Canada's WestJet and AirCanada turn in stellar performances

Earnings easily beat forecasts as they flies more passengers

A Westjet Boeing 737-800 at Pearson International Airport, Toronto. The carrier's profits smashed expectations. Roberto Machado Noa / Getty

Canada's WestJet Airlines reported a quarterly profit that handily beat Wall Street expectations as it flew more passengers and managed costs effectively,  mirroring forecast-topping results from bigger rival AirCanada.

The company, which said in April that it plans to launch an ultra-low-cost carrier (ULCC) in Canada, flew 5.9 million passengers in the second quarter ended June 30, up 11.5 per cent from last year.

WestJet's bigger rival Air Canada also reported a higher-than-expected quarterly profit on Tuesday.

Both companies have been upgrading their fleets with fuel-efficient aircrafts. WestJet started as a low-cost airline but added premium services in a bid to increase revenue.

Excluding fuel and employee profit share, cost per available seat mile (CASM) - a key measure of how much an airline spends to fly a passenger - fell to 9.84 Canadian cents from 9.93 Canadian cents in the year-ago period, WestJet said on Tuesday.

The Calgary-based company's revenue passenger miles (RPMs), or traffic, increased 8.9 per cent, and capacity, measured in available seat miles (ASMs), grew 6.3 per cent.

Excluding items, WestJet earned 41 Canadian cents per share, smashing past analysts' estimate of 28 Canadian cents, according to Reuters .

Net earnings rose to C$48.4 million (Dh142.5m), or 41 Canadian cents per share, in the quarter, from C$36.7m, or 30 Canadian cents, a year earlier.

Revenue rose 11 per cent to C$1.06 billion.

Load factor - which is a measure of total capacity utilisation - rose to 82.8 per cent from 80.8 percent.

Air Canada, the nation’s top-performing industrial stock this year, raised its profit outlook as the airline’s international expansion bolsters demand.

The addition of 16 overseas and US routes is drawing more passengers using Canada as a stopover on their way to other destinations, the company said on Tuesday. AirCanada said it served close to 167,000 people on June 29, a record, while fuel costs and pricing power remained stable in the quarter.

The increase in customers comes as AirCanada benefits from plans to renew its fleet with more fuel-efficient aircraft such as the Boeing 787 Dreamliner, which is driving down costs and improve profit margins. The expansion of the Rouge discount unit is drawing customers and a debt refinancing completed last year also helped reduce expenses.

Earnings before interest, taxes, depreciation, amortization, impairment and aircraft rent will climb to 17 per cent to 19 per cent of revenue in 2017 and 2018, the Montreal-based carrier said. The forecast compares with a range of 15 per cent to 18 per cent disclosed May 5.

“The outlook appears to be very constructive and implies material upside to estimates,’’ said Fadi Chamoun, a BMO Capital Markets analyst. “The results underscore a significantly stronger demand environment than anticipated alongside a very robust execution.’’

Second-quarter adjusted earnings of 78 Canadian cents was more than double the 38-cent average of analysts’ estimates compiled by Bloomberg. Revenue of C$3.91bn also beat the C$3.79bn average estimate.

Air Canada has gained 45 per cent this year through Monday, closing at C$19.83 in Toronto. A sub-index of Canadian industrial stocks has advanced 6.4 per cent for the period.

At Air Canada, free cash flow this year will probably be C$600m to C$900m, the airline said. That exceeds the C$200m to C$500m range projected in May.

At the same time, Air Canada warned anticipated cost savings for through 2018 will fall short of a previously disclosed target. Costs for each seat flown a mile will drop about 17 per cent from 2012 to 2018, compared with a 21 per cent target, the company said.

Air Canada blamed the shortfall on lower than anticipated capacity growth and higher non-cash depreciation expenses, as well as “cost increases not anticipated at the time related to the airline’s investment in initiatives focused on improving customer service levels".

The Canadian dollar has gained about 7.7 per cent this year against its US counterpart. Jet fuel and aircraft rent are two expenses denominated in US dollars.

* Agencies