WestJet Airlines Ltd.'s focus on flights in North America is proving to be a reliable recipe for profit.
WestJet has managed to steer clear of the euro zone debt crisis and the effects of dampened travel demand from Europeans, industry analysts say.
Analysts expect the Calgary-based airline to post a strong second-quarter profit when it releases its financial results on Wednesday – and Canada will receive much of the credit for the improvement.
In recent years, WestJet has also made gains on Canada-U.S. routes, and introduced new destinations in Mexico and the Caribbean. The carrier doesn't fly to Europe or Asia.
The airline industry is volatile, but investor sentiment on WestJet for now is bullish, said Jacques Kavafian, who works on the institutional