February 17, 2010 / 2:03 PM / in 8 years

UPDATE 3-WestJet earnings tumble but beat expectations

* Q4 EPS C$0.14 vs C$0.33 a year earlier

* EPS C$0.11 before items

* Q4 revenue fell 7.4 percent to C$570 mln

* Analysts expected EPS C$0.05 before items

* Shares end up 17 Canadian cents at C$14.03 on the TSX (Adds details, CEO and analyst quotes, updates share price)

By John McCrank

TORONTO, Feb 17 (Reuters) - WestJet Airlines Ltd (WJA.TO) said on Wednesday low fares and costs related to glitches in a new booking system pulled quarterly profit down more than 50 percent, but the result topped forecasts and its shares rose.

A weak economy limited fares that the discount airline could charge in the fourth quarter, driving a key performance measure -- revenue per available seat mile, or RASM -- 10 percent lower.

But WestJet, Canada’s No.2 airline, had forecast an RASM decline of 11 to 13 percent from the year-earlier quarter. The more modest decline was the main reason that earnings beat expectations, analysts said.

“We believe that traffic and RASM improvements through 2010 will continue to drive the stock higher,” said Cameron Doerksen, an analyst at Versant.

“In addition, the introduction of certain strategic initiatives such as the loyalty program and new interline agreements could act as catalysts for the stock this year.”

WestJet Chief Executive Sean Durfy said he hoped demand would stabilize and fares would start rising by the second or third quarter of the year, though he was cautious about predicting the exact timing of any recovery.

A C$1 billion ($962 million) cash pile will help WestJet over in the interim if the economy takes longer to return to steady growth, he said.

“WestJet as an airline was the second most profitable airline in North America in 2009,” Durfy said in an interview after the company released its results.

BOOKING SYSTEM GLITCHES

Earnings slid to C$20.2 million ($19.4 million), or 14 Canadian cents a share, in the fourth quarter, from C$42 million, or 33 Canadian cents, a year earlier.

Analysts had expected the low-cost airline to report a profit of 5 Canadian cents, before items, in the latest quarter, according to Thomson Reuters I/B/E/S.

Revenue fell 7.4 percent to C$570 million.

Shares of WestJet, which is Air Canada’s ACa.TO ACb.TO biggest domestic competitor, ended up 17 Canadian cents at C$14.03 on the Toronto Stock Exchange on Wednesday.

The increase in RASM led Versant Partners to increase its price target for the company to C$17.00 from C$16.00.

For the current quarter, the Calgary, Alberta-based airline said it expects RASM to be down less than 5 percent from the year ago quarter.

In December, WestJet had also warned that transition problems with its Sabre reservation system would hurt fourth-quarter results.

Durfy said that the glitches in the system, which led to thousands of unrecognized bookings and frustrated travelers, definitely cost the airline money, but that it was difficult to put a number as to how much.

He added that the new system would make strategic partnerships with other airlines easier.

The glitches in the system also led WestJet to postpone the release of its new frequent flier program from December to March.

One of the areas where WestJet expects costs to rise is in airport security fees.

“We know they are probably going to increase costs. To what extent hasn’t been made available, but ... if you look at how much they’ve put into the system, how many new bodies and how much new equipment, it’s certainly going to have a cost impact,” Durfy said.

Despite the difficult industry conditions, WestJet expects to increase its capacity by about 7 percent in first-quarter from the same period of 2009, and full-year capacity is expected to increase between 9 and 10 percent. ($1=$1.04 Canadian) (Reporting by John McCrank)

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