February 11, 2009 / 2:03 PM / in 9 years

UPDATE 3-WestJet profit falls 46 pct, fuel costs rise

* EPS C$0.32 compared with C$0.57 a year earlier

* Fuel costs rise despite skidding oil prices

* Shares drop 6 percent (Adds CEO, analyst comments)

By Jeffrey Jones

CALGARY, Alberta, Feb 11 (Reuters) - WestJet Airlines Ltd WJA.TO, Canada’s No. 2 carrier, said on Wednesday its fourth-quarter earnings fell 46 percent due an unexpected jump in fuel costs and severe winter weather, and warned that its first-quarter results may be weaker.

Still, Chief Executive Sean Durfy said WestJet is positioned to take advantage of the sector’s overall economic weakness, having boosted its cash war chest by more than 25 percent through 2008 to C$820.2 million ($661 million).

“We’ve got this system that’s working very well, load factors are staying high, our people are motivated,” Durfy said in an interview.

“So even in a downturn of the economy, we can continue to concentrate on growing the airline. In the case of a lot of companies, they’re concentrating on survival.”

The cash allows WestJet to fund the remaining construction of its new headquarters at the Calgary airport, make deposits on future aircraft purchases and consider any acquisitions that the weak industry environment might yield, he said.

That could include anything from cheap aircraft to additions to its WestJet Vacations unit, Durfy said.

In the fourth quarter, WestJet earned C$40.8 million ($32.6 million), or 32 Canadian cents a share, down from a year-earlier C$75.4 million, or 57 Canadian cents a share.

The company had been expected to earn 33 Canadian cents a share, according to a Reuters Estimates survey of analysts.

Revenue rose 11.6 percent to C$615.8 million.

WestJet’s cost per available seat mile rose 4.3 percent in the fourth quarter, due in large part to an unexpected increase in fuel costs even though crude prices tumbled below $40 a barrel from more than $147 in the summer.

Durfy said the outage of one of three main refineries in Alberta was a big factor in the higher fuel bill, as WestJet had to bring supplies in from other regions, adding about C$7 million to costs.

Costs of de-icing and accommodating passengers during severe winter storms also added to expenses, the company said.

Its shares were off 87 Canadian cents, or 6 percent, at C$12.88 on the Toronto Stock Exchange on Wednesday afternoon, representing a drop of 25 percent in the past year.

Versant Partners analyst Cameron Doerksen said the higher fuel cost was a big surprise. With fuel and employee profit share stripped out, unit costs were up only 2.3 percent.

“If you did the average spot price of jet fuel through the fourth quarter, it was certainly a lot lower than they actually paid,” Doerksen said. “It was difficult to model because oil dropped so quickly through the quarter and that was where the challenge was in trying to figure out where the earnings were going to come in.”

The airline expects revenue per available seat mile, a key profitability ratio, to fall in the current quarter.

It said it sees downward pressure on yields, or the money it makes on each seat it sells, based on current booking and revenue trends. Last year, the first quarter was bolstered by the fact that the high-demand Easter period fell within it.

Despite economic turmoil, WestJet has been filling more seats on its planes even as it boosts capacity. However, a two-month strike at Boeing Co (BA.N) last year delayed deliveries of new 737 aircraft WestJet had been expecting.

Because of the delays, it expects capacity to expand by 6 percent to 7 percent in first quarter and 5 percent for the year. Capacity ballooned by nearly 18 percent last year.

WestJet has also been expanding its reach, saying earlier this month it has agreed to study a code-sharing alliance with Air France-KLM (AIRF.PA), following a similar agreement with Southwest Airlines Co LUV.N that takes effect this year.

$1=$1.24 Canadian Additional reporting by Scott Haggett and John McCrank; editing by Peter Galloway

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