WestJet Boosts Dividend as Fourth-Quarter Profit Climbs

Feb 04, 2014 4:31 pm ET

(Updates with fare increase in 12th paragraph.)

Feb. 4 (Bloomberg) -- WestJet Airlines Ltd. raised its dividend for the fourth time in less than three years after it reported an 11 percent increase in fourth-quarter profit and flew more passengers.

Net income rose to C$67.8 million ($61.2 million), or 52 cents a share, the Calgary-based airline said today in a statement. The company’s quarterly dividend will climb by 20 percent to 12 cents a share.

WestJet is benefiting from the introduction last year of premium seating aimed at business travelers, which it said will add as much as C$80 million annually to sales. Revenue in the latest quarter climbed 7.6 percent to C$926.4 million as WestJet flew 4.56 million passengers -- a 5.6 percent increase from a year earlier.

The company is also pressing ahead with a plan to cut C$100 million in expenses by the end of 2014, a year ahead of schedule, Chief Executive Officer Gregg Saretsky said on a conference call with analysts.

“It was another solid quarter for WestJet with demand and yield trends remaining robust,” Walter Spracklin, an analyst at RBC Capital Markets in Toronto, said today in a note to clients. He has an outperform rating on the stock.

WestJet rose 3.4 percent to C$25.70 at the close in Toronto, its biggest daily gain since Sept. 18. That narrowed the stock’s drop this year to 7.7 percent, as Canada’s benchmark Standard & Poor’s/TSX Composite Index fell 0.9 percent.

Another Increase

Excluding some costs and gains, WestJet had been expected to earn 52 cents a share in the fourth quarter, according to the average of 13 estimates compiled by Bloomberg.

This is the fourth time since 2011 that WestJet has boosted its payout to shareholders, according to data compiled by Bloomberg. The quarterly dividend will be paid March 31 to shareholders of record as of March 19.

“If we see continued strength in the industry and company fundamentals we’d expect the dividend to be increased again later this year,” Helane Becker, an analyst at Cowen & Co. in New York, said today in a note to clients. She has an outperform rating on the stock.

Costs for each seat flown a mile, excluding fuel and employee profit sharing, declined 0.3 percent in the quarter, WestJet said. For all of 2013, costs fell 0.7 percent on that basis, exceeding the 0.5 percent target the company provided Nov. 5.

Currency Decline

WestJet spent C$260.5 million on fuel in the period, a 5.8 percent increase, as the airline grappled with an average 5.9 percent decline in the value of the Canadian dollar relative to its U.S. counterpart.

WestJet raised systemwide fares by 2 percent last week to make up for higher costs, and won’t rule out another increase this year if the currency continues its slide, Saretsky said on the call.

“If it makes sense that we need to offset some of the input cost increases as a result of foreign exchange, we will make whatever changes are smart for the business,” he said. “We’re watching this very closely.”

Excluding fuel and employee profit sharing, full-year costs will rise 1.5 percent to 2.5 percent, WestJet said. The new target exceeds a previous forecast of an increase of no more than 1 percent in 2014. On that basis, costs in the first quarter will climb 3.5 percent to 4.5 percent, the company said.

Every 1-cent drop in the Canadian dollar boosts annual operating costs about C$13 million, including about C$11 million in fuel, Chief Financial Officer Vito Culmone said on the call.

‘Yield Growth’

Revenue for each seat flown a mile decreased 0.6 percent to 15.59 cents, WestJet said. Yield, or average fare per mile, rose 1.4 percent to 19.43 cents.

“Positive yield growth highlights WestJet’s ability to effectively manage a higher foreign exchange environment,” said RBC’s Spracklin.

Traffic and revenue growth will be “strong” in the first quarter, WestJet said, without being more specific. The company also predicted earnings will rise this year, though it didn’t disclose a target.

--Editors: Molly Schuetz, John Lear