A WestJet aircraft is pictured on the tarmac in Ottawa on Thursday July 2, 2015.Sean Kilpatrick/The Canadian Press
WestJet Airlines Ltd. says it will take a hit from the recent increase in Alberta's corporate tax rate and lower fares during the second quarter, but still expects to report record profit for the period.
The new NDP government of Alberta raised the corporate tax rate to 12 per cent on July 1 from 10 per cent. That means WestJet's effective tax rate in 2015 will be 29 per cent to 30 per cent, compared with previous guidance of 27 per cent to 28 per cent.
Revenue per available seat mile or RASM, is expected to be down 5.7 per cent in the second quarter compared with an earlier forecast of a moderate decline.
The difference is "driven by a more aggressive mix of lower fares during the quarter and higher than expected available seat miles," WestJet said in a statement.
The airline is also expecting aviation fuel costs to reach 69 cents, at the high end of the 67-69 cent range it previously forecast.
There is more positive news, however, on the cost front. Costs per available seat mile are expected to rise 0.5 per cent, versus previous expectations of 2 per cent to 2.5 per cent. Lower than expected airport operating costs and lower expenses for marketing and administration will offset higher than expected available seat miles.
Analysts had mixed views on the impact of the reduced expectations.
Chris Murray, who follows the company for AltaCorp Capital, cut his 12-month price target to $35 from $42.
"While the airline will continue to benefit from a strong demand environment, a lower than expected RASM guidance remains a cause of concern," Mr. Murray said in a note.
National Bank analyst Cameron Doerksen maintained his outperform rating on WestJet's shares and his $36 price target.
The benefits of low fuel prices offset weakness in revenue per available seat mile; the airline should keep gaining market share with the growth of its Encore network and baggage fees should help boost revenue, Mr. Doerksen noted.