Westjet profits tumble in 2018

A Westjet Boeing 737-800 departs Vancouver International Airport Monday. (photo: Brett Ballah)

Westjet has never carried so many passengers, yet had so little to show for it.

The Canaidan airline reported its 2018 earnings Tuesday, showing more than 25 million people flew on Westjet aircraft last year, but produced a profit of $91.5 million, down 67% from the year before. The profits were the lowest since 2010. Revenues were down, and costs soared almost six per cent, led by fuel prices that rose from an average of 64 to 81 cents per litre.

The poor results continued a trend started in 2016, when Westjet profits slipped from their all-time high the year before. In 2017, Westjet flew more people than ever before, but profits fell to $283.6 million.

The decline comes as Westjet is in the midst of a makeover, changing from a low-fare, folksy airline to a global carrier.

“Throughout 2018 we faced headwinds, delivering results well below where we could, and should, perform,” said Ed Sims, President and CEO of Westjet. He pointed out that the airline spent a lot of time and energy developing its overseas markets, announcing destinations for its new Boeing 787 aircraft.

“We know we have to earn the right to grow, particularly in our premium cabin,” said Sims. He said more passengers are choosing premium fares as the airline develops its business offer, and he said passengers were choosing to book premium fares, rather than wait until check-in to upgrade. He said early premium bookings were up 70% over the previous year.

Sims said Westjet would continue to rein in costs in 2019, and better deploy airplanes to serve profitable routes, such as a 13% increase in capacity to Mexico, and an increased focus on a joint venture with Delta Air Lines in the United States to improve revenues. He said Westjet expects revenue per available seat mile – a key indicator of airline performance – to increase between 0.5 and 2.5 per cent in the first months of 2019.

“We have a lot of heavy lifting ahead of us,” he said. “Nonetheless we remain confident in the fundamentals of our business model.”

Some of that heavy lifting includes labour relations. Westjet was involved in difficult negotiations with pilots that took a toll on the key summer flying season, that were solved by an arbitrator. The company still must negotiate with pilots at subsidiary Encore, with engineers, cargo handlers and dispatchers and it will soon start negotiations with flight attendants.

The airline told investors in December it plans to cut costs by $200 million, while increasing revenues from premium passengers. Executives said those plans are ahead of schedule.

Westjet’s results included its Swoop ultra low-cost subsidiary. Sims said Swoop faced a difficult last three months of the year, due to regulatory difficulties launching service to sun destinations. Still, Swoop helped cut costs. “We are moving relentlessly towards that six cent (cost per available seat mile) target which we know unequivocally will be the lowest in the Canadian market, and we have that very, very much within our grasp.”

Looking at Westjet’s key markets of Calgary, Edmonton, Toronto and Vancouver, the airline remains bullish, and sees no reason to adjust its capacity plans, particularly on planned flights from Calgary to Europe.

“We still believe the Western Canadian and Western North American markets are relatively underserved in contrast to the Eastern Seabord,” added Sims. “We know as a fact that people will ask for the 787 in preference to other older wide-body aircraft on those routes.”

“We’re going to continue this plan,” said Harry Taylor, Westjet’s Chief Financial Officer, “we believe this is working for us.”

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