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Westjet badly miisses analyst targets


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UPDATE 2-WestJet shares stumble as profit misses estimates

(Adds analysts' estimates, share price)

TORONTO, Feb 8 (Reuters) - WestJet Airlines Ltd.

flew back into the black in the fourth-quarter, but the results

missed analysts' expectations and shares of Canada's No. 2

carrier were punished.

Shares of WestJet fell 96 Canadian cents, or 7.5 percent,

to C$11.85 just after the open on the Toronto Stock Exchange,

marking their lowest level since late December.

WestJet, which has been on a drive to modernize its fleet

of aircraft, reported a net profit of C$1 million ($869,000),

or 1 Canadian cent a share, up from a year-earlier net loss of

C$46 million, or 37 Canadian cents a share.

Analysts had expected, on average, a profit of 8 Canadian

cents a share, according to Reuters Research.

The year-ago loss was largely due to intense competition

and a hefty write-down of planes earmarked for retirement.

Revenues during the fourth-quarter were C$367.9 billion, up

34 percent from C$273.7 million.

WestJet said its fourth-quarter results were helped as it

flew 2.01 billion revenue passenger miles in the fourth quarter

compared to 1.68 billion during the same quarter of 2004.

The company also got a boost as capacity, measured by

available seat miles, rose in the quarter to 2.69 billion from

2.49 billion in the year-ago quarter.

But the airline still battled high fuel costs, increased

landing, terminal and airport improvement fees and the effects

of hurricanes Katrina and Rita.

WestJet said the hurricanes caused a sharp fall in demand

for flights to Florida and the Mexican Riviera and impacted its

bottom line by at least C$11 million in the quarter.

Looking ahead, WestJet said its "single largest challenge"

for 2006 is the volatility in the price of jet fuel.

For all of 2005, WestJet earned C$24 million, or 19

Canadian cents a share, up from a net loss of C$17 million, or

14 Canadian cents a share the year before.

($1=$1.15 Canadian)

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Analysts. So what WJ was off from their numbers, they still made a profit! Because they were wrong and forcasted higher earnings that we did not meet, shareholders are punished by 1.00 10 mins into the opening of the market.

My point is WJ didn't underperform, the Analysts did.

Congrats on staying in the black during a time of higher costs.

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Guest Kilo Mike

My point is WJ didn't underperform, the Analysts did. - lvlchnge

Nice deflection of responsability. The analysts use data and info from WJ to calculate their predicitions. The stock multiple reflects that expectation. When you miss the target ... you are going to see a price that reflects the new info, hence the price tumble.

It's not bashing, just a reflection of the financial picture you guys are now operating in.

I do agree that a profit sure as heck beats a loss.... congrats

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$1M profit is a profit but damn.... what a disappointment. dry.gif

That CASM figure stood out to me as well. Fuel did cause (I think?) a .6 cent rise but I'm curious to know what other factors caused our CASM to rise.

A profit is a profit, and I'm not so stressed by the fact it's small.

But as I told you last quarter, look at the "sales and marketing" line of expenditures. Q4 expense here was almost double the year-ago. All of that Taxi advertising costs money. If you paper TV, subway systems, the Internet and billboards with WS ads, it had better pay off ten or twentyfold. And if WS is paying higher agent commissions, is it paying off? Most of the increases below are predictable. Fuel up, nav, airport and aircraft lease up with growth and the rise of external charges. Maintenance aand depreciation down with the turnover in the fleet. Lease expense up with the leasing of new planes. Inflight, G&A, all up in amounts that properly reflect the growth of the carrier. But sales and marketing are up well in excess of the airline's growth rate and well in excess of fuel adjusted unit revenue growth.

Expenses:

Aircraft fuel – 98,921 - 75,941 –– 354,065 241,473

Airport

operations – 56,571 - 49,945 –– 219,144 173,604

Flight

operations and

navigational

charges – 47,453 - 41,160 –– 183,463 148,706

Sales and

marketing – 37,071 - 21,979 –– 124,154 85,186

Depreciation and

amortization – 27,639 - 69,576 –– 106,624 126,338

Maintenance – 17,464 - 21,375 –– 75,717 78,903

General and

administration – 19,330 - 17,604 –– 69,552 60,953

Aircraft leasing – 19,221 - 9,701 –– 65,647 41,239

Interest expense – 14,817 - 13,073 –– 55,496 44,109

Inflight – 13,825 - 12,218 –– 53,005 43,808

Customer service – 7,459 - 6,940 –– 27,322 23,570

---------------------------------------------------------------------

359,771 339,512 1,334,189 1,067,889

---------------------------------------------------------------------

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But as I told you last quarter, look at the "sales and marketing" line of expenditures. Q4 expense here was almost double the year-ago. All of that Taxi advertising costs money. If you paper TV, subway systems, the Internet and billboards with WS ads, it had better pay off ten or twentyfold.

Does this mean the end to the petty pathetic ads all over T1 in YYZ ??

Black ink is better than red.

