WestJet increasing capacity to sun destinations; domestic market still soft

The Canadian Press ~ The News
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CALGARY - WestJet Airlines Ltd. (TSX:WJA) will be adding capacity to sunny holiday spots abroad, as it expects to face continuing pressure on the prices it can charge for fares within Canada.
During the first quarter of 2010, the Calgary-based carrier will direct upwards of 40 per cent of its capacity toward the transborder market, especially southern locations, as the strong Canadian dollar encourages consumers to go on vacation.
"We're also seeing some great pricing from our partners in the hotel business and we're able to pass along some of those savings," said WestJet chief executive officer Sean Durfy on a conference call to discuss fourth-quarter results.
"I still am seeing some softness domestically and we are still seeing tremendous pricing pressure in the industry."
Despite the worst economic downturn in decades, WestJet ended 2009 with its 19th consecutive profitable quarter, though earnings and revenue were sharply lower than in the fourth quarter of 2008.
"Throughout 2009, reduced business spending, elevated unemployment rates and depressed consumer confidence meant that demand for air travel was under severe pressure. Pricing quickly followed, and this held true for all of 2009," Durfy said.
In addition, the airline industry grappled with volatile fuel prices, the H1N1 flu scare that caused Canada to advise against travel to Mexico last spring before the disease spread globally and enhanced security measures following a botched bombing aboard a Chicago-bound Northwest Airlines flight on Christmas Day.
"In light of all these obstacles, I am ecstatic and extremely pleased with this morning's results," Durfy said Wednesday.
The company reported a nearly 52 per cent drop in fourth quarter profit from the same time in 2008, but Durfy noted his airline's ability to stay in the black during such a tough year shows its "business model works even in the darkest times."
The net income for the quarter ended Dec. 31 was $20.2 million, or 14 cents per share, down from $42 million, or 33 cents per share, during the corresponding 2008 quarter.
Revenue was down 7.4 per cent to $570 million from $615.8 million in the fourth quarter of 2008.
WestJet beat analyst estimates compiled by Thomson Reuters, which called for five cents per share in earnings and $562 million of revenue.
Despite the challenges, WestJet is continuing to grow its business.
An interline pact between WestJet and European carriers Air France and KLM is now in effect. That type of arrangement sees airlines work together on baggage handling and other services so that passengers can more seamlessly travel from one airline's network to another.
Air France and KLM flights now go directly into four Canadian gateways and are able to access 11 destinations in all, with more being added this year.
Later in the year, up to four more inbound interline partnerships could be brought into the fold.
Interlining paves the way for further collaboration through code-sharing, in which airlines can sell seats on one-another's planes and share the revenue.
A code-sharing arrangement with Southwest Airlines (NYSE:LUV) will continue to be on the back burner this year, after the Dallas-based carrier first shelved the idea in May 2009.
"It will be pushed out further than 2010. At the same time, (Southwest CEO) Gary (Kelly) and I are committed to doing that when Southwest is ready. They are still certainly a very strong partner for us in the future," said Durfy.
In order to partner with other airlines, WestJet introduced a new reservation system in October. After a rocky transition, marked by long airport lineups and wait times, glitches for the most part have been cleared.
During the fourth quarter, it added five new aircraft, for a year-end total of 86. Its fleet of Boeing 737s will increase to 88 by the end of the first quarter.

Shares in the airline rose 1.4 per cent to $14.05 on the Toronto Stock Exchange in afternoon trading.

Organizations: WestJet Airlines Ltd., TSX, Air France Thomson Reuters NYSE Toronto Stock Exchange

Geographic location: Canada, CALGARY, Mexico Chicago Northwest Airlines Southwest Airlines

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