WestJet Profit Beats Estimates as Cost-Cutting Plan Advances

WestJet Airlines Ltd. reported third-quarter profit that beat analysts’ estimates and said it plans to reach its goal of cutting C$100 million ($95.8 million) in annual costs one year ahead of schedule.

Net income fell 7.8 percent to C$65.1 million, or 50 cents a share, from C$70.6 million, or 52 cents, a year earlier, the Calgary-based company said today in a statement. The average of estimates compiled by Bloomberg was 49 cents a share. Revenue rose 6.7 percent to C$924.8 million, matching analysts’ estimates, as WestJet flew 4.94 million passengers -- a 7.1 percent increase.

Canada’s second-largest carrier said it is implementing measures that will allow it to reduce costs by C$100 million in 2014. The airline also expects steps such as a new fare structure, which was put in place earlier this year, to help bolster annual revenue by as much as C$80 million.

“It was another solid quarter for WestJet with demand trends appearing to remain intact,” Walter Spracklin, an analyst at RBC Capital Markets in Toronto, said in a note. “Good execution, better-than-expected cost controls, and a fourth quarter that is shaping up well all point to continued positive operating momentum.”

Spracklin recommends investors buy the stock.

Fuel Costs

WestJet rose 0.7 percent to C$27.50 at the close in Toronto. The shares have gained 39 percent this year, compared with a 7.5 percent advance for Canada’s benchmark Standard & Poor’s/TSX Composite Index.

Excluding fuel and employee profit sharing, costs for each seat flown a mile fell 1.5 percent in the third quarter. On that basis, the airline projects expenses for 2013 to drop about 0.5 percent. WestJet in July had predicted a full-year drop of as much as 1 percent.

For 2014, costs excluding fuel and profit sharing will rise by as much as 1 percent, WestJet said in a filing. Capital expenditures next year will probably be C$580 million to C$600 million, compared with about C$720 million this year.

Jet fuel costs will probably be 90 cents to 92 cents a liter for the fourth quarter of 2013, WestJet said. Fuel is the company’s biggest expense, representing 32 percent of all operating expenses last quarter. WestJet spent C$266.7 million on fuel in the latest period, a 10 percent increase.

Revenue for each seat flown a mile fell 3.9 percent in the quarter. In July, the company had forecast a “similar” third-quarter drop to that of the second quarter, when revenue fell 4.6 percent.

Capacity increased 11 percent in the quarter and will probably climb 4 percent to 6 percent next year as the Encore regional unit continues to expand. Encore began operating June 24 in a bid for part of a C$2 billion market for short-haul Canadian and trans-border flights.

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