May 8, 2018 / 10:46 AM / a few seconds ago

Canada's WestJet flags weaker second quarter revenues on labor turbulence

(Reuters) - Canada’s WestJet Airlines Ltd (WJA.TO) on Tuesday said uncertainty from a labor dispute, along with higher expenses would weigh on second quarter earnings, after the carrier missed analyst estimates for the first three months of the year, sending its shares down to their lowest in over two years.

FILE PHOTO: A West Jet Boeing 737-700 aircraft (L) departs Vancouver International Airport in Richmond, British Columbia, Canada, February 9, 2011. REUTERS/Andy Clark/File Photo

The country’s second-largest carrier is negotiating a first contract with its unionized pilots, even as it plans to launch a new budget carrier in June, and expand premium seating. Pilots are expected to decide by May 10 whether to give their union a mandate to strike, which could be held as early as May 19.

“What we’ve seen over the last two weeks is a significant deferral of bookings,” WestJet Chief Executive Ed Sims told analysts, as some passengers either postpone travel or make other plans.

Sims said the company was “making progress” in the talks.

Chief Financial Officer Harry Taylor told analysts the strike vote “has really thrown a wrench into RASM (revenues per available seat mile) for the quarter.”

Airlines like WestJet are also battling rising fuel costs as oil prices rebound from multi-year lows in 2016 to touch $70 per barrel. Shares of WestJet’s larger rival Air Canada (AC.TO) slipped 2.7 percent by midday, while the benchmark Canadian share index was largely flat.

WestJet forecast lower than expected RASM, a key airline metric, for the second quarter, even as it said it would achieve a C$200 million ($154 million) cost savings by 2020, ahead of its initial target.

    WestJet expects second quarter RASM to be flat to 2 percent lower. BMO Capital Markets forecast RASM growth of 2.5 percent while Canaccord Genuity forecast growth of 4.2 percent.

    Taylor also told analysts the second half of year would look “very different” from the first half with new revenues streams kicking in from the budget carrier Swoop and other programs.

    Costs per available seat mile (CASM), excluding fuel and profit share is expected to increase by 7.5 percent to 8.5 percent during the second quarter.

    WestJet reported first-quarter profit that missed analysts’ due to higher fuel costs, which jumped 14 percent per liter in the quarter.

    WestJet shares were down 10.5 percent at C$19.78 by midday.

    Excluding certain items, WestJet earned 32 Canadian cents per share, missing the average analyst estimate of 36 Canadian cents, according to Thomson Reuters I/B/E/S.

    ($1 = 1.2965 Canadian dollars)

    Reporting by Akshara P in Bengaluru; Editing by Marguerita Choy and Phil Berlowitz

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