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WestJet considering expanding international service

May 7, 2014, Calgary - WestJet Airlines says it could take its rivalry with Air Canada overseas by launching an international service using large widebody aircraft.


May 7, 2014
By The Canadian Press

The Calgary-based airline said Tuesday the new service could be in
place in 1 1/2 to three-and-a-half years, if its board gives the green
light. WestJet has been discussing the move with its pilots and also
meeting with potential airplane lessors and manufacturers.

 

"So no decision made yet but we're getting all the
pieces in place to be able to make a good decision," president and CEO
Gregg Saretsky said during a conference call to discuss its
first-quarter results, which saw a lower profit.

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WestJet is already getting into
the European market by launching service next month to Dublin, Ireland,
from St. John's, using its narrowbody Boeing 737 aircraft. It said
demand is so strong the seasonal service will be extended by about three
weeks to Oct. 25.

 

"All of that gives us great confidence
that there is strong demand for a value-based international product that
WestJet is looking to pursue," Saretsky said before the airline's
annual meeting in Toronto.

 

He declined to say how many large planes could be added to its fleet, or which destinations could be served.

 

"Obviously, we are looking
for markets that are burdened by very high airfares and there are lots
of those in the international space so there are opportunities across
many geographies."

 

Expanding its global footprint would
allow Canada's second-largest airline to challenge carriers like Air
Canada and tour operators including Transat,
which fly large planes to many destinations including Europe.

 

While it assesses this new opportunity,
WestJet said it is also upgrading its technology before deciding later
this year whether to add a fee for first checked bags.

 

Saretsky said the decision by Porter
Airlines to begin charging $25 for the first bag and $35 for a second
bag checked on domestic travel is "indicative of the steps that airlines
are needing to take to offset the headwinds that we're all facing."

 

The airline's net profit fell two per
cent to $89.3 million from $91.1 million a year earlier. It earned 69
cents per diluted share for the period ended March 31, one cent above
last year. Adjusting for one time items, it earned 59 cents per share,
four cents less than forecasted by analysts polled by Thomson Reuters.
Revenues surpassed $1 billion, increasing 7.7 per cent from last year.

 

After a two per cent fare increase in
February, WestJet has selectively increased fares in markets where
demand is strong. Ancillary fees increased 28 per cent to $10.55 per
passenger in the quarter, with the prospect for $80 million being
collected for the full year. Charges including for changing and
cancelling flights, pre-reserving seats and buying food are designed to
offset higher costs and the impact of the lower Canadian dollar.

 

However, the airline said it has no plans to introduce a currency surcharge as some charter operators have done.

 

At the same time, WestJet continues to
cut costs, trimming $125 million this year, above its $100 million
target and a year ahead of schedule. It hasn't announced any new target
for additional efforts.

 

Meanwhile, WestJet said it was
disappointed by the Ontario Liberal government's budget proposal to
increase fuel taxes. The four cents per litre increase to be phased in
over four years would cost the airline about $13 million.

Chief financial officer Vito Culmone said
the tax doesn't make it easier for Canadians to access low-cost fares
without crossing the U.S. border.

 

More than one million Ontarians fly out
of Buffalo each year, which reduces the use of taxis, restaurants and
hotels in Canada, added Saretsky, who noted that a more "progressive"
government in British Columbia has eliminated the fuel tax on its
international itineraries from Vancouver.

 

"So it's a much bigger issue than aviation, it really is a transportation issue and not very progressive."

 

The airline said the
quarterly results include pre-tax recoveries of value-added taxes of
$17.6 million associated with fuel costs and $2.5 million associated
with airport costs from 2009 to 2013. Severe weather in January cost
between $3 million and $6 million while the lower loonie had a
$33-million negative impact.

 

WestJet said it will purchase up to two
million of its shares in the coming year, about 30 per cent less than
the nearly 5.7 million shares it bought last year.

 

It also announced the further roll out of
its Encore regional service in Eastern Canada with the launch of
twice-daily service between Toronto and Quebec City as of next March
using Bombardier Q400s.

 

Walter Spracklin of RBC Capital Markets
said the revenue trends are more positive than he initially thought,
while costs aren't as bad as feared.

 

"We were very encouraged to hear the CEO
speak to a much improved traffic and yield environment," he wrote in a
report. "There was some focus on the call with regards to a wide-body
fleet, which may be met with some uncertainty by the market — but
nevertheless, we consider the quarter to be a net positive from a trend
basis."