WestJet reports 19th consecutive quarterly profit, but bottom line halved

Saying it was pleased with its performance, given the challenges of the past year and claiming to be the second most profitable North American carrier, WestJet reported fourth quarter net earnings of CAD20.2 million or 14 cents per diluted share and full-year net earnings of CAD98.2 million or 74 cents per diluted share. In fact, CEO, Sean Durfy said that, in light of the challenges of the past year, he was “ecstatic” with the company’s results. The fourth quarter net income decline was 51.9% from 4Q2008, while the decline for the full year was 45% from the year-ago period.

Revenue was down 7.4% to CAD570 million for the fourth quarter and was down 10.5% for the year to CD2.2 billion.

The company said its planned codeshare with Southwest would slide into 2011, but that its Air France interline agreement will expand this year. It is also targeting getting two or three more strategic airlines this year, as well as the expansion of WestJet Vacations.

"We are pleased to report that WestJet finished 2009 with its 19th consecutive quarter of profitability," commented WestJet President and CEO Sean Durfy. "Achieving four quarters of profitable results in a year that will be remembered as the world's worst recession since the great depression is truly a testament to the ability of our WestJetters and our solid business model. The additional challenges of H1N1 and enhanced security measures made this an extremely difficult business environment for the airline industry".

The airline reported a fourth quarter operating margin of 6.3% compared to 9.6% in the same quarter of 2008. For the full year, WestJet achieved an operating margin of 9.2% compared to a 2008 margin of 11.5%.

The airline's results were impacted by a non-recurring net future income tax reduction during 2009. Excluding this gain, WestJet reported adjusted fourth quarter net earnings of CAD15.1 million or 11 cents per diluted share and adjusted full-year net earnings of CD93.1 million or 71 cents per diluted share.

Robust capacity growth plans

Despite the fact that most airlines are becoming more conservative in capacity increases for 2010, WestJet not only added five new aircraft in the 4Q2009 for a total fleet of 86 aircraft, but is adding an additional five this year.

WestJet took a further delivery of a B737-800 aircraft in Feb-2010, and the airline plans to take delivery of an additional B737-700 before the end of the first quarter of 2010 bringing its fleet size to 88 aircraft. The airline also anticipates a 7% increase in capacity in the first quarter of 2010 compared to the same period in 2009.

In its analyst calls, it said it is managing capacity to demand with aircraft utilisation, which has dropped 42 minutes per day.

Indeed, Mr Durfy told investors, “You have to continue to grow airlines and we are going to do that.” However, analysts seemed less than convinced and even suggested that WestJet was making the best of a situation in which they were stuck with aircraft deliveries.

After a 5% drop in 2009 capacity, WestJet expects capacity to grow 9-10% this year. Aircraft utilisation will be between 11.6 and 11.8 hours per day, after being at 12 hours in the past. 40% of the capacity will be the North American trans-border market, as well as the Caribbean and Mexico. It also just received rights to serve Cuba and has that on its agenda for 2010. Durfy pointed to its historical aircraft deliveries, noting that since 2001 it has taken 7-8 aircraft annually.

RASM declines easing

Durfy, however, noted that the company’s four quarter RASM decline was 10% less than expected, thanks to a better than expected performance in Dec-2009. The RASM decline for the first quarter was expected to be less than 5%, he said.

Other challenges for the Number Two Canadian carrier, which has 37-38% of the domestic market, compared to 36% in 2008, included its new reservations system. "We have been working diligently to get our service levels back to our high standards,” said Durfy. “We are pleased to report that call centre wait times are very close to pre-cutover levels. We are excited about the enhanced functionality that our new reservation system enables including additional opportunities for ancillary revenues and more seamless partnerships with other airlines."

"We look back on 2009 as a foundational year, and in 2010 we are focused on finishing what we started," stated Sean Durfy. "In the first quarter we will launch our frequent guest and credit card programs. Throughout 2010, we will enter into additional strategic partnerships with other airlines and continue expanding WestJet Vacations, both of which we believe will enhance our future revenue growth. The strength and leadership of our WestJetters turned 2009 into a profitable year with significant accomplishments, and we have every reason to believe that we can carry this momentum into 2010", he concluded.

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