November 3, 2010 / 1:23 PM / in 7 years

UPDATE 3-WestJet Airlines kicks off dividend, shares jump

* To pay quarterly div of C$0.05/share; will review size

* Introduces C$20 fee for second checked bag

* Q3 results in line with expectations (Recasts with executive, analyst comments; adds details)

By Nicole Mordant

VANCOUVER, Nov 3 (Reuters) - WestJet Airlines Ltd (WJA.TO) unveiled the first dividend in its 14-year history on Wednesday, lifting its shares as it also sketched a positive outlook for the rest of the year.

WestJet announced a quarterly dividend of 5 Canadian cents a share and reinstated its share buyback program as Canada’s second biggest airline looked for ways to best use its hefty C$1.2 billion ($1.19 billion) cash pile.

The announcement accompanied WestJet’s third quarter results, which were largely in line with analyst expectations. The airline also introduced a C$20 fee it will start charging passengers for a second piece of checked luggage.

“(Airlines paying dividends) were becoming quite a rare species in the last three years,” said Robert Kokonis, managing director of airline consulting firm AirTrav Inc, alluding to the recent recession-caused travel slowdown airlines are just now emerging from.

“Historically it hasn’t been a popular move because the business has such high fixed costs and is so capital-intensive. Airlines prefer to plow that money back into sustaining the operation,” Kokonis said.

WestJet will review quarterly whether to increase the dividend to shareholders, who include most of the airline’s employees, Chief Executive Gregg Saretsky said.

“We’re very confident with having started down the track,” Saretsky said on a conference call.

The share buyback will give WestJet room to repurchase up to 5 percent of its stock over the next year.

LUGGAGE WARS?

The new luggage charge could put WestJet at a competitive disadvantage to its fierce domestic rival Air Canada ACa.TO ACb.TO, which dropped such a fee within Canada in 2008, Kokonis said.

On flights between Canada and the United States, WestJet’s fee is lower than Air Canada’s C$30 charge for a second bag.

WestJet, which started off life as a low-budget airline but has been searching for new sources of income, expects to generate between C$8 million and C$10 million in revenue a year from the new charge, Saretsky said.

Earlier, WestJet posted a 72 percent rise in quarterly profit, helped by improved margins, and said it is encouraged by the gradual recovery in pricing and the pace of its current bookings.

The airline, which mostly flies domestic routes, but also has flights to the United States, Mexico and the Caribbean, said it earned C$54 million, or 37 Canadian cents a share, in the three months to the end of September.

That compared with earnings of C$31.4 million, or 24 Canadian cents a share, in the same period last year and matched the 37 Canadian cents a share that analysts polled by Thomson Reuters I/B/E/S were expecting.

Revenue rose 14 percent to C$684.6 million, close to the C$689.7 million that analysts had forecast.

“What I found positive was commentary about Q4,” said PI Financial analyst Chris Murray.

WestJet said it expects its fourth-quarter capacity to increase 13-14 percent. Even so, it expects to continue to see an improvement in its revenue per available seat mile (RASM), or unit revenue, a key airline measure.

RASM was 2 percent higher in the third quarter.

WestJet’s shares rose as high as C$13.43 on the Toronto Stock Exchange, for a gain of 64 Canadian cents or 5 percent.

$1=$1.01 Canadian Additional reporting by Ashutosh Joshi in Bangalore; editing by Rob Wilson

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