A looming threat of a pilot strike, along with higher fuel costs, propelled WestJet to its first quarterly loss in 13 years. The Canadian carrier reported a loss of $20.8 million Canadian for the second quarter, compared with net earnings of $48.6 million.
Like all carriers, WestJet faced higher oil prices in the quarter, with fuel costs up 30.6 percent. However, the carrier also lost tens of millions of dollars in bookings during the quarter due to threats of a potential strike, CEO Ed Sims said in an earnings call. While that threat has passed—WestJet and the pilot union are in mediation, canceled bookings had stretched out beyond the second quarter into July.
WestJet also faces tougher competition with "sustained industry capacity additions in some markets," Sims said. "We are disappointed with these results and very focused on course correction," he said.
Cutting back planned capacity growth will be one such course correction. While the carrier expects capacity to rise by between 10 percent and 11 percent year over year in the third quarter, it has reduced planned fourth-quarter capacity growth on WestJet and Encore by 6 percentage points. For the full year, WestJet projects its capacity will be up year over year by between 5.5 percent and 6.5 percent, down from its earlier projection of 6.5 percent to 8.5 percent.
Sims said WestJet also is "evaluating market elasticity" for fare increases, noting that the carrier already has implemented five fare increases since the beginning of the year.
Revenue for the second quarter rose 2.8 percent year over year to $1.09 billion Canadian. Traffic increased 6.2 percent as capacity increased 4.7 percent, pushing load factor up 1.1 percentage points to 83.9 percent. Yield declined 3.2 percent.
WestJet launched low-cost subsidiary Swoop during the quarter, and Sims said it "has been embraced by a broad demographic of Canadians." Load factor has been about 95 percent and there's been significant ancillary revenue. Swoop's network soon will expand to the U.S., executives said.
As WestJet awaits regulatory approval for its joint venture with Delta, which Sims expects in the first half of 2019, it is negotiating with Air France-KLM to deepen their partnership, as well. WestJet also is exploring deeper transpacific partnerships with both its existing partners and new partners, he said.
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