Canada’s second-largest airline’s profit nosedives ahead of fleet expansion

WestJet posted a steep drop in earnings, driven by higher fuel costs, although new aircraft deals also weighed on results as it looks to grow.

A WestJet Airlines Boeing 737-700 taxis past low-lying fog at Vancouver International Airport. The airline is based in Canada. Darryl Dyck / AP

Canada’s second-largest airline WestJet has reported a 45 per cent fall in quarterly profit, mainly driven by higher fuel costs.

The company’s net earnings fell to C$48.3 million (Dh130m) from C$87.6m a year earlier. Revenue rose 8 per cent to C$1.11 billion.

“Our 2017 first quarter financial results represent our 48th consecutive quarter of reported profitability,” the company said.

“Our operating margin was 7.3 per cent, down 4.7 percentage points when compared to our 2016 first quarter and includes a non-cash cumulative catch up adjustment to our maintenance provision of C$18.5m and C$7m in irregular operations costs due to the severe weather experienced in the first quarter,” it added.

Load factor was up 0.9 percentage points on increased capacity year over year, WestJet said.

The carrier said it has agreed to buy up to 20 787-9 Dreamliner aircraft from Boeing. The purchase agreement includes commitments for 10 787-9 aircraft to be delivered between the first quarter of 2019 and December 2021, with options for an additional 10 aircraft to be delivered between 2020 and 2024. As part of this purchase agreement, WestJet is converting 15 firm orders for the Boeing 737 MAX aircraft that were to be delivered between 2019 and 2021 to options available between 2022 and 2024.

In the first quarter of this year WestJet added two new Bombardier Q400 aircraft increasing its fleet of 36 Q400s to 36 and its total fleet to 155 aircraft with an average age of 7.4 years. It has received an additional two Q400s since then and extended leases on three Boeing 737 aircraft, which were scheduled to expire this year, to 2023.

Over the next decade, it aims to increase fleet size to between 185 and 226 aircraft, depending on future decisions to exercise options to purchase and to renew leases, it said.

“We continue to look for opportunities to save costs and increase revenues, and in the first quarter of 2017 announced a seat reconfiguration programme for our Boeing 737-700 and Boeing 737-800 fleet which will increase capacity on these aircraft,” the carrier said.

“We expect to complete the reconfigurations of the Boeing 737-700 aircraft by June 2017 and the Boeing 737-800 fleet before the end of 2018.”

Last month, the airline announced it would launch a new, ultra-low-cost carrier in Canada, subject to agreement with pilots and regulatory approvals. Service is expected to commence in late this year with an initial fleet of 10 Boeing 737-800s.

“For the second quarter of 2017, we expect fuel costs to range between 65 and 67 Canadian cents per litre, representing a year over year increase of approximately 23 to 26 per cent. The second quarter 2017 expected fuel costs are based on current forecasted jet fuel prices of US$67 per barrel and an average foreign exchange rate of approximately 1.35 Canadian dollars to one US dollar,” it said.

For the full-year 2017, WestJet said it now expected capital expenditures to be approximately C$1bn, with spending related primarily to aircraft deliveries, deposits on future aircraft, overhauls on owned engines and the installation of a new inflight entertainment system on certain aircraft.

This compares with a previous full-year 2017 guidance of approximately C$900m to C$920m, it said, with the difference driven primarily by the signing and deposits related to the 787-9 purchase agreement. For the second quarter of 2017, it expects capital expenditures to be between C$380m and C$400m.

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