WestJet Optimistic Despite ‘Heavy Lifting’ Ahead

Bruce Parkinson, Open Jaw

WestJet Chief Executive Ed Sims

After weathering a host of challenges in 2018, WestJet is looking ahead with optimism amidst the turbulence of change. 

That was the impression given by both airline executives and financial analysts as Q4 2018 and full year results were discussed on a conference call.

"Throughout 2018, we faced compounding headwinds that resulted in our business delivering results well below where we could and should perform," said CEO Ed Sims.

Despite those headwinds, WestJet beat analyst expectations in the fourth quarter, delivering net earnings of $29.2 million. That was down 39% from the year-before quarter, mostly due to a 21% year-over-year jump in fuel costs. For the full year, WestJet’s net earnings were $91.5 million, down from $279.1 million in 2017.

But as it makes big steps in its nearly quarter-century evolution from a regional low-cost carrier to an international player with all of today required elements – from lie-flat seats in new 787s to Swoop’s entry-level flying – WestJet is seeing positive signs.

A key one is that WestJet’s branded fares are beginning to pay off, with more pax choosing to pay extra for things they want, from checked bags to extra legroom. 

Revenue from premium economy passengers shot up a satisfying 70% last year and the proportion of pax who opted to buy up to a fare higher than the lowest one available increased to 36% in Q4, a big jump from 6% at the start of the year.

“It's the first time I've seen analyst reports use the word ‘ahead’ in the 12 months that I've been in the role,” Sims joked. “But we are incredibly conscious of the heavy lifting that we have ahead of us.”

In 2019, WestJet’s capacity growth will be conservative at 6-8%, much of that coming from three shiny new Boeing 787 Dreamliners – the first of 10 on order – flying from Calgary to Dublin, London and Paris beginning this spring.

The domestic market remains highly competitive both for WestJet and subsidiary Swoop, and there’s more competition to come in Swoop’s budget terrain. But demand remains strong – WestJet filled 83.8% of its seats in 2018, up 0.2 points from 2017.

There are certainly challenges ahead, including keeping workers happy during a period of major transition, and how well the airline adapts to its international expansion.

But it seems that financial analysts are along for the ride, with an airline that has been consistently profitable for much of its existence.

Kevin Chiang, an analyst with CIBC World Markets, cited a “healthy demand environment and strong revenue growth."

“While fuel has become a lot more volatile, we have greater comfort in our view of expanding profitability from Canada's two largest airlines,” Chiang said in a note to investors.

Investors appear to agree: WestJet’s share price closed up 3.66% yesterday, at $20.94.

Bruce Parkinson

Bruce Parkinson Editor-in-Chief

An observer and analyst of the Canadian and international travel industries for over 25 years, Bruce uses the pre-dawn hours to prepare a daily news and information package to keep industry members up to date.

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