WestJet Warns of Financially-Challenging Second Quarter

Threat of a pilot strike and higher-than-anticipated transformation costs will push up WestJet's unit costs and pull down unit revenues in the coming quarters.

The Calgary-based airline on 8 May says it expects adjusted cost per available seat mile (CASM), excluding fuel and employee profit sharing expenses, will surge 7.5-8.5% year-over-year in the second quarter of 2018.

By comparison, WestJet's first quarter 2018 CASM inched up just 2.6% year-over-year.

WestJet chief financial officer Harry Taylor says several factors contribute to WestJet's anticipation of a "uniquely high" second quarter CASM.

Those include expenses related to the planned 20 June launch of operations by WestJet's new ultra-discount unit Swoop, preparation for acceptance of Boeing 787-9s, an "elevated" level of service on the company's 737s and "other costs associated with the transformation".

"The start-up on the 787 has been higher than we expected," Taylor says during WestJet's first quarter earnings call on 8 May.

WestJet expects to take delivery of its first of ten 787-9s in January 2019.

Meanwhile, WestJet expects revenue per available seat mile (RASM) in the second quarter will be flat to -2%.

For that decline it cites increased competition domestically, loss of revenue following the end of a codeshare deal with American Airlines and the threat of a pilot strike.

Pilot union Air Line Pilots Association, International has warned of a possible strike on 19 May if the parties do not reach an agreement.

"That has really thrown a wrench into RASM for the quarter," says Taylor.