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Drop in stock overshadows WestJet's earnings

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WestJet CEO Gregg Saretsky addresses airline's annual meeting in Calgary Tuesday.

JEFF MCINTOSH / THE CANADIAN PRESS Enlarge Image

WestJet CEO Gregg Saretsky addresses airline's annual meeting in Calgary Tuesday.

CALGARY -- WestJet Airlines Ltd.'s "best ever" quarterly earnings were overshadowed Tuesday by a drop in its stock, as investors worried whether the airline will be able to profitably fill its planes as it increases capacity.

Shares in the airline fell by as much as 13 per cent on the Toronto Stock Exchange but recovered to close down $1.85 or 7.5 per cent at $22.87.

The airline posted a first-quarter profit of $91.1 million, or 68 cents per share, during the first three months of 2013, up from $68.3 million, or 49 cents per share, in the same 2012 period.

The earnings beat the 63 cents per share analysts polled by Thomson Reuters had been expecting, while total revenue was up 8.6 per cent at $967.2 million, from $891 million a year ago.

However, the airline also reported its load factor -- a measure of how full its planes are flying -- fell 3.5 percentage points to 82.7 during April, compared to the same month a year earlier.

CEO Gregg Saretsky attributed the industry-wide "soft-patch" to the Easter and Passover holidays falling earlier than usual this year.

WestJet expects to grow its system-wide capacity by between nine and 10 per cent during the second quarter and by 7.5 to 8.5 per cent for the year.

"So investors are thinking, 'Well, your load factor is falling, but you've got this huge amount of capacity growth. Are you going to be able to fill that capacity profitably?' " said Robert Kokonis, president of aviation consulting firm AirTrav Inc.

Last year, the airline ran its planes too full, giving up customers it could have snagged had there been more capacity, Saretsky said. He added the capacity WestJet is bringing to the market should enable the airline to still generate a sustainable 12 per cent return on invested capital.

"We're putting a little bit of our foot to the accelerator because of the continued strong macroeconomic environment and the results that we're enjoying," he said.

Kokonis, who believes the stock market reaction was overdone, said WestJet's management has a proven track record, the Canadian economic outlook is good and the airline has partnerships with international carriers to bring more traffic into its system.

"This has created a bona fide buying opportunity because that team is taking this company in the right direction," he said.

-- The Canadian Press

Republished from the Winnipeg Free Press print edition May 8, 2013 B4

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