WestJet’s strong financial performance is ignored as capacity trends up and unit revenue declines

WestJet's top line financial strength is largely being ignored by the stock market as its share price remains down from highs achieved in Dec-2014 even after the airline recently posted a record 3Q2015 result and expanded its targets for return on invested capital (ROIC).

Similar to other North American airlines, WestJet has encountered pressure on its unit revenue and yields, driven by industry capacity increases and its exposure in the Canadian province of Alberta, where the economy has a large dependence on the oil and gas sector.

Despite the unit revenue headwinds, WestJet is defending its decision to revise domestic capacity revisions upwards for 2015. The company believes the stimulative effect of its Encore regional subsidiary, coupled with its strong financial performance, allow for capacity growth that is not tied to Canadian GDP.