CALGARY — WestJet Airlines Ltd.’s “best ever” quarterly earnings were overshadowed Tuesday by a major stock drop, as investors worried whether the carrier will be able to profitably fill its new capacity.
Shares fell as much as 13 per cent to $21.45 on the Toronto Stock Exchange, but by early afternoon had recovered to $22.55, 8.8 per cent lower than the previous close.
The airline posted a first-quarter profit Tuesday of $91.1 million, or 68 cents per share, during the first three months of 2013, up from $68.3 million, or 49 cents per share, in the same 2012 period.
The earnings beat the 63 cents per share analysts polled by Thomson Reuters had been expecting, while total revenue was up 8.6 per cent at $967.2 million from $891 million a year ago.
However, the airline also reported Tuesday that its load factor — a measure of how full its planes are flying — fell 3.5 percentage points to 82.7 during April, compared to the same month a year earlier.
WestJet said it expects to grow its system-wide capacity by between nine and 10 per cent during the second quarter, and by 7.5 to 8.5 per cent for all of 2013.
“So investors are thinking, ‘Well, your load factor is falling, but you’ve got this huge amount of capacity growth. Are you going to be able to fill that capacity profitably?”’ said Robert Kokonis, president of aviation consulting firm AirTrav Inc.
Kokonis, who believed the stock market reaction was overdone, said WestJet’s management has a proven track record, the Canadian economic outlook is good and the airline has partnerships with international carriers to bring more traffic.
“This has created a bone fide buying opportunity because that team is taking this company in the right direction,” Kokonis said.
Also Tuesday, WestJet said it has signed a deal to update its fleet by selling 10 of its oldest jets and replacing them with 10 newer ones.
The airline said it has signed a deal to sell 10 of its oldest Boeing 737-700 aircraft to an unidentified buyer and agreed to buy 10 Boeing 737-800 aircraft in 2014 and 2015.
The airline also deferred the delivery of five Boeing 737-700 aircraft from 2014 and 2015 to 2016 and 2017.
“These agreements are part of our strategy to optimize and modernize our fleet mix, which will improve cost per available seat mile, while maintaining fleet flexibility going forward,” WestJet president and chief executive Gregg Saretsky said.
In February, WestJet announced that its new WestJet Encore service will start in June with service from Calgary and Vancouver to Fort St. John, B.C., and from Calgary to Nanaimo, B.C.
On Monday, Transport Canada granted WestJet an exemption to allow the airline to use a ratio of one flight attendant for every 50 passenger seats onboard an aircraft.
Regulations currently require one flight attendant for every 40 passengers on board an aircraft. However, for certain aircraft configured with up to 50 passenger seats, only one flight attendant is required.
Transport Canada said the exemption brings WestJet in line with other international standards.
including airlines based in the United States that fly to and from Canada with the same ratio.