WestJet doesn't rule out more fare increases if dollar stays low

WestJet reported record earnings of $268.7 million for 2013 on Tuesday and said it would be passing some of that good fortune on to its investors by increasing its quarterly dividend by 20 per cent.

But the company also said on a conference call with reporters that it might consider another fare increase if the Canadian dollar remains weak against the U.S. dollar. The dollar was trading at 90.35 cents US late Tuesday, up 0.38 of a cent from Monday's close.

The airline raised fares by two per cent last week in response to the falling dollar, and other airlines soon followed.

Each cent decrease in the loonie causes a $13 million reduction in annual unhedged operating costs, of which $11 million relates to fuel expenses.

Unlike rivals operating package tours, WestJet has refused to implement currency surcharges in order to be transparent about the total cost of flying, CEO Gregg Saretsky said during the earnings call.

"We held off as long as we could with the (foreign exchange) situation," said sales vice-president Bob Cummings .

But the Calgary-based WestJet has increased the cost of travel in other ways — through ancillary charges for passenger choice like changing reservations, cancelling flights, reserving seats and purchasing food. Such revenues increased by 33 per cent in the past year to $46 million, or $10.09 per passenger in the fourth quarter.

The airline plans to announce later this month a new in-flight entertainment and Wi-Fi system to be implemented starting by year-end that should generate additional revenues as of 2015.

A decision on whether to charge for first checked bags on flights to the U.S. or in Canada is being put off until technological challenges are ironed out that would allow the airline to exempt frequent flyer and loyalty credit card customers. It currently charges all customers for a second checked bag.

1 million more passengers

The airline's net earnings rose 10.9 per cent in 2013, and earnings in the last quarter of 2013 were up by more than 11 per cent to $67.8 million, or 52 cents per diluted share,

"This represents WestJet's 35th consecutive quarter of profitability, and based on the trailing 12 months, the airline achieved a return on invested capital of 13.9 per cent, compared with the 13.8 per cent reported in the previous quarter," WestJet said in a press release announcing the end-of year results.

WestJet said it flew 18,485,144 passengers in 2013, about a million more than in 2012, and its load factor for the year was down slightly at 81.7 per cent, compared to 82.8 per cent in 2012.

The load factor is a closely watched industry metric that tracks the percentage of passengers in available seats across all of an airline's flights during a given period.

The airline said winter weather cost it between $6 million and $7 million in the fourth quarter as a result of additional costs and lost revenues.

Encore regional service to drive growth in 2014

It said it expects continued strong traffic and revenue growth in the first quarter of 2014 and continued earnings growth for the full-year 2014.

Capacity is slated to grow by 7.5 to 8.5 per cent in the first quarter while revenues per available seat mile will be flat, and costs, excluding fuel and profit sharing, will be up 3.5 to 4.5 per cent on harsher winter weather, a weaker dollar and the timing of engine overhauls.

Capacity should be up four to six per cent in 2014 while costs will be 1.5 to 2.5 per cent higher, above its prior guidance of zero to one per cent.

Saretsky said half the anticipated growth this year will come from its discount regional service Encore, which has seen 50 to 60 per cent of passengers connect to the mainline carrier. WestJet expects to take delivery of eight Q400s this year, doubling its fleet to 16 as it expands service from Toronto.

WestJet shares were up 3.82 per cent to $25.80 in late-afternoon trading on the Toronto Stock Exchange.