WestJet Defends Commissions As Results Disappoint Market
Open Jaw

WestJet Airlines posted earnings of $13.8 million in Q1, down 63% from $37.4 million in the same period in 2009.

The tumultuous transition to a new reservation system took part of the blame for the disappointing result, as did higher commissions paid to travel agents to boost sales at the airline’s WestJet Vacations division. Results were also impacted by costs associated with the departure of former chief executive Sean Durfy.

Despite earnings that did not meet market expectations WestJet management was upbeat, saying it continues to see positive momentum in ticket prices and percentage of seats sold on each flight.

In a note sent to Open Jaw, WestJet Vice President Sales Duncan Bureau says agents have been important to the airline’s success and will continue to play a key role. “We are working very hard to rebuild the equity we had with our travel trade partners prior to the launch of the Sabre Sonic System. We believe the system is stable and that agents are now used to the environment and we have made significant progress on some of the key items that we had.”

The Financial Post reported that the biggest factor in the results was a 3.9% jump in unit costs relating to commissions given to travel agents to promote WestJet Vacations and costs related to the res system switchover. But chief executive Gregg Saretsky defended the payments to agents.

“That piece of our business does come with higher commission costs, but they’re more than offset by the incremental revenues,” he said.

Asked to comment on the WestJet results, aviation analyst Robert Kokonis says he and a number of other analysts “continue to be concerned with WestJet’s ability to profitably deploy their new aircraft seat capacity. Their fleet size increased by 10 quarter over quarter, from 78 to 88 aircraft. The improving economy and Delta Air Lines codeshare should help, but WestJet must be cautious.”

Kokonis says WestJet results indicate that the revenue environment is still looking weak. “You’d think with carriers in general showing traffic gains since December that yields would be improving, albeit slowly. But for WestJet, Revenue per Available Seat Mile (RASM) fell by 0.8% in the quarter, and Passenger Yields fell by 2.4%. It will be most interesting to compare their results shortly to Air Canada’s first quarter.”

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