July 30, 2008 / 1:09 PM / in 10 years

WestJet profit triples, but horizon cloudy

CALGARY, Alberta (Reuters) - WestJet Airlines Ltd’s second-quarter profit nearly tripled from last year when a onetime charge for a failed reservation system marred its results, Canada’s No. 2 airline said on Wednesday.

A Westjet airline plane lands at the Calgary International Airport in Calgary, Alberta, June 17, 2008. REUTERS/Todd Korol

Operating earnings, however, fell 10 percent as fuel costs surged and its planes flew slightly less full.

WestJet executives said they expect results to remain among the strongest in the struggling industry, but they warned that the carrier is not immune to high oil prices and a shaky economy.

Fuel expenses at the airline, which has stuck to its expansion plans while rivals cut capacity, accounted for 38 percent of its costs in the quarter, up from 26 percent last year.

WestJet slapped a fuel surcharge on fares during the quarter.

“At current unprecedented elevated levels, fuel prices will negatively impact our margins during the remainder of 2008,” Chief Financial Officer Vito Culmone told analysts.

“Economic uncertainty in North America as well as the higher cost of air travel due to record fuel prices is deterring some guests from traveling,” he said.

Chief Executive Sean Durfy said business had slowed on Eastern and Atlantic Canadian routes as well as on red-eye flights between Canadian and U.S. destinations. Western Canadian routes have stayed strong, he said.

In the quarter, WestJet earned C$30.2 million ($29.6 million), or 23 Canadian cents a share, up from a year-earlier C$11.5 million, or 9 Canadian cents a share.

That beat an average forecast among analysts polled by Reuters Estimates by 7 Canadian cents a share.

The year-earlier figure included a charge to write off development costs for a failed electronic reservation system called aiRES. Excluding that, the carrier earned C$34 million in the second quarter of 2007.

Revenue rose nearly 24 percent to C$616 million.

WestJet shares were unchanged at C$14.98 on the Toronto Stock Exchange late in the session, after jumping more than 3 percent following the release of the results.

Analyst Cameron Doerksen of Versant Partners attributed the pullback to a 4 percent jump in crude prices on Wednesday as well as the airline’s murkier outlook.

“The numbers were very good for the second quarter, but there clearly is a bit of uncertainty as to what demand looks like beyond the third quarter, so that’s also probably playing on it,” Doerksen said.

The stock has tumbled by about a third so far this year.

The world airline industry is struggling to stay aloft after a quarter in which crude oil averaged a record $123.80 a barrel, up 90 percent from a year before.

WestJet’s chief competitor, Air Canada, said in June it will chop 2,000 jobs while cutting capacity 7 percent.

WestJet expects its capacity to rise 18 percent in the current quarter, 10 percent in the fourth quarter and 8 percent in 2009, Durfy said.

“We feel we are maintaining a position of strength in the airline industry as we operate in a prudent manner,” he said.

The company’s costs, excluding fuel, fell 7 percent in the quarter. With fuel, they were up 7 percent.

Early this month, WestJet and U.S. carrier Southwest Airlines Co signed a codeshare agreement that will put each other’s passengers on its partner’s planes.

With the deal, WestJet hopes to boost its sales to U.S. travelers to as much as 25 percent of its transborder passengers, up from under 10 percent now.

($1=$1.02 Canadian)

Additional reporting by Frank Pingue; editing by Rob Wilson

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