WestJet Has Best Year Ever – And Stocks Take A Tumble

Open Jaw
by Bruce Parkinson

There’s a certain kind of masochism involved in being an airline executive. Within a few short hours of WS announcing its biggest ever full year profit, the share price plummeted 11% to a 3 yr. low.

Talk about ‘What have you done for me lately?’ The airline had just announced the 19th profitable year in its 20 yr. history, posted its 11th consecutive profit making 12 months and its 43rd consecutive quarter of making money.

It was a weak – though still profitable – 4th quarter that seems to have given investors the yips. And there are real reasons for concern, the biggest of which is the airline’s home province of Alberta, which shows no signs of recovery from a deepening slump caused by a near 70% cliff-dive in the price of oil.

Investors and analysts have capacity concerns too, and the crippled CAD isn’t helping matters – it shaved over $10 million off the bottom line in the 4th quarter alone. Terror fears and the Zika virus are other current gremlins that may not actually be impacting sales, but are casting a gloomy light on travel futures.

On the Alberta issue, WestJet CEO Gregg Saretsky says it’s not clear whether the worst is over. “In 2016 we continue to feel the impact of macroeconomic weakness in Alberta and the currency exchange. It’s not clear that we’ve found the bottom yet of the current downturn.”

Executives say the 1st quarter of 2016 will be tough, with the important metric of revenue per available seat mile expected to be down 10-12%, most of that caused by rampant fare discounting in Alberta and the Prairie provinces. The hope is that things will start to improve after that, as the impact of a previously announced capacity shift from west to east pays dividends.

“We feel (Q1) will be the low point,” Saretsky told analysts and journalists on an earnings call. “Much of this softness is due to the Alberta market, which is 25% of our business, and to respond to that softening, we’ve made adjustments to our schedule.”

Saretsky says “the fundamentals of our business remain strong,” but the airline is hedging its bets as to what the year will bring, with executives saying they are “keeping capacity plans fluid” for the 2nd half of 2016.

Overall capacity growth for the year is forecast at between 7-10%, down from a previous projection of 8-11%. Saretsky says much of that increase will be generated by new widebody service to Hawaii and London. He says sales on the LGW route are well ahead of expectations, especially U.K. point-of-sale, as Brits take advantage of our low dollar.

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