WestJet earnings down sharply due to higher fuel costs and labor problems

Ed Sims reports WestJet Airlines Ltd. turnaround will not happen quickly.

Mr. Sims badumed the role of President and CEO of Canada's second-largest airline in March, when the company announced the sudden departure of former Chief Gregg Saretsky. The company had a poor performance series and its share price had stagnated for years, even as its rival, Air Canada, was making solid profits.

WestJet announced Tuesday a sharp drop in profits in the third quarter, as the airline was struggling with overcapacity, stagnant reservations and rising fuel costs.

Calgary's WestJet said its profits fell 66 percent from the previous year to $ 45.9 million, or 40 cents a share. Revenues increased 4% to $ 1.26 billion in the three months ending September 30th.

"We are far from satisfied with our current performance," said Sims during a conference call with badysts. "Today's result is far from where we think our business could and should be strong. We are only just beginning to improve our bottom line, and we are taking a cautious and proactive approach to expanding margins, both by reducing costs and improving revenues. "

WestJet's operating margin was down 16% year-over-year from 16% to 6%. The cost of fuel has increased from 62 to 85 cents per liter. Fuel now accounts for 29% of operating expenses.

Capacity, measured by the number of seat-kilometers available, increased by 10% in the third quarter, including a 14% increase in cross-border and international flights.

WestJet announced that it was preparing to take delivery in January of its first Boeing 787-9 Dreamliner, a long-haul widebody aircraft, and that it would depart from Calgary to London, Paris. and Dublin in the spring.

WestJet received a Boeing 737 in the third quarter, but extended the delivery dates of four 737 aircraft between 2020 and 2021. WestJet also extended the leases of four additional 737 aircraft, ending the quarter with a total fleet of 174 units . the beginning of 2018.

Harry Taylor, chief financial officer of WestJet, said the company has limited capacity growth relative to previous corporate margin and unit earnings targets. "The decision was based on our badessment [of] the economic and competitive environment next year. Obviously, this year was not in line with our expectations or our wishes, "said Taylor at the conference call.

Raymond James badyst Ben Cherniavsky said the company needed more planes and wondered why WestJet was adding a new Boeing 787 while "there are too many planes in the sky".

In an interview in Vancouver, Cherniavsky pointed to WestJet's main competitor, Air Canada, which also flooded the seat market, as fuel costs increased and margins dwindled. Air Canada, which reports Wednesday, has lost money in the last three quarters.

WestJet shares closed Tuesday unchanged at $ 19.12 on the Toronto Stock Exchange. The stock price of the airline has decreased by about 31% in the last 12 months. Air Canada shares fell 11% over the same period.

Revenue per available seat-kilometer, an essential measure of an airline's efficiency, will be 1% higher, WestJet said, missing badysts' expectations. In the third quarter, revenue per available seat decreased by 5.6%.

WestJet is expanding as it faces work-related risks, including the lingering effects of a pilot strike threat that was averted in May. Both parties agreed on an arbitration settlement process which should be concluded by the end of December. The prospect of canceling flights during a work stoppage led customers to cancel reservations and forced the company to offer discounts to keep its planes full. The crisis enabled WestJet to experience its first quarterly loss in 13 years, the company announced in June.

WestJet's 3,000 flight attendants recently earned the right to join the Canadian Union of Public Employees. In addition, a federal referee ruled in June that the pilots of WestJet's low-cost Swoop airline would be represented by the Air Line Pilots Association, whose members fly the airline's main carrier.

WestJet has leaked part of its financial outlook and announced that "all history" would be released during a presentation to investors in December, a decision that apparently disappointed some badysts during the conference call.

Mr. Cherniavsky of Raymond James questioned the need for an investor statement "given that we only had one last year and the strategy had not changed much.

"I do not think people understand the plan," Cherniavsky told WestJet executives at the conference call. "I just think it's clear at this point, you did not run it."