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WestJet preparing to take on low-cost rivals

July 30, 2014, Calgary - WestJet Airlines is preparing for the arrival of new low-cost competitors including Southwest Airlines by taking steps to expand its regional service and add wide-body planes to its fleet to access new international routes.


July 30, 2014
By The Canadian Press

Chief executive Gregg Saretsky said the Calgary-based carrier's formula since 1996 has been to stay lean and keep fares low.

 

"So
to the extent that there are other lower cost operators that see
opportunities, they're going to be met with a pretty strong response
from WestJet and our people are ready for any challenge," he said
Tuesday after reporting record second-quarter results that beat analyst
forecasts.

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The airline's profits surged nearly 16 per cent to
$51.8 million or 40 cents per diluted share for the three months ended
June 30. That compared with a profit of $44.7 million or 34 cents per
share a year ago.

 

Revenue increased 10.3 per cent to $930.3 million from $843.7 million in the second quarter of 2013.

 

Analysts
on average had expected the airline to earn a profit of 28 cents per
share, according to estimates compiled by Thomson Reuters.

 

WestJet's
shares hit an all-time high of $29.11 and were up 4.45 per cent, or
$1.22 at $28.64 in afternoon trading on the Toronto Stock Exchange.

 

Saretsky
said the airline is continuing to study whether to offer lower base
fares, but add baggage fees. A decision isn't expected before year-end.

 

WestJet
has been increasing the revenue from ancillary fees passengers pay to
upgrade seats or obtain other benefits. Non-ticket revenues increased 17
per cent in the quarter to $10 per passenger. That still lags U.S.
airlines, but Saretsky said he's very optimistic of increasing those
revenues.

 

The airline expects to bring in more than $80 million in ancillary revenue this year.

 

"We'll
be ready to meet whatever competitor wants to come to take us on and
Southwest is a very good competitor, but our job is to make sure that
WestJet is in a position to be a fierce competitor as well," Saretsky
said during a conference call.

 

Southwest's CEO recently said it is
eyeing Canada, along with Hawaii, Alaska, Central America and northern
South America as possible destinations for its international expansion.
Canada Jetlines Ltd. of Vancouver and Jet Naked of Calgary are also
musing about launching their own low-cost airline services.

 

Saretsky
said Canadian airlines already face competition from low-cost carriers
like Allegiant and Spirit Airways, that lure about five million
Canadians a year to cross the border to fly from U.S. cities like
Buffalo, N.Y., Burlington, Vt., and Bellingham, Wash.

 

A large fuel
tax increase in Ontario will cost the airline up to $15 million a year
when fully implemented in three years and only make the situation worse,
the airline said.

 

WestJet announced Tuesday that it will add at
least four used Boeing 767-300ERW aircraft. The first two planes will
initially be used on routes between Alberta and Hawaii during the winter
beginning in late 2015, replacing the smaller Boeing 757s flown on its
behalf by Thomas Cook.

 

The bigger planes can fly further than
WestJet's current fleet of Boeing 737s and allow it to compete with Air
Canada on more routes.

 

The airline said it expects to
expand its operation into overseas markets starting in the summer of
2016 but won't say if it will move beyond Europe to include Asia or
other markets. WestJet began flying between St. John's, N.L., and Dublin
last month.

 

The airline wouldn't immediately provide financial details about the planes, but Saretsky said more can be added, if required.

 

RBC
Capital Markets analyst Walter Spracklin said the second-quarter
results were driven by strong demand in Canada and on U.S. routes.

 

The improved yield "bodes well for the overall pricing environment," Spracklin said.

Costs excluding fuel were up 1.9 per cent, but less than the company's guidance for three to four per cent.

 

"Overall,
it was a strong quarter for WestJet which highlighted both the
carrier's strong operations, as well as the robust demand environment,"
he wrote in a report.

 

The airline also announced Tuesday that it
has exercised options for five additional Bombardier Q400
turboprops, as it expands its WestJet Encore regional service to Eastern
Canada.


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