WestJet shares gain altitude
Soaring success triggers applause from analysts
Gary Lamphier
The Edmonton Journal
Thursday, November 17, 2005
Up three bucks in three weeks. Not a bad bounce.
Now the $64,000 question. Is this merely the start of a relaxing, long-haul flight to higher profitability, or just a brief respite before WestJet Airlines shareholders encounter further turbulence ahead?
After sinking to a two-year low $9.35 in late October -- 45 per cent below the 52-week high of $17-plus -- the Calgary-based discount carrier's shares have taken off, closing Wednesday at $12.35 on the TSX.
That's a three-week gain of $3, or 32 per cent. Trading volumes have gained altitude too, with 1.1 million shares changing hands Wednesday.
In retrospect, WestJet's wheels left the tarmac a week before it reported a big uptick in third-quarter results, on Nov. 3. Earnings rose 44 per cent, to $30.3 million, or 23 cents a share -- a hair above most analysts' estimates -- and revenues jumped 31 per cent, to $406 million.
Even more impressive, WestJet's upbeat performance came despite skyrocketing fuel costs and rising capacity, as it continues to replace, upgrade and expand its fleet of Boeing 737s in pursuit of growth and improved efficiency.
During the latest quarter, passenger volumes rose 20 per cent, WestJet's load factor, a measure of how full its planes are, gained two points to 78.6 per cent, and yields, or revenue per passenger, rose nine per cent.
The positive showing triggered applause from several analysts, including Tim James at Octagon Capital, Cameron Doerksen of Versant Partners, Ted Larkin at Orion Securities, and David Newman of National Bank Financial.
Although high jet fuel costs are sure to remain a challenge, Newman says he sees several key "catalysts" that help him to justify his current "outperform" rating on WestJet's stock and his 12-month target price of $15. The potential drivers include:
- Fleet renewal. After WestJet retires the last of its aging 737s in early 2006, the airline could save as much as $60 million annually, he figures, through improved fuel efficiency, lower maintenance costs and reduced depreciation charges.
- A new reservation system. WestJet expects to roll out a new flight booking system next spring that will allow it to work closely with other airlines -- including regional feeders -- and enable it to offer tiered fares instead of the current single rate for passengers who want extras, such as the right to alter flight plans without penalty.
- Increased market share. Newman expects WestJet to make inroads in Central and Eastern Canada, where Air Canada is king, as WestJet retires its remaining older planes, as awareness of WestJet builds and as the number of daily flights between key cities, such as Toronto and Montreal, ramps up.
- Upside among business travellers. Since low fares are the key deciding factor when corporate travel managers book flights, WestJet should become an increasingly attractive option as it boosts flight frequencies, says Newman. WestJet recently beefed up its corporate travel team and is reporting a positive reception from the business sector.
- Growing U.S. traffic. "WestJet currently has a major skew towards leisure markets in the U.S., with destinations in Florida, desert markets, California, and beginning in December, Hawaii," says Newman. "In particular, in the fourth quarter, we estimate Florida should represent nearly half its transborder capacity," he says, as winter weary Canadian travellers flock to southern climes.
The strong loonie is also boosting traffic.
- Ancillary revenue opportunities. Increased cargo capacity on WestJet's new planes should translate into further revenue upside, says Newman. He also expects WestJet to pursue an in-house vacation package business, although he says the airline professes no desire to compete with tour operators.
On the negative side of the ledger, Newman says WestJet will face some strong "headwinds" as it fights to maintain an upward flight path.
Although WestJet benefited from the collapse of Jetsgo earlier this year, the domestic market is likely to remain intensely competitive, with Air Canada, Jazz and CanJet providing stiff competition. WestJet may also face growing wage pressure from its pilots.
"However, we believe WestJet's 737-600s should be able to compete with Air Canada's (new) RJ's where appropriate," he says, "and with much lower costs than Air Canada, we believe WestJet is in a better position should fares falter."
To be sure, some analysts remain skeptical about WestJet's upside potential. Analysts Jacques Kafavian of Research Capital rates the shares a "hold," with a 12-month target price of just $13. He's far more bullish on the shares of Air Canada's parent, ACE Aviation Holdings.
He rates its stock a "buy," with a 12-month target price of $50. That's more than 40 per cent above its closing price Wednesday of $35.43 on the TSX.
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WestJet shares gain altitude
Soaring success triggers applause from analysts
Gary Lamphier The Edmonton Journal
Thursday, November 17, 2005
Now the $64,000 question. Is this merely the start of a relaxing, long-haul flight to higher profitability, or just a brief respite before WestJet Airlines shareholders encounter further turbulence ahead?
After sinking to a two-year low $9.35 in late October -- 45 per cent below the 52-week high of $17-plus -- the Calgary-based discount carrier's shares have taken off, closing Wednesday at $12.35 on the TSX.
Although WestJet benefited from the collapse of Jetsgo earlier this year, the domestic market is likely to remain intensely competitive, with Air Canada, Jazz and CanJet providing stiff competition. WestJet may also face growing wage pressure from its pilots.
To be sure, some analysts remain skeptical about WestJet's upside potential. Analysts Jacques Kafavian of Research Capital rates the shares a "hold," with a 12-month target price of just $13. He's far more bullish on the shares of Air Canada's parent, ACE Aviation Holdings.
He rates its stock a "buy," with a 12-month target price of $50. That's more than 40 per cent above its closing price Wednesday of $35.43 on the TSX.
you mindless idiot. Your best reply is to not only bold and underline a few paragraphs but to make the font bigger too!?-
Canus Chinookus
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tonysoprano
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Or with AC in a couple a months.... that should be interesting.tonysoprano wrote:"WestJet may also face growing wage pressure from its pilots".
Really? No way! Never! It just won't happen! Sleep well Clive, they stand by you.
Sorry gents, couldn't resist. We'll have to revisit this issue in a couple of years, maybe less.
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tonysoprano
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tonysoprano
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Canus Chinookus
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tonysoprano
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Canus Chinookus
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