WestJet buying more jets
Profits fall 45 per cent as airline announces purchase of Boeing Dreamliners
WestJet Airlines is expanding its international reach with the purchase of at least 10 Dreamliner aircraft from Boeing Co., a move that the Calgary-based airline hopes will help shift away its dependence on Alberta.
WestJet announced Tuesday that it is scheduled to receive 10 Boeing 787-9 Dreamliners between the first quarter of 2019 and December 2021, and has an option to buy an additional 10 Dreamliners to be delivered between 2020 and 2024.
The purchase of the wide-body, longer-route jets — which are more fuel-efficient than the Boeing 767 — will allow the company to serve new destinations in Asia and South America, as well as expand its European service.
President and chief executive officer Gregg Saretsky said the purchase of the Dreamliners 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 about the introduction of the wide-body 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.
While it gears up to expand its international reach, WestJet is also preparing to launch an ultralow-cost carrier (ULCC). Details about product offerings and fare levels have yet to be released, but Saretsky did say the branding will be distinct and separate from WestJet, and the ULCC would be similar to that offered by EasyJet and Ryanair in Europe.
At the same time, WestJet announced a 45-per-cent drop in net profits in the first quarter, on the back of higher fuel costs and a soft economy.
WestJet reported profits of $48.3 million, or 41 cents per share, down from $87.6 million, or 71 cents per share, recorded 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 to 13.4 cents.