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<\/p>\nWestJet Airlines Ltd. dropped the most in more than two years after it said increased spending to create a new low-cost unit and expand overseas will vastly exceed revenue growth.<\/p>\n
Costs for each seat flown a mile, excluding fuel and employee profit sharing, will climb as much as 8.5 per cent this quarter, Canada’s second-biggest carrier carrier said Tuesday. WestJet forecast that revenue on the same basis could drop as much as 2 per cent.<\/p>\n
The outlook signals the challenges for new Chief Executive Officer Ed Sims as WestJet starts its Swoop ultra-low-cost unit next month and increases international flying with new Boeing Co. Dreamliner wide-body jets in 2019. Calgary-based WestJet, which reported first-quarter profit that missed analysts’ expectations, said it also faces the threat of a pilot strike or lockout as soon as May 19.<\/p>\n
“The costs of the company’s multitude of initiatives are causing overruns in many areas,” Walter Spracklin, an RBC Capital Markets analyst, said in a note to clients. “We are hard-pressed to see an easy solution to the cost problem, and the risk is that it gets worse before it gets better.”<\/p>\n
Fleet expansion, improved on-board service, increased maintenance costs for leased jets and continued Swoop investment are boosting costs, he said.<\/p>\n
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The shares fell 10 per cent to $19.94 at 9:43 a.m. in Toronto after tumbling as much as 13 per cent, the most intraday since August 2015. WestJet had tumbled 16 per cent this year through Monday, while Canada’s benchmark S&P\/TSX index declined 2.5 per cent.<\/p>\n
WestJet’s string of 52 consecutive profitable quarters is in jeopardy, Fadi Chamoun, a BMO Capital Markets analyst, said in a note. The company’s second-quarter outlook indicates a potential loss of 25 cents to 30 cents a share, he said. Analysts had been expecting 30 cents, according to the average of estimates compiled by Bloomberg.<\/p>\n
With expansion expenses mounting, WestJet accelerated its plan to cut costs, targeting $200 million by the end of 2020, according to a filing Tuesday. The company previously said it saw “opportunities” to save between $140 million and $200 million by 2022.<\/p>\n
WestJet’s first-quarter profit of 32 cents a share fell well short of the 36 cents that analysts anticipated.<\/p>\n