WestJet profits from low-risk expansion to Ireland
CALGARY — WestJet Airlines Ltd. has only been flying across the Atlantic for two days and the route is already in the black, paving the way for an expansion without jeopardizing 36 quarters of profit.
Canada’s second-largest airline began its first commercial service to Dublin on Sunday using a Boeing Co. 737. It’s a toe in the water for future flights to Europe, the most lucrative market, and builds on expanding domestic demand that may enable the carrier to continue to boost earnings without much risk.
“Dublin is a nice low-risk, low-investment opportunity that we are learning from, and economically it’s exceeded expectations by a fair ways,” said Bob Cummings, vice president of sales and marketing, in a telephone interview. With more than 80 per cent of seats sold for the 2014 summer season, the Dublin route is already profitable, Cummings said.
By slowly picking up new cities with the transatlantic route as well as adding new domestic destinations like Quebec City, WestJet is trying to catch up with a newly resurgent Air Canada. Its rival’s shares have soared more than nine-fold over the past two years amid a cost-cutting campaign, compared with Westjet’s 64 per cent advance.
Last month Calgary-based WestJet said its flights to Dublin were “largely sold out,” prompting it to extend the seasonal service to the Irish capital by three weeks to Oct. 25. The airline is also investing in its website to enable it to process payments in European currencies such as euros and pounds. That upgrade will probably happen in September, Cummings said, suggesting that service to Ireland would return next year.
“The Dublin route gives them an early taste of international work in a different part of the world,” said Chris Murray, an analyst at AltaCorp Capital in Toronto who rates the stock the equivalent of a buy. Regions that make the most sense for WestJet’s future expansion include Ireland, the U.K. and Latin America, he said.
WestJet is the second highest-rated stock, on average, in the S&P/TSX Industrials index, according to data compiled by Bloomberg. Even so, its shares have slumped about 11 per cent this year.
WestJet’s shares are poised to gain about 22 per cent in the coming 12 months. It is forecast to boost net income by 3.1 per cent this year to $277 million, while revenue grows 5.2 per cent to $3.9 billion.