One of Canada’s top airlines, WestJet’s, net earnings have fallen by 20 per cent over the last three quarters, compared to the same period last year. According to an analysis of its third quarter report released in September.
The company based out of Calgary services flights from over 100 locations within Canada, the United States, and overseas. Meaning that it is in direct competition with a number of domestic, as well as international airlines.
WestJet’s slide in earnings follows what the report called its most “profitable third quarter in the airlines history.” The airline reported an increase of nearly 14 per-cent in net earnings in its last quarter compared to last year, in its most recent quarterly report. Yet, it recorded a decrease of close to 64 million dollars during the first three quarters of the 2016 fiscal year.
WestJet said in its most recent quarterly report that the decrease in earnings is largely due to the “devaluation of the Canadian dollar,” as the airline frequently often operates in American dollars due to the company’s international services.
WestJet also recently announced the expansion of their airplane fleet, which the company also attributes for the drop in earnings.
Its September report outlines an extensive plan to acquire an additional 166 planes in the next 10 years. Five of which the report said would be added in the final quarter of this year.
Lauren Stewart, WestJet’s Media Relations Advisor, said the company has reintroduced a year long Halifax to Gander, NL, flight beginning this summer and an international service between Calgary and Nashville. She added that depending on the success of these additional flights, the airline has a number of other services in the works.
Stewart declined to comment when asked about how the recent expansions have impacted the company’s decline in earnings over the past three quarters.
Cyril Mullaley, owner of the accounting firm Cyril P. Mullaley, C.A., C.P.A. from Newfoundland, says that the airline’s drop in earnings is largely due to the additional expenses created by WestJet’s most recent expansions.
Although the airline’s operation expenses increased by a marginal 7 per cent in the last quarter, and 5 per cent in the last three, its investing activities grew substantially.
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The September report recorded a nearly 40 per cent increase in investment activities in the last three quarters of this year, compared to the same period in 2015. This includes the recent acquisition of new aircrafts, as well as other assets like property and equipment.
Mullaley added that not only does expanding flights into new markets, and increasing the company’s fleet mean higher expenses and more investments, but also more competition.
By expanding their market into new areas like Nashville, WestJet is in direct competition with a number of airlines that have been operating out of the city for years. Though the company is increasing its visibility and the surface area it covers on a map that does not mean its profits will immediately increase along with it.
Mullaley said that even with the significant drop in earnings “it is not a reason to stop the expansion,” or to go into “protectionist mode” as the company continues to be what he deems as profitable.
He added that he believes that WestJet is in definite need of an expansion if the airline intends to keep up with the ever-increasing competition that it faces in the Canadian and Global markets.
Mullaley said he could not comment on whether or not he would invest in the airline with the earnings as they currently stand, but he acknowledges that WestJet is positioning itself for growth in the upcoming years.