(Reuters) - Canada’s WestJet Airlines Ltd stock dived 10 percent on Tuesday as the carrier braced for higher costs and softer revenues in the third quarter.
While the second-quarter loss was smaller than expected, “Our 2018 results are off track,” WestJet CEO Ed Sims told analysts. “We are now operating in a very different fuel and competitive environment.”
Sims said WestJet, Canada’s second-largest carrier, raised fares several times during the first half of the year, but faces downward pressure on prices from domestic competition.
“We continue to see the symptoms of oversupply in the domestic market which is fully offsetting the relative demand strength,” he said.
With higher fuel costs squeezing profit margins, airlines are scaling back on capacity despite strong demand from passengers and raising fares when possible despite competition.
WestJet faces more execution challenges as well. It has juggled the launch of its new budget carrier Swoop with a planned international expansion, even as it negotiates a first contract with pilots and its flight attendants move to unionize.
Sims said WestJet’s results are expected to improve in the fourth quarter as the carrier scales back capacity, cuts costs and sees greater “benefit” on revenues from Swoop.
“We continue to believe that our long term strategy is the right direction,” he said.
Calgary-based WestJet expects a 4 to 6 percent decline in third quarter revenue per available seat mile (RASM). Cost per available seat mile (CASM), excluding fuel and profit share is expected to increase by 3 percent to 4 percent during the quarter.
WestJet lowered its forecast for full-year CASM, saying it now expects it to rise 2 to 3 percent, an improvement from the cost rise of 2.5 to 3.5 percent it originally forecast. The carrier expects full-year system capacity to rise 5.5 percent to 6.5 percent, down from an initial forecast of 6.5 percent to 8.5 percent.
WestJet reported a smaller-than-expected second-quarter loss as it flew more passengers and improved a key revenue metric, offseting a rise in fuel prices.
WestJet’s net loss was C$20.8 million ($15.9 million), or 18 Canadian cents per share, in the quarter, compared with a profit of C$48.4 million, or 41 Canadian cents per share, a year earlier, because of the threat of labor disruption.
Excluding items, the company lost 18 Canadian cents per share, smaller than analysts’ average expectation of 28 Canadian cents, according to Thomson Reuters I/B/E/S.
Revenue rose 2.8 percent to C$1.09 billion. ($1 = C$1.30)
Reporting by Anirban Paul in Bengaluru and Allison Lampert in Montreal; Editing by David Gregorio