Soaring revenue, cost control propel WestJet profits

CALGARY — WestJet Airlines Ltd. stock soared on Wednesday as the budget carrier reported better-than-expected profits and touted its efforts to woo more corporate clientele.

CALGARY — WestJet Airlines Ltd. stock soared on Wednesday as the budget carrier reported better-than-expected profits and touted its efforts to woo more corporate clientele.

Shares rose more than 10 per cent to $14.54 on the Toronto Stock Exchange, more than recovering the value they had lost over the past two weeks.

The Calgary-based firm said its fourth-quarter profits climbed 138 per cent to $47.9 million, or 33 cents per share. The results far surpassed an average estimate of 17 cents per share according to analysts polled by Thomson Reuters.

The earnings during the last three months of 2010 compared to $20.2 million or 14 cents per share a year earlier.

WestJet’s revenue increased to $692.8 million, from $570 million in the comparable period, and above the $664 million expected by analysts.

The company predicts fuel costs to come in between 82 cents and 84 cents per litre during the first quarter of 2011, up from 73 cents during the fourth quarter.

“We remain confident that our low-cost structure, young, fuel-efficient fleet and the strengthening yield trend has us well-equipped to face fuel price uncertainty,” said chief financial officer Vito Culmone on a conference call with analysts.

WestJet saw a 6.8 per cent increase in revenue per available seat mile — the “gold standard measurement of top line performance,” according to AirTrav Inc.’s Robert Kokonis.

At the same time, though, the airline’s cost per available seat mile grew by a modest 1.1 per cent, he added in a research note Wednesday.

“The ability to contain costs while growing capacity is a key driver of airline results, something which WestJet demonstrated during the fourth quarter.”

This week WestJet announced it is enhancing its service through the Toronto-Ottawa-Montreal corridor — dominated by Air Canada (TSX:AC.B) and Porter Airlines — and luring business travellers with various perks.

WestJet has taken a “conservative” approach to entering the crowded market, Saretsky told a conference call with analysts.

“We’re not trying to match frequencies by these other competitors,” he said.

Porter Airlines and Air Canada have smaller aircraft at their disposal to make several short-haul runs a day. WestJet, on the other hand, only has only Boeing 737 aircraft to play with.

WestJet intends to fly hourly during peak hours — 7 a.m. to 9 a.m. and 4 p.m. to 6 p.m. — which “isn’t up dramatically from the schedules we’ve operated in those markets in the past, they’re just now better times,” Saretsky said.

Focusing more on the “eastern triangle” is something Kokonis has long said WestJet must do to attract the corporate crowd.

“As such, the schedule enhancements announced this week should over the longer term pay off for WestJet, provided it can extract sufficient yield and (revenue per available seat mile),” he said.

“The carrier’s low unit costs should help sustain it during the fare battles that will inevitably flow from its own schedule increases and Air Canada’s resumption of Toronto Island service.”

For now, WestJet has no intention to add a business-class section to its planes, Saretsky said.

“We have a very compelling value proposition that I think gets Canadian (chief financial officers) quite excited by the opportunity to save lots of money,” he said.

“We think cost-savings is the motivator and not necessarily sitting in business class seats that don’t return an adequate return for the square footage that they occupy.”

In another effort to compete more effectively with its rivals, WestJet has been looking to draw more international traffic into its network.

WestJet’s planes can’t make long-haul journeys to Asia or Europe. So the company has been seeking partnerships with other carriers to expand its global reach.

Earlier this week, WestJet announced it had entered into an agreement with Delta Air Lines Ltd. to collaborate on baggage handling and other tasks. In October it reached a similar deal — called an interline pact — with American Airlines.

On the international front, WestJet has announced partnerships with British Airways, Cathay Pacific, China Airlines, Air France and KLM.

Interline deals often pave the way for code-shares, in which airlines sell seats on one another’s planes using the same two-digit code.