Sunday , November 29 2020

Varcoe: Albert's oil turbulence does not scare WestJet's business

Albert's economy is expected to slow this year due to weak energy prices and the effect of oil limitation, but an area seems to cut through the chopped headwinds.


Calgary-based WestJet Airlines released its fourth quarter results on Tuesday and continues its international expansion plans, growing its new ultra-low cost carrier and continuing efforts to keep costs down after a bumpy run in 2018.

An area that does not give rise to concern is business at its home in Alberta.

Speaking at a conference call with analysts, WestJet CEO Ed Sims noted that the province's economy is expected to decline, with GDP growth slowing down from 2.5%. Last year to about 1.5 per cent. In 2019.

A decrease of 30 per cent In global oil prices since last fall and the province's decision to limit crude production, Albert's economic expansion is expected to limit even though the decline is only expected to be temporary.

"We see a strong upturn for the 2020 forecast, the highest in Canada still," Sims said about the prospects for Alberta.

"In spite of the (economic) dip and despite the effects of the energy industry rationing, we still see strong underlying demand, both in Alberta but just across Canada."

Last week, Calgary International Airport reported its strongest passenger growth since 2014 before oil prices collapsed and triggered a full blown recession.

The number of passengers traveling through the airport last year rose by 6.6 percent to the top 17 million travelers.

More than a third of all passengers were led elsewhere and this trend has the "recession-proofed" facility, said Calgary Airport Authority CEO Bob Sartor to Postmedia's Amanda Stephenson.

Equally impressive is the fact that even with today's economic pressure, the airport still expects traffic to increase by about one million travelers by 2019, partly due to WestJet's international strategy.

The company will fly three new Boeing 787 Dreamliner flights from Calgary to European destinations – Dublin, Paris and London's Gatwick Airport, beginning in late April – and adding new direct flights to US cities.

WestJet officials said on Tuesday that they didn't see any hint of a downturn or reduced bookings in the first quarter coming out of Edmonton or Calgary, and corporate travel markets continue to work well.

During the 2015 recession, the company was pressured by the sudden downturn in Albert's business and leisure travel.

As a result, WestJet sharpened its Alberta capacity by five percent in 2016 and switched some aircraft to more profitable routes in other parts of the country.

The company estimates revenue from Albert's aviation industry fell by $ 1 billion from the peak of 2015 to the summer of 2018, but has since restored approx. $ 200 million.

Analyst Chris Murray of AltaCorp Capital said the company's efforts to move more traffic from outside the province – such as From British Columbia or the United States – through its Calgary junction is a way in which the WestJet "helps mitigate what's happening directly in Alberta."

And Albert's air travel doesn't deteriorate as some had expected.

"While we've seen a bit of an (economic) downturn in Alberta, the demand for travel is still quite healthy," Murray said.

"Air travel is a pretty good indicator of where we are going, and it looks like the next three to six months, everyone is still thinking that I'm taking my winter vacation or, if necessary, still traveling for business."

The past 12 months have been a challenging period for the airline and Sims, who took over as CEO in March last year.

The company launched its new ultra-low cost carrier Swoop last year and plans to grow its fleet from six to 10 aircraft in the fourth quarter.

It is also preparing to expand internationally with its new broad body plans and focuses on attracting more premium travelers to the WestJet.

The threat of a strike last spring by its pilots so bookings fall sharply due to the possibility of travel disruption. WestJet lost money in the second quarter and ended a dash of 52 consecutive quarters of profitability.

(From October to December, the company reported a net income of USD 29.2 million, down from USD 47.8 million the previous year).

Negotiations with pilots went to arbitration, while the company is preparing to talk to other employee groups that have unionized, including its airline assistants.

"We are very aware that we are in the early stages of our turnaround efforts and we have very heavy lifting ahead of us," Sims said.

"Nevertheless, we remain confident in the underlying strength of the foundation of our business model."

Analyst Cameron Doerksen from the National Bank said the company's fourth-quarter results were ahead of forecast and travel demand seems solid, with bookings for the WestJet's Dreamliner routes tracking at or ahead of the target.

However, the company faces continued occupational safety, competitive pressure from the potential start-up of new ultra-low cost carriers and needs to implement major growth initiatives.

"As far as getting the company back on the road to higher year-round profitability, I think we will almost certainly see it in 2019," the Doerksen said.

"So I'll say the cover if you want to call it is well underway."

And if Albert's airline business remains resilient in 2019, the journey rather than being so much smoother for the WestJet.

Chris Varcoe is a colleague in the Calgary Herald.

[email protected]

Source link