Encore’s introduction continues to contribute to WestJet’s unit revenue pressure

WestJet beat previous estimates of unit cost reductions in 3Q2013, but overall the quarter was paradoxical for the carrier as yields and unit revenues continued to be pressured by high capacity growth; however, at the same time the airline is pleased with one of the main drivers of the capacity increase, the launch of its regional carrier Encore.

After unit revenues fell nearly 5% in 2Q2013 and almost 4% in 3Q2013, WestJet foresees flat unit revenue growth during 4Q2013 and is declining to offer guidance for FY2014 even as unit costs could grow by 1% during that same time period.

The carrier has undertaken numerous significant projects during 2013 in addition to the launch of a new airline - most notably the introduction of a premium economy section on its Boeing 737 narrowbodies and fare bundling options. At the same time WestJet now believes it will deliver on a CAD100 million (USD96 million) cost-cutting scheme a year early, by the end of 2014. Presumably all of those initiatives will pay off in the long term, but in the short term WestJet may continue to face pressure in some key financial metrics.