WestJet misses profit targets
High jet fuel prices, hurricanes blamed; shares descend as investors take flight
BRENT JANG
TRANSPORTATION REPORTER
WestJet Airlines Ltd. missed fourth-quarter profit targets by a wide margin yesterday as high fuel prices and hurricanes eroded the carrier's bottom line, prompting chairman Clive Beddoe to scold investors for panicking about the weak results.
The Calgary-based carrier posted a $1-million profit or 1 cent a share, falling well short of expectations of 8 cents in a survey of 15 analysts by Thomson First Call.
WestJet also disclosed that its $35-million project to install a new reservations system, originally planned for booting up this summer, will be delayed between six and 12 months.
Mr. Beddoe said he's puzzled why so many investors headed for the exits as WestJet shares descended yesterday on the Toronto Stock Exchange to $11.95, a drop of 86 cents or 6.7 per cent -- the sharpest fall since June, 2004. Almost 2.2 million shares traded hands, or four times the average daily volume.
"From my perspective, I see it as a typical overreaction by people overlooking the fundamentals. I don't understand it," Mr. Beddoe said in an interview. "People want to see dramatic changes, but we're not in the dramatic change business. We're in the business of making solid improvements to what we're doing."
He pointed out that the latest results are vastly better than the loss of $46.3-million or 37 cents a share in the fourth quarter of 2004, when WestJet took a large writedown after deciding to phase out its aging Boeing 737-200s ahead of schedule.
Stubbornly high jet fuel prices and hurricanes Katrina, Rita and Wilma hurt WestJet in the latest quarter, with the storms forcing many vacationers to cancel their planned flights, especially to Florida and Mexico. But Mr. Beddoe said the business fundamentals of the airline remain strong, with steady improvements in passenger loads even as the carrier expands its seat capacity. "That's what the smarter money will be looking at."
Yield, a key airline industry statistic that measures revenue per passenger mile, rose to 18.3 cents from 16.3 cents at WestJet.
WestJet's domestic market share of scheduled service has risen to 33 per cent from nearly 30 per cent in the past year, showing that it's faring well against the dominant carrier, Air Canada, Mr. Beddoe added.
However, analysts expressed concern about WestJet's performance. Michael Linenberg, an analyst at Merrill Lynch & Co. Inc., said the airline's unit costs have climbed 16 per cent over the past year. And David Newman, an analyst at National Bank Financial Inc., noted that WestJet's sales and marketing expenses reached $37-million in the fourth quarter, up 68 per cent from $22-million in the same period in 2004.
Some of that increase came from a marketing campaign to lure business travellers in Ontario.
Mr. Beddoe said it's important to promote WestJet in Ontario because "it's money well spent," and he's pleased with the increased traffic for his airline at Toronto's Pearson International Airport.
He's forecasting a profitable 2006, following last year's $24-million profit. Revenue rose 32 per cent to $1.39-billion last year, bolstered by higher fares after last March's shutdown of discount rival Jetsgo Corp.
The delay in switching over to a new reservations system, code-named Aires, also means strategic alliances with foreign carriers will take longer to announce than originally planned. "This is a hugely complex project. It's the computer interfaces that are presenting challenges for us," Mr. Beddoe said, referring to the task of getting WestJet's system to work smoothly with partners such as the Air Miles loyalty program.
Even if the new technology takes until the spring or summer of 2007 to switch on, "the benefits will be worth it" because WestJet will be able to bundle certain user-pay perks and also boost passenger loads with connecting travellers from foreign carriers, he said.
WestJet celebrates its 10th anniversary at the end of this month.
Q4 2005 2004
Profit $1-million -$46.3-million
EPS 1¢ -37¢
Revenue
$367.9-million $273.7-million
Yearly Profit
$24-million -$17-million
EPS 19¢ -14¢
Revenue
$1.39-billion $1.09-billion
Here goes the pay raise
