WestJet exudes confidence in 8% to 11% capacity growth in 2016 even with unit revenue pressure

Canadian airline WestJet has offered system capacity guidance for 2016 of an additional 8% to 11%, which on the surface may seem ambitious given Canada's economic climate, and overall global economic uncertainty. But the airline is exuding confidence in its forecast following its financial performance in 2015, after Canada's economy sank into a recession during the first half of the year.

Perhaps, more importantly, WestJet is assuring that it has levers to pull if demand falters or if Canada's economic forecast is refined. Those levers include reducing utilisation and decreasing flying during shoulder periods. WestJet is already adjusting its winter schedule for warm weather markets; it experienced capacity pressure on those routes in early 2015.

This should help protect its precious investment grade status. Similar to US airlines, WestJet has also endured decreasing unit revenues in 2015, and is warning that its performance in that metric during 4Q2015 will fall below year-to-date results. Its unit revenue decline for the 9M ending Sep-2015 was 3%.