WestJet beats expectations, but ‘heavy lifting’ still required
WestJet Airlines Ltd. ended a turbulent year with results that beat analysts’ expectations, but CEO Ed Sims acknowledged that “heavy lifting” is still required as the airline wades through labour negotiations and vies to attract both lowcost and premium travellers. The Calgary-based airline reported profit of $29.2 million or diluted earnings of 26 cents per share in the fourth quarter of 2018, down 39 per cent from the same period a year prior but double analysts’ estimates of 13 cents a share. The results fuelled a 3.6-per-cent boost to its stock price, which closed at $20.95 in Toronto.
It’s the first time in Sims’s tenure — he was named CEO in March after the abrupt exit of Gregg Saretsky in the midst of tense talks with the pilots’ union — that WestJet delivered results ahead of analysts’ expectations, Sims said on a conference call with analysts Tuesday. While he expressed confidence in WestJet’s strategy, he emphasized that WestJet’s turnaround strategy is just taking off. “We remain very aware that we are in the early stages of our turnaround efforts,” Sims said. “We have a lot of heavy lifting still ahead of us.”
That includes a full slate of labour talks, developing its premium fares and flights, and expanding its ultra lowcost carrier, Swoop. WestJet is in the midst of talks with pilots for its regional carrier, WestJet Encore, its engineers and its flight attendants, who voted last summer to join the Canadian Union of Public Employees. Executives would not reveal details of the talks, but said the outcome is estimated in its guidance that cost per available seat mile will increase between zero to two per cent this year. Meantime, WestJet is pushing forward with its attempt to land premium passengers, a segment it hasn’t traditionally chased. That effort will be helped with the launch of three new Boeing 787 Dreamliner aircraft in the first three months of 2019, with the first flight taking place between Toronto and Calgary. The aircraft will be based in Calgary due to WestJet’s belief that western North America is underserved for international routes, even though American carriers are putting the brakes on transatlantic flights due to economic and market uncertainty. Early demand has been positive, Sims said, noting that revenue from premium fares was up 70 per cent in the fourth quarter from the same period a year prior. Executives previously had said they plan to sell premium seats at parity with their top rival Air Canada, which has enjoyed a monopoly over Canada’s the corporate travel market.
Yet WestJet’s advertised business fares are notably lower than Air Canada’s, Cherniavsky pointed out. Sims said the lower prices are partly a means of attracting guests who might not have otherwise opted for WestJet’s premium service. Executives stressed their intention is to price its service at parity even if it doesn’t yet have the same frills such as airport lounges.