(Reuters) - Shares of WestJet Airlines Ltd (WJA.TO), Canada’s second-largest airline, plunged as much as 13 percent on Tuesday after it warned it was likely to earn less revenue from every seat in the coming quarter, partly due to softer demand.
The Calgary, Alberta-based company said second-quarter revenue per available seat mile (RASM), a key measure of an airlines’ efficiency, was likely to decline moderately.
It put part of the blame on the fact the Easter and Passover holidays, which traditionally bring higher passenger numbers, fell within the first quarter this year.
“You’re seeing capacity in Canadian airlines starting to increase. Obviously that puts downward pressure on ticket prices. So the revenue per available seat mile goes down,” said Luciano Orengo, a portfolio manager with Manulife Asset Management, who owns WestJet shares.
WestJet also said its aircraft were less full in April, falling 3.5 percentage points on the year to 82.7 percent. RBC Capital Markets analyst Walter Spracklin called the traffic data results “negative” because WestJet’s capacity growth of 7.4 percent far exceeded demand growth of 3.2 percent.
“While management is optimistic that what it terms as a ‘soft patch’ and several timing-related issues will revert in the rest of the quarter, we are mindful of the trends in higher capacity, slowing traffic, lower loads and lower yields,” Spracklin wrote in a note to clients.
WestJet shares, which have risen some 110 percent since the beginning of 2012, were down 8 percent at C$22.74 at midday on the Toronto Stock Exchange. The shares of rival Air Canada ACb.TO, the country’s largest airline, were down 9.6 percent at C$2.27.
“While WestJet’s guidance appears to point to a better cost outlook for the balance of the year, we believe the influx of capacity will continue to put pressure on RASM in the Canadian airline industry,” analyst Fadi Chamoun of BMO Capital Markets said in a research note.
The cancellation of some business through the Thomas Cook travel agency was also expected to impact second quarter results. WestJet noted that last year’s results also benefited from Air Canada’s labor uncertainty.
“We’ve experienced the same soft patch in April as reported by other North American carriers,” said Chief Executive Officer Gregg Saretsky in a conference call with analysts. “We are, however, seeing stronger bookings in May and June, with a moderate decline in RASM.”
WestJet announced it will sell 10 Boeing 737-700 aircraft to an undisclosed third-party in 2014 and 2015, and will buy 10 Boeing 737-800 aircraft. The airline owned 39 Boeing 737-700s and four 737-800s as of December 31, 2012.
The company added that it deferred the delivery of five Boeing 737-700s to 2016 and 2017 from 2014 and 2015.
It reported a record 33.3 percent rise in first-quarter profit, beating analysts’ estimates, as it flew fuller planes.
Net earnings rose to C$91.1 million ($90.3 million), or 68 Canadian cents per share, from C$68.3 million, or 49 Canadian cents per share, a year earlier.
Revenue rose 8.6 percent to C$967.2 million.
Analysts on average expected earnings of 63 Canadian cents per share on revenue of C$972.3 million, according to Thomson Reuters I/B/E/S.
WestJet’s load factor — the percentage of available seats filled with paying customers — rose to 84.3 percent from 83 percent a year ago.
WestJet’s RASM rose 2.4 percent in the quarter ended March 31. Costs per available seat mile, or CASM, rose 0.3 percent. CASM, excluding fuel and employee profit share, fell 0.1 percent in the first-quarter.
($1 = 1.01 Canadian dollars)
Reporting by Solarina Ho in Toronto and Krithika Krishnamurthy in Bangalore; Additional reporting by Susan Taylor and John Tilak in Toronto; Editing by Chris Reese