Morningstar | Westjet's Robust Growth Invites Rising Unit Costs; Maintaining Fair Value Estimate
Westjet’s third-quarter results featured capacity growth 10% higher than the same period last year, with domestic ASMs (available seat miles) yielding 8% year-over-year growth compared with 14% for international and transborder markets. Yield improvement did not follow the increase in capacity as yields fell about 4% and RASM, revenue per available seat mile, slid 5% lower than in 2017 and settled at 14.20 cents. We are leaving our $20 fair value estimate and no-moat rating unchanged after incorporating management’s revised guidance and third-quarter results.Management rolled out guidance for the fourth quarter and full-year 2018, with CASM, costs per available seat mile, excluding fuel and employee profit share guided lower for 2018 than initially expected in the second quarter. Management now expects CASM excluding fuel and profit share will settle between 1.5% and 2.5%, instead of the 2% to 3% issued in prior quarters. The carrier attributes reduced unit costs to early benefits flowing in from cost transformation efforts and lower internal spending. We assume CASM ex fuel and profit sharing will increase about 2% over 2017, while fuel cost per available seat mile, the largest drag on Westjet’s operating margins, will rise roughly 26% against the prior year. Westjet’s 6% operating margin for the third quarter is a sequential improvement over the negative 2% in the second quarter but well below 16% in the year-ago period. We expect receding fuel costs through our 2022 midcycle year will help margins recover through our midcycle and finish at about 9%.
Westjet pegs fourth-quarter systemwide capacity growth between 5% and 6%, putting the full-year midpoint at 6%, marginally lower than the 7% we originally forecast for this year. Management issued fresh capacity guidance for 2019, the 6.5% to 8.5% is mostly a function of new Atlantic service on the carrier’s first Boeing 787s and the ramp up of its ultra-low cost carrier service, Swoop, to 10 aircraft.
WestJet Airlines is a Canadian airline. Co. provides scheduled and charter commercial air travel, vacation packages and cargo services across North America, Central America, the Caribbean and Europe. Co.'s commercial air travel business also supports a variety of other product and service offerings including: flight change and cancel options; upgrading to its Plus seating; baggage fees; food, beverage and inflight entertainment options; and its WestJet RBC MasterCard. Co.'s vacation package provides a variety of products and services purchased through packages such as: flights, hotel accommodations, car rentals and tour attractions.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.