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The Globe and Mail

WestJet wary of costs – even as profit soars

A Westjet plane sits at the gate as it loads passengers at the Calgary International Airport on Sunday February 26, 2012.

Chris Bolin/The Globe and Mail

With demand among air travellers showing no signs of waning, WestJet Airlines Ltd. posted strong fourth-quarter and year-end profits, beating most industry watchers' expectations.

Yet the Calgary-based carrier's executives noted continuing pressure for the airline to cut expenses as its fleet of planes age, the company expands and its flights remain full to the brim – all increasing costs.

So, to lower expenses, WestJet is undergoing a three-year, $100-million cost-cutting program. This is taking place as it prepares to roll out its regional service, WestJet Encore, in the summer.

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The company is facing these conditions with a good balance sheet. The past year saw the kind of profit increase that prompted chief executive officer Gregg Saretsky to tell company watchers on Wednesday, "Wow, what a great year!"

The airline reported a quarterly profit of $60.9-million, or 46 cents a share, significantly higher than the $35.6-million, or 26 cents a share, it earned in the fourth quarter last year.

For the year, WestJet reported profit of $242.4-million or $1.78 a share, compared with $148.7-million or $1.06, in 2011.

The carrier also announced an increase to its quarterly dividend, raising it to 10 cents from 8 cents, its third such increase, and is applying to buy back up to 5 per cent of its shares.

As WestJet looks to cut costs, Mr. Saretsky said it will not be laying off employees, although it may offer voluntary, early retirement incentives to staff, whom the company refers to collegially as WestJetters.

"We've said that all of this business transformation will be done with WestJetters, not to WestJetters, which is quite a different approach than other airlines have taken. And I'm encouraged by the very strong support that WestJetters have already voiced as we've travelled coast to coast and had townhall meetings," Mr. Saretsky said.

The carrier is hoping to replace various contractors with full-time employees, costing the company less, and implement other measures such as new self-service kiosks and a new mobile app for passengers checking in. The company is also looking at other moves, such as having more call-centre employees work from home.

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"The main reason is obviously getting back to our fundamentals of being Canada's low-fare airline and needing to have a cost structure that can continue to support that. As an airline ages, there are a lot of legacy costs that start to creep into the business model," Mr. Saretsky said.

At the same time, WestJet is in the process of adjusting the seating inside its planes to provide different, roomier options to certain customers, an overhaul that the airline hopes to complete by the end of the current first quarter. This is tied to new fare bundles in three separate classes, each with different seating and ticketing perks, a move to attract more business travellers and bring in more revenue.

WestJet will be announcing on Monday the first schedule for its Encore regional service to begin flying this summer. The service will start with only two Bombardier Q400 planes, but will continue to add one plane a month over the second half of the year.

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