NO SAVINGS
WestJet Airlines will use cheaper fuel to improve bottom line instead of slashing fares,
WestJet Airlines passengers won’t be getting any chunk of savings from the sudden plunge in oil prices, down roughly 50 per cent since June.
“Our plan is not to pass any of it on,” said WestJet president and CEO Gregg Saretsky during a conference call on Tuesday when asked how much consumers would benefit.
“This is a supply and demand business, and we price according to supply and demand,” he said.
“If demand stays robust, we will continue the pricing strategy we have had in effect, and take the opportunity to improve our bottom line,” he said, adding the airline wants “to hang on to as much of the benefit of the fuel-cost decline as possible.”
Saretsky noted if demand falls off, then the airline would adjust prices accordingly. He added that there will be seat sales from time to time, but “we’re not planning on lowering the entire fare structure.”
He added demand has been strong across the airline’s network, except for some “softness” on routes to sun destinations as competitors such as CanJet have added capacity.
Bob Cummings, executive vice-president of sales and marketing, said if needed on those routes, the airline would price more aggressively to fill seats.
Saretsky added WestJet has always been pro-consumer, noting it did not levy any fuel surcharges, so it doesn’t have any surcharges to remove. Air Canada has such surcharges on its international routes.
WestJet’s chief financial officer Vito Culmone add- ed that while oil prices have dropped, the Canadian dollar has also fallen, creating a challenge for Canadian carriers since fuel and other expenses are denominated in U.S. dollars. He estimated that onethird of the drop in oil prices has been offset by the weaker loonie.
Although WestJet is based in Calgary, Saretsky discounted any suggestion that the airline faces bigger challenges due to the faltering oil-based Alberta economy. He added it has operations throughout Western Canada.
“I wouldn’t say that we’re any more exposed than any other operator,” he said. “We do have a national footprint and a large southern footprint.”
Even with a weaker Canadian dollar, WestJet still expects Canadians will still travel, possibly taking shorter vacations and spending a little less.
“Canadians will give up a lot, but not a trip to the sun,” said Saretsky, noting that during the 2009 downturn, WestJet grew aggressively and maintained profitable operations.
As well, when the Canadian dollar was strong and the U.S. housing market collapsed, many Canadians decided to buy vacation homes in places like Florida, Nevada and Arizona, he added.
“There is a new base of demand that is inelastic. They made an investment and they will continue to travel.”
WestJet reported record fourth-quarter earnings of $90.7 million, up 33.8 per
“This is a supply and demand business, and we price according to supply and demand.” GREGG SARETSKY WESTJET PRESIDENT AND CEO
cent in the same quarter a year earlier. The earnings came amid fuller seats and increased flight capacity.
In the quarter, the airline recorded a $9.8-million pre-tax incentive payment related to a new agreement with pilots as well as $2.5 million pre-tax loss on the sale of 10 older Boeing 737 aircraft.
Revenues for the year were $3.97 billion, up from $3.66 billion the year before. For 2014, adjusted net profits were $317.2 million, up from $268.7 million in 2013, or $2.46 earnings per share, up from $2.03 per share.
The airline also launched service to Europe last year with flights to Dublin, Ireland, and plans to add Glasgow, Scotland, this year.
While the airline is adding Encore flights in Atlantic Canada this summer, it says it will eventually come to central Canada. It also expects to launch Encore service to the U.S. later this year.
Ancillary revenue for the fourth quarter was at $67 million, or about $13.89 on a per guest basis. Most of the increase was credited to the introduction of fare bundles as well as a checked bag fee.