Engine overhauls impact WestJet CASM guidance

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WestJet now expects its cost per available seat mile (CASM) to grow at a higher rate than previously anticipated due to earlier than expected engine overhauls and the impact of the weakening Canadian dollar.

The Calgary-based low-cost carrier now expects its 2014 CASM excluding fuel or profit sharing to increase between 1.5% and 2.5% year-over-year, compared to previous guidance of CASM staying flat or increasing up to 1%. The airline’s 2013 CASM excluding fuel and profit sharing was 9.06 Canadian cents, down 0.7% from 9.12 Canadian cents in 2012.

The increased CASM guidance is in part because of “accelerated expenses arising from the decision to advance the timing of particular engine overhauls and repairs, in anticipation of one of our suppliers providing notice recommending earlier replacement of certain parts”, says Vito Culmone, WestJet’s chief financial officer. The decline of the exchange rate between Canadian to US dollars is also impacting the increase.

WestJet will move up the timing of certain engine overhauls, resulting in more being completed during the first quarter of 2014 than previously anticipated, says Culmone.

WestJet expects its first quarter CASM excluding fuel and profit sharing to rise 3.5% to 4.5% year-over-year. The weakening Canadian dollar is driving the increase, as well as “accelerated” depreciation expenses from the increased maintenance work. Challenging weather conditions in January also impact the CASM estimate.

It is unclear which engines will need to accelerated overhauls. WestJet declines to identify the type of parts need the sooner-than-expected replacements.

The airline’s mainline Boeing 737 fleet is powered with CFM International CFM56-7B engines, and its regional airline Encore operates Bombardier Dash 8 Q400 turboprops with Pratt & Whitney Canada 150A engines.