Good Afternoon All:
It would appear the low price of oil has had a negative effect on Team Teal.
The Globe and Mail
Published Tuesday, Feb. 02, 2016 6:48AM EST
Last updated Tuesday, Feb. 02, 2016 6:11PM EST
Alberta’s flood of job losses hit WestJet Airlines Ltd., as the airline reported sharply lower profit amid growing concerns about industry overcapacity.
The Calgary-based airline saw a steep drop in ticket sales in the fourth quarter of 2015, a plunge it attributed to dwindling oil-patch employee severance packages and bonuses. Alberta shed about 51,000 full-time jobs last year as oil prices collapsed to about $30 (U.S.) a barrel from more than $100 in 2014.
WestJet’s profit fell by 27 per cent in the final three months of 2015 to $63.4-million (Canadian), or 51 cents a share. Analysts had been expecting per-share profit of 63 cents, according to Thomson Reuters.
Revenue per available seat mile, a closely watched industry measure, fell by almost 6 per cent. WestJet shares slid by 11 per cent Tuesday, and have lost about a third of their value since early October. Shares of rival Air Canada dropped nearly 7 per cent Tuesday, retreating by about 40 per cent over the past three months.
For WestJet, “what’s happened, unfortunately, is the Alberta market has softened tremendously. I think a lot of that softening caught the company a little bit by surprise. I don’t think anyone was anticipating just how rapid and violent it’s been,” Chris Murray, an equities analyst with AltaCorp Capital, said in an interview.
“There’s been some concern among investors about the level of capacity in the Canadian market in 2016. Certainly, both Air Canada and WestJet are suggesting that they’re going to [add] some pretty heavy capacity. The concern is, as you add that capacity, is the industry losing the discipline to maintain fares and maintain profitability?” said Mr. Murray, noting this contrasts to the strong financial performance of U.S. airlines.
WestJet appeared to have been caught off-guard by the drop in ticket sales, which has been steeper than in the slump of 2008-09.
“We didn’t start to see much softness in our yields and our bookings until late [in the fourth quarter], and it was sudden and it’s gotten very deep,” said Gregg Saretsky, WestJet’s chief executive officer.
“We expect this year to be a soft year in Alberta,” he said.
About 25 per cent of WestJet’s business originates in Alberta and 40 per cent of passengers across its network travel through the province.
Amid a drop in business and holiday travel, WestJet has suspended some flights out of Calgary and Edmonton, but is boosting service in Eastern and Central Canada, areas that are showing signs of growth. The company said B.C. flights are also performing well.
The company has added four wide-body Boeing 767s to its fleet of smaller jets, and will begin flying to London this year.
Analysts are questioning this expansion in a weak overall market.
“I’m wondering, given this macro picture, why not take a much deeper cut to capacity and stabilize fares?” said Fadi Chamoun, a Bank of Montreal analyst. Given WestJet’s apparent difficulty in foreseeing the steep loss of sales in Alberta, Mr. Chamoun questioned the company’s ability to be ready for drops in other markets
Mr. Saretsky, WestJet’s CEO, defended the company’s purchase of the 767 jets, noting that they will fly to London, where the strong pound has been good for ticket sales. “The weak Canadian dollar makes Canada a bargain,” he said. “That should be good for Canadian tourism in general and WestJet.”
WestJet Airlines weighed down by Alberta job losses as profit plunges - The Globe and Mail