WS Net Income Up 30% Despite MAX Grounding & Soft Swoop Bookings
Bruce Parkinson, Open Jaw
WestJet beat analyst expectations with its first quarter results for 2019, posting net earnings of $45.6 million – over 30% better than the $34.2 million reported in the first quarter of 2018.
"We remain confident in our strategic direction and continue to see positive trends as a result of our prudent growth and the strategic initiatives we are undertaking." said Ed Sims, WestJet President and CEO.
Revenue totalled $1.26 billion, up from $1.19 billion in the same quarter last year. Increased capacity and swelling ancillary revenues including bag fees helped boost revenue.
WS said ancillary revenue rose 15.2% to $126.1 million due to higher baggage fees that took effect in Q4 2018. Average ancillary revenue per passenger for the first quarter increased by 10.2% to $20.47, compared to $18.58 per guest in the year-before period.
Sims says the airline continues to face challenges from the grounding of its Boeing 737 Max aircraft and soft demand at its discount subsidiary Swoop.
"For the last 18 days of March, our absolute revenue was adversely impacted, as we spent considerable effort re-accommodating thousands of disrupted guests," Sims said, referring to the impact of the grounding of the 737 Max aircraft.
The grounded planes will bite harder in Q2, with pax capacity reduced by up to 3% from APR-JUN. While Air Canada has extended leases on a half-dozen narrow-body jetliners and added long-term leases for six Airbus A321 jets picked up from Iceland's WOW Air, WS is relying on its existing fleet, extending just one 737 lease.
WestJet’s chief financial officer Harry Taylor noted some teething pains for WestJet’s ultra-low-cost subsidiary Swoop.
“Swoop was weaker than we expected and would have liked," he told a conference call with investment analysts. "Awareness is so low. It hasn't even had its first birthday yet."
Swoop, which launched last June, is now listed on travel fare search engines such as Skyscanner and Google Flights, Taylor said, prompting an uptick in bookings. The company is also negotiating agreements with large online travel agencies.
"We are not giving up or worried about it," Taylor said.
Swoop's woes were the "primary driver" behind low revenue per available seat mile (RASM), a key performance measure, Sims said.
The increased earnings came as WestJet saw both capacity, measured by available seat miles, and traffic, measured by revenue passenger miles, climb by 5.3% year-over-year. Load factor held steady at 84.8% in the quarter.
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.