WestJet posts near-record quarterly profit on expanded routes, cheaper fuel

CALGARY – WestJet Airlines Ltd. reported its best ever third-quarter profit Tuesday as expanded routes and lower fuel prices helped offset a continuing downturn in its home province.

The Calgary-based airline (TSX:WJA) said it had $116 million in net income, or 97 cents per share, in the three months ended Sept. 30 — up from $102 million, or 82 cents per share, in the same quarter last year for what it said was its second best quarter ever.

The increase comes as the company continues to expand its international offerings, adding a direct flight to Belize in the quarter, while its service to London’s Gatwick Airport moves to full-year service for the first time.

Overall, the company says it expects capacity growth of about nine per cent this year, with 1.5 per cent of that from domestic growth, while for 2017 it expects overall capacity growth of between 3.5 per cent and 5.5 per cent year over year.

The company said on an analyst conference call that it’s still looking for more positive indicators out of Alberta but is happy with performance in the province after cutting back capacity.

WestJet chief executive Gregg Saretsky said the Alberta carbon tax set to go into effect next year will have a limited effect on operations, but that future increases provincially and federally are a much bigger concern.

“We’re paying currently $60 million a year in fuel tax across the various provincial and federal jurisdictions in which we operate. Alberta starting January 1 will have a carbon tax that’ll add another couple or three million dollars in 2017,” said Saretsky.

“As that goes up, and as the federal government gets their hands on carbon taxes, the number could be very significant, upwards of $60 to $70 million, incremental, all of which we would work to pass through ticket prices.”

The Alberta government says the $20 a tonne carbon tax going in place in 2017 will add 5.17 cents per litre of jet fuel, rising to 7.75 cents per litre when the tax rises to $30 a tonne in 2018.

WestJet benefited from an almost 10 per cent drop in fuel costs per litre in the quarter compared with last year, with the company paying 57 cents per litre compared with 63 cents per litre in the third quarter of 2015.

Revenue was up 7.6 per cent to $1.12 billion from $1.05 billion and revenue passenger-miles, an industry measure of passenger traffic, was up 13.6 per cent to 6.4 billion thanks largely to the addition of the London route.

The London flights have been hit with numerous delays because of mechanical issues with the used Boeing 767s the company took on for the route, resulting in significant compensation payouts to customers, but WestJet said reliability improved significantly in the quarter.

The company said it continues to consider further expansion across Canada, the U.S., and internationally and is actively negotiating with pilots on a new agreement that would cover an expanded wide-bodied fleet.

Saretsky said WestJet reached a tentative agreement with pilots over the past weekend that will now go to ratification with the WestJet Pilots’ Association.

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