt to have one designed last year.

$1=$1.19 Canadian Additional reporting by Frank Pingue; Editing by Peter Galloway

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