WestJet stock dives after posting first quarterly loss in 13 years
WestJet Airlines Ltd. reported its first quarterly profit loss in 13 years on Tuesday following a turbulent second quarter that saw the airline narrowly avoid a pilots’ strike, but absorbed soaring jet fuel prices.
“Our 2018 results are off track from the path to our 2020 targets and we are now operating in a very different fuel and competitive environment against earlier assumptions,” WestJet’s chief executive Ed Sims told analysts on a conference call on Tuesday. “To maximize our returns for this challenging period, we are taking action to improve interim results while also re-evaluating the pace and implementation of our strategic initiatives.”
The Calgary-based airline reported a loss of $20.8 million, or 18 cents per diluted share, in the three-month period ending June 30, down from a $48.6-million profit, or 41 cent per diluted share, during the same time in 2017. Although the results were slightly better than analysts had anticipated, the loss drove WestJet’s stock down as much as 10 percent on Tuesday. The share price closed at $18.32, down 8.17 per cent.
The threat of WestJet’s pilots going on strike in late May led to the company losing “tens of millions of dollars” in revenue due to cancellations and passengers turning elsewhere to book flights, Sims told analysts. The pain of the labour issues is also expected to affect bookings in the third quarter, he said.
Jet fuel prices in the second quarter rose nearly 31 per cent from a year earlier, putting pressure on WestJet’s operating expenses. It said it expects fuel costs to rise by 35 and 38 per cent in the third quarter, compared to the same time last year.
Oversupply in the domestic market has offset strong passenger demand. Sims pointed to the widespread introduction of basic fares, collapsing of advanced purchase requirements and removal of peak-season fare premiums being used to deal with the overcapacity.
“We are reviewing all opportunities to remove underperforming capacity and will reduce planned fourth quarter WestJet and Encore available seat miles by almost six percentage points, the most significant capacity adjustment of any of our peers,” Sims said.
The rising cost of jet fuel and non-fuel costs would make WestJet’s path forward difficult, Cowen analyst Helane Becker wrote in a note to clients Tuesday. “WestJet is adjusting 2018 capacity growth, but margin deterioration should continue through the rest of the year ,” Becker said.