UPDATE 3-WestJet raises prices as weaker Canadian dollar swells costs

Tue Feb 4, 2014 2:48pm EST

* WestJet ticket prices raised to offset weaker dollar
    * WestJet sees costs climbing in 2014 due to dollar,
maintenance
    * Fourth-quarter results match expectations, dividend raised
    * Stock up 3 percent after results, dividend hike


    By Susan Taylor
    TORONTO, Feb 4 (Reuters) - WestJet Airlines Ltd's 
chief executive said on Tuesday that the low-cost carrier
recently raised ticket prices to compensate for climbing
expenses caused by a weaker Canadian dollar, and may do so again
if the currency falls further.
    Chief Executive Officer Gregg Saretsky made the comments
after Canada's second-largest carrier reported fourth-quarter
results on Tuesday that largely met expectations, though WestJet
warned it sees the currency and an accelerated maintenance
schedule swelling costs in 2014.
    "If it makes sense that we need to offset some of the input
cost increases, as a result of the change in foreign exchange,
we'll make whatever changes are smart for the business,
respecting of course the impact on demand," Saretsky said on a
conference call.
    "We're watching this very closely."
    The airline also hiked its dividend by 20 percent and said
it expected earnings growth in full-year 2014. Its stock rose 3
percent as healthy yield growth allayed concerns that WestJet's
expansion would dent profits, said independent airline
consultant Robert Kokonis.
    WestJet, which is working to grow beyond its low-fare
origins to lure business customers and add more fees to plump up
revenue, said it introduced a system-wide 2 percent fare
increase last week, which was matched by competitors.
    The Calgary, Alberta-based carrier repeated that it does not
plan to add a currency surcharge to offset the weaker dollar,
despite such a move by rivals including Air Canada's 
vacation packages arm and Transat AT.
    "The primary method by which the airlines can offset both a
weaker Canadian dollar and higher fuel prices is by increasing
air fares. This is easier said than done, especially in an
environment where overall market capacity is increasing,"
National Bank Financial analyst Cameron Doerksen wrote in a note
to clients. 
    A falling dollar hurts airlines because they make major
purchases in U.S. dollars, including fuel and planes. Every 1
cent change in the value of Canada's dollar has an approximate
C$13 million ($11.7 million) impact on WestJet's annual unhedged
operating costs, the company estimates, with about C$11 million
of that from fuel expenses.
    WestJet shares fell 5 percent last week, while bigger rival
Air Canada's stock dropped 17.5 percent, on mounting worries
that currency issues would hurt the airlines' profits. Air
Canada reports its fourth-quarter results on Feb. 12.
    A weaker dollar may also factor into WestJet's decision on
whether to introduce new baggage fees.
    In the fourth quarter, so-called ancillary revenue for such
non-ticket items as seat selection, jumped by nearly 33 percent
to C$46 million, or C$10.09 per passenger.
    WestJet said it expects to announce by month's end which
company will provide in-flight entertainment and Internet
connectivity for its flights. It will start rolling out the
for-fee services later in 2014, but will not collect revenues
this year.
        
    COSTS TO CLIMB
    Currency and an accelerated schedule for engine overhaul and
repair will lift costs in 2014, WestJet warned. It now sees
costs, excluding fuel, increasing by 1.5 percent to 2.5 percent,
versus a previous estimate of flat to 1 percent.
    For the first quarter, costs excluding fuel will jump 3.5
percent to 4.5 percent, as the company accounts for much of the
maintenance work and the impact of tough winter weather.
    Capital expenditures will also rise, to between C$610
million and C$630 million, from an earlier estimate of C$580
million to C$600 million.
    Doerksen wrote that he expects first-quarter earnings per
share to decline due to higher costs, challenging winter weather
and tepid revenue growth. WestJet did not issue an earnings
forecast.
    First-quarter revenue per available seat mile is expected to
be flat to up slightly from the same period last year, as
system-wide capacity climbs 7.5 percent to 8.5 percent and
domestic capacity grows 9 to 10 percent.
    For the full-year, WestJet see system-wide capacity growth
of 4 to 6 percent, with a domestic increase of 5 to 6 percent.
    For the fourth-quarter ended Dec. 31, WestJet said net
earnings rose to C$67.8 million, or 52 Canadian cents per share,
from C$60.9 million, or 46 Canadian cents per share, a year
earlier. Revenue rose 8 percent to C$926.4 million.
 
    Analysts expected earnings of 52 Canadian cents a share and
revenue of C$931 million, on average, according to Thomson
Reuters I/B/E/S.
    Shares of WestJet, which launched a new regional airline
last summer and will start trans-Atlantic service in June, added
80 Canadian cents to C$25.65 on the Toronto Stock Exchange.
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