WestJet Q3 Profit Soars 79.9% To $70.6M; Revenue Climbs 11.8% To $866.5M

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WestJet Airlines Ltd.'s plan to launch a new regional airline next year will help the company build its network of partnerships with other carriers around the world, chief executive Gregg Saretsky says.

"With the pending launch of our regional airline, WestJet Encore, we will be able to provide our international partners access to even more Canadian destinations and provide connecting guests with a more competitive alternative to accessing smaller communities," Saretsky said.

WestJet announced Wednesday that the president of WestJet Encore will be Ferio Pugliese, who has been WestJet's executive vice-president for people, culture and inflight services.

WestJet (TSX:WJA) also reported its latest quarterly profit was up almost 80 per cent compared with a year ago and revenues were up almost 12 per cent.

WestJet said its net income was $70.6 million or 52 cents per share in the quarter, up from $39.3 million or 28 cents per share a year earlier.

Revenue rose to $866.5 million from $755.3 million.

The average analyst estimate had been for a profit of 43 cents per share and revenue of $843 million, according to Thomson Reuters.

The improved results came as capacity at the airline for the quarter grew two per cent compared with a year ago, while traffic increased 7.8 per cent.

Revenue per available seat mile for the airline improved to 15.76 cents, up from 14.39 cents a year ago, while the cost per available seat mile was 13.8 cents, up from 13.16 cents a year ago.

Robert Kokonis, managing director at airline consulting firm AirTrav Inc., said WestJet's results were driven by capacity management and stable fuel costs.

"We expect continued healthy loads through the remaining two months of this fourth quarter," Kokonis wrote in a note to clients.

"Absent any significant shocks to the Canadian economy or resurgent fuel prices, WestJet should also post healthy gains in the fourth quarter of 2012."

Saretsky said WestJet expects to add another two or three more code-share agreements next year as well as "a handful" of new interline agreements, he said.

Code-share deals allow airlines to sell seats on one another's planes using the same two-digit code. Interline deals are less integrated partnerships that involve working together on baggage handling and ticketing.

The airline has set a target of $100 million in code-share revenue.

Saretsky said Wednesday that the airline is closing in on the target this year and expects to surpass it next year, ahead of earlier expectations.

"Most of this traffic is originating outside of our network, so it's traffic that wouldn't have otherwise found its way onto WestJet flights absent these arrangements," he said.

WestJet plans to roll out WestJet Encore in the second half of 2013, catering to smaller cities with Bombardier Q400 aircraft.

The company said it will announce the new airline's schedule on Jan. 21. WestJet has previously said it plans to launch the carrier in one half of the country first, before expanding the service in the other side of the country about nine months later.

National Bank Financial analyst Cameron Doerksen said the airlines reported higher than expected revenue and better than expected costs.

The results "reinforce our positive view on WestJet and we therefore maintain our outperform rating and target of $23.50," Doerksen wrote in a note to clients.

On the Toronto Stock Exchange, WestJet shares were up four cents at $18 in late-session trading Wednesday.

In September, WestJet added British Airways as its eighth code-share partner, enabling the U.K. carrier to sell seats on the Canadian airline's planes.

The agreement, which builds on a previous deal between the two carriers to collaborate on baggage handling and other tasks, is meant to draw more international travellers into WestJet's network.

WestJet's fleet currently consists only of Boeing 737s, which don't have the range for overseas flights, so partnerships are a key way for the company to expand its market reach.

Over the past year, WestJet has signed code-share deals with American Airlines, Cathay Pacific, China Eastern Airlines, Delta Airlines, Japan Airlines, KLM and Korean Air.

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