Saretsky dismisses concern of taking on risk

Saretsky also said the purchase of the Dreamliners — which will be funded from cash from operations with no additional net debt — is an opportunity for the company to diversify revenues.

“As an airline with 40 per cent of our capacity to, from or within Alberta, there is absolutely no way to avoid the hit that comes from a market that has shrunk by a billion dollars when you’re so heavily over- indexed,” Saretsky said on a call with analysts Tuesday morning.

“We are to some degree dependent on Alberta coming back, but we are moving assets away from Alberta, and certainly the wide body, into markets where we think there are opportunities to drive the (return on invested capital) to 13 to 16 per cent.”

Chris Murray, an analyst with AltaCorp Capital Inc., said he is cautious on the introduction of the widebody fleet, due to capacity management and cost concerns.

“We still struggle to see the economic rationale of the wide- body strategy in any form that brings them into a different part of the space where perhaps they don’t have a more competitive offering,” he said.

“Part of the challenge is getting a lot of return to justify the capital.”

Saretsky dismissed concerns that WestJet was taking on too much risk simultaneously expanding into ultra- low- cost and luxury markets.

“While some are expressing concerns that this represents perhaps execution risk expanding at both ends of the spectrum at one time, ultimately it’s in service of creating great value for guests, whether they’re flying short, medium or long-haul travel,” he said.

In a note released Tuesday, Macquarie analyst Konark Gupta wrote that he was encouraged by the order of 10 Dreamliners for further international expansion.

Gupta also estimated that net capital expenditure could increase by at least $ 650- million over several years starting in 2017 as a result of the new purchasing order.

WestJet announced a 45 per cent drop in net profits in the first quarter Tuesday, on the back of higher fuel costs. Fuel costs per litre were up from 47 to 64 cents, an increase of 36 per cent. Aircraft fuel was WestJet’s largest operating expense, up 42 per cent to $245.6 million, from $166.4 million the same time last year.

WestJet reported profits of $ 48.3 million, or 41 cents per share, down from $ 87.6 million, or 71 cents per share, one year earlier.

Revenue per available seat mile, a measure of airline efficiency that divides operating income by carrying capacity, increased 2.3 per cent from a year earlier to 14.5 cents after eight straight quarters of decline. Cost per available seat mile (CASM), a measure of how much an airline spends to fly passengers, also increased 7.8 per cent per cent to 13.4 cents.

WestJet ended the day down 3.24 per cent to $22.10 on the Toronto Stock Exchange.