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WestJet Sees Greater Cost Savings as Net Beat Estimates

WestJet Airlines Ltd. (WJA) reported second-quarter profit that beat analysts’ estimates and said it will achieve greater cost reductions than planned.

Net income increased 5.2 percent to C$44.7 million ($43.5 million), or 34 cents a share, from C$42.5 million, or 31 cents, a year earlier, the Calgary-based company said in a statement today. Analysts anticipated 33 cents a share, the average of estimates compiled by Bloomberg. Revenue rose 4.3 percent to C$843.7 million, short of a C$860.2 million average projection.

Chief Executive Officer Gregg Saretsky is working to reduce costs at Canada’s second-largest carrier by C$100 million by the end of 2015 with steps such as adding more efficient planes and increasing per-plane flying. WestJet has “identified and implemented actions” that will probably result in savings of C$50 million to C$75 million next year, the company said today in a filing posted on its website.

For all of 2013, the airline said it now expects costs for each seat flown a mile, excluding fuel and employee profit sharing, to decline 0.5 percent to 1 percent -- mostly as a result of expense reductions “achieved and anticipated.” On May 7, WestJet had predicted costs on that basis would increase by zero to 1 percent in 2013.

Excluding fuel and employee profit sharing, those costs dropped 0.7 percent in the second quarter. WestJet sees the costs declining as much as 1.5 percent in the third quarter.

Results in the latest period include C$8.4 million in “transition costs” associated with the savings plan, the company said without being more specific.

Boeing Fleet

WestJet fell 0.1 percent to C$20.11 at the close in Toronto. The shares have gained 1.5 percent this year, compared with a 1.2 percent advance for Canada’s benchmark Standard & Poor’s/TSX Composite Index. (SPTSX)

Revenue for each seat flown a mile, which slid 4.6 percent in the second quarter, will “experience a similar level of year-over-year percentage decline” in the third quarter, the company said. WestJet blamed the expected drop on increased capacity associated with higher utilization, the reconfiguration of its Boeing Co. (BA) 737-800 fleet, and the ramping up of its Encore regional unit.

“They had a good cost performance in Q2, and their expectation for the full year is substantially better than what I was looking for,” Cam Doerksen, an analyst at National Bank Financial in Montreal, said in a telephone interview.

Offsetting the savings is WestJet’s third-quarter revenue forecast, which is “definitely weaker than what I had in my model,” said Doerksen, who has an outperform rating on the stock. “We’ll probably see a similar situation in Q3. They should still have a very good quarter, with continued performance on the cost line.”

‘Strong Traffic’

“Strong traffic and revenue growth” will continue this quarter, WestJet said today. Jet fuel costs will probably range between 90 and 92 cents per liter in the period, a year-over-year increase of as much as 2 percent.

Encore began operating June 24 in a bid for part of a C$2 billion market for short-haul Canadian and trans-border flights. Saretsky said today he’s “pleased” with initial results. WestJet also introduced so-called premium economy seating aimed at business travelers who want extra legroom.

Systemwide capacity will probably climb 4 percent to 6 percent next year, the carrier said today.

“The flexibility we have built into our fleet plan through lease renewal options and our ability to deploy a mix of Boeing 737 and Bombardier Q400 aircraft allows us to tailor capacity and continue our profitable growth while aligning with market conditions,” Saretsky said.

To contact the reporter on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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