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From Rueters . . . . . "WestJet said the hurricanes caused a sharp fall in demand for flights to Florida and the Mexican Riviera and impacted its bottom line by at least C$11 million in the quarter."

If these are charter flights and guaranteed revenue (and a 100% LF for the stats), why even mention this ??

WJ's exposure to Florida is minimal at best.

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It comes down to the fact that 1 cent return per a share is a poor return and some of the institutionalized investors such as OTF may start to reconsider and slowly move their cash else where. Is it not normal practise for them to get rid off the underperforming stock, while they have a chance to recover most if not all the money? That is what I would expect from a good fund manager, unless future numbers indicate that there is going to be a sharp turn around, which is not generally the case with airline stock.

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From Rueters . . . . . "WestJet said the hurricanes caused a sharp fall in demand for flights to Florida and the Mexican Riviera and impacted its bottom line by at least C$11 million in the quarter."

If these are charter flights and guaranteed revenue (and a 100% LF for the stats), why even mention this ??

WJ's exposure to Florida is minimal at best.

I believe there is a certain window, 30 days perhaps that charters can be cancelled. If there is no airfield to land at then it's not reasonable to leave a charter company holding the bag is it?

Another factor was the one -800 that was out of service pending LiveTV certification, this is now accomplished but will happen again if/when the -600's go in for TV's as well.

There will be no unscheduled aircraft out of service until the fall at the earliest.

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Guest rattler

Seems to me that Westjet did OK. They turned around from a net loss of C$17M in 2004 to a net profit of C$24 million in 2005 despite very tough fuel prices etc.

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Seems to me that Westjet did OK. They turned around from a net loss of C$17M in 2004 to a net profit of C$24 million in 2005 despite very tough fuel prices etc.

Yes but don't forget that much of that loss was one time write-offs on the 200s.

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Guest rattler

While not wanting to be branded as a Westjet supporter, they did point that out in todays news release.

WestJet's earnings from operations in the fourth quarter of 2005 were $8.1 million compared with loss from operations of $65.8 million in 2004, which included the write-down on its older aircraft. The airline's earnings from operations in 2005 were $60.8 million compared with loss from operations of $9.9 million in 2004, which also includes the write-down.
So I still think they did well in 2005.
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What about the effect of the computer problems on Westjet's 2004 fourth quarter?

That is OK because so far they have spent up to $20 million on a new computer system (which will now not be online until 2007). It kind of balances out.

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I managed to watch Mr. Beddoe's interview on ROB TV last night and I must say I was very impressed - not a single disparaging word about AC and lots of inclusive comments about the industry. He looks like he's aged and matured over the last year or so, in other words he's looked and acted just like the CEO of a large, respected company. A chance for the better in my opinion.

Sounded like a bit of a whitewash on the fuel hedging, no specifics about when it was started or how much it saved the company which makes me think it wasn't such a success. When questioned about the huge increase in marketing costs he chose to compare Westjet to Jetblue and Southwest; spent less than Jetblue and more than Southwest. This seems an odd comparison since there is way too many variables to make this kind of comparison meaningful. He credited the increased yield to the increased marketing and seemed to suggest that the marketing would continue at this level. He did mention achieving the trifecta of increasing ASMs, increasing yield and increasing LFs.

I think that's something to be proud of.

Congrats Westjet

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I managed to watch Mr. Beddoe's interview on ROB TV last night and I must say I was very impressed - not a single disparaging word about AC and lots of inclusive comments about the industry. He looks like he's aged and matured over the last year or so, in other words he's looked and acted just like the CEO of a large, respected company. A chance for the better in my opinion.

Sounded like a bit of a whitewash on the fuel hedging, no specifics about when it was started or how much it saved the company which makes me think it wasn't such a success. When questioned about the huge increase in marketing costs he chose to compare Westjet to Jetblue and Southwest; spent less than Jetblue and more than Southwest. This seems an odd comparison since there is way too many variables to make this kind of comparison meaningful. He credited the increased yield to the increased marketing and seemed to suggest that the marketing would continue at this level. He did mention achieving the trifecta of increasing ASMs, increasing yield and increasing LFs.

I think that's something to be proud of.

Congrats Westjet

Funny you mentionned that avoidance of mentionning AC. I listened to the conference call yesterday and for 49 minutes - yes, you can see the duration on your browser - he didn't say or even allude to AC. He was on his best behaviour. But then someone triggered a question about something market-related that drew him into a discussion of AC - which at first he wouldn't name it by name (sort of like Hamas talking about "the Zionest entity") and you could hear Clive's throat tighten, you could imagine his face reddenning, and he launched into some diatribe about who does things to lose money (Abbotsford is his bete noir) and raved about Westjet's costs (even though analysts harped on Sean Durfy's out of control ad spending) and then noted that AC faces labor negotiatons, blah, blah, our situation is good, didn't screw lessors, creditors, employees... It's like his handlers promised him an Ovaltine if he would just be nice the whole time, but he couldn't resist the temptation to run his mouth. biggrin.gif

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