April 29, 2008 / 1:08 PM / in 9 years

UPDATE 2-WestJet profit jumps, but may lift fares, charges

(Adds CEO, analyst comments. Changes dateline, previous TORONTO)

By Jeffrey Jones

CALGARY, Alberta, April 29 (Reuters) - WestJet Airlines Ltd's (WJA.TO) first-quarter profit jumped a better-than-expected 76 percent as the strong Canadian economy cushioned the impact of soaring fuel costs, the country's No. 2 air carrier said on Tuesday.

Still, WestJet, which has expanded its network as much of North America's airline industry has struggled, is likely to charge extra fees for fuel or raise ticket prices to combat oil prices that have climbed to new records in the current quarter, its chief executive said.

WestJet's fuel bill jumped 29 percent from the first quarter of 2007 and jet fuel now makes up nearly a third of its costs.

"We continually look for ways to lessen the impact that these increases have to our business," CEO Sean Durfy told analysts. "This may mean increasing our fares or adding a fuel surcharge. Regardless, we believe our cost structure would still allow us to offer competitive fares while returning value to our shareholders."

Crude oil prices averaged nearly $98 a barrel in the first quarter, more than two-thirds higher than a year earlier. The price of oil has since risen to near $120 a barrel.

WestJet's overall costs rose nearly 7 percent in the quarter, but excluding fuel, expenses fell 1.3 percent.

The company said the strong Canadian dollar offset some of the fuel-price increase, as did Canadian demand for air travel, which remains robust.

In the quarter, WestJet earned C$52.5 million ($52 million), or 40 Canadian cents a share, up from C$29.9 million, or 23 Canadian cents a share a year earlier.

Revenue jumped 27 percent to C$599.3 million.

Analysts had forecast, on average, earnings of 27 Canadian cents a share on revenue of C$586.3 million, according to Reuters Estimates.

WestJet shares jumped 45 Canadian cents, or nearly 3 percent, to C$17.13 on the Toronto Stock Exchange. They are down 24 percent so far this year, despite good results.

"Clearly they had a very, very strong first quarter, and certainly well ahead of my expectations," Versant Partners analyst Cameron Doerksen said.

One reason for the gains were high yields due to the airline's ability to charge higher fares, but fuel prices will be a bigger problem in the second quarter, Doerksen said.

"The key question is: How much can you increase fares or put surcharges on until it discourages people from traveling more? It doesn't seem like that has impacted them so far, but you can't raise fares forever," he said.

Canada's airline industry has not suffered as much as that of the United States, which has been marked by bankruptcy filings and merger announcements amid the economic downturn.

WestJet and chief rival Air Canada ACa.TO have reported strong traffic figures amid steady domestic travel demand.

WestJet said profits were bolstered by its strategy of shifting capacity to its growing number of vacation destinations in the United States, Mexico and the Caribbean in winter.

That helped the carrier achieve the same increase in yield, or revenue per passenger mile, as its costs excluding fuel. Meanwhile, its capacity increased nearly 18 percent.

For the full year, WestJet expects its capacity will grow by 16 percent to 17 percent, executives said.

$1=$1.01 Canadian Additional reporting by Jonathan Spicer; Editing by Bernadette Baum

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