Yahoo Finance WestJet returns to profitability, but CEO 'far from satisfied' with results
Despite a return to profitability in its most recent quarter, the chief executive of WestJet Airlines Ltd. said he is “far from satisfied” with the airline’s financial performance as it continues through the “early stages” of a turnaround effort.
“Today’s results is nowhere near where we believe our business could and should perform,” WestJet chief executive Ed Sims said on a conference call with analysts on Tuesday following the release of third quarter results.
“We’re in the early stages of turning around our financial results and we are taking a prudent and proactive approach to margin expansion for both cost reduction and revenue improvement.”
WestJet reported net income of $45.9 million, or 40 cents per diluted share, in the three month period ending September 30. While it was a marked improvement from its second quarter performance, which saw the airline report its first quarterly loss in 13 years, it represented a 66 per cent decrease in profitability from the same time last year, when net income hit $135.9 million, or $1.15 per diluted share.
The decline in net income was due to a combination of factors, Sim said, including soaring fuel prices, overcapacity in the domestic market, and lingering effects from a threatened pilot’s strike earlier this year.
WestJet’s revenue per available seat mile (RASM) fell 5.6 per cent from the same time last year to 14.2 cents, while cost per available seat mile (CASM), a measure of how much it costs an airline to fly passengers, increased 5.9 per cent to 13.32 cents.
WestJet is in the midst of pursuing a growth strategy that includes cornering the price-sensitive end of the market through its ultra low-cost carrier (ULCC) Swoop, while also launching a widebody expansion project with the purchase of at least 10 Boeing 787-9 Dreamliners. The bold strategy has been met by skepticism from some analysts.
Still, WestJet’s CEO told analysts he is confident in the company’s strategic direction.
“We are in a turnaround. Our strategy has effectively been sharpened in terms of its focus by the operating and economic environment that we’ve undergone through the last 12 months,” Sims said.
“We are committed, effectively, to a journey of being a low-fare domestic network that feeds and is fed by a premium international network.”
National Bank Financial analyst Cameron Doerksen warned in a note sent to clients Tuesday that WestJet may face more competitive pressure going forward.
“One of our concerns for WestJet is that we believe it is more at risk of seeing downward yield pressure as it competes more directly with new (ultra low-cost carrier) capacity using its Swoop arm,” Doerksen said.
“WestJet’s strategy to take market share versus well established players as it grows internationally may also subject it to more yield pressure in the coming years.”
Earlier this month, the airline announced that Calgary, Alta. would be the home based of its first three Dreamliner jets, offering non-stop service to London (Gatwick), Paris and Dublin beginning in late spring next year. On Tuesday WestJet also announced a new non-stop service from Toronto to Barcelona that will begin flying three times a week beginning May 24.
In the meantime, after being unable to reach an agreement through mediation and conciliation services, WestJet and the Air Line Pilots Association (ALPA) union are moving to binding arbitration for its first contract. WestJet is also expected to begin bargaining with the Canadian Union of Public Employees (CUPE), which represents the company’s flight attendants, in the first half of next year.
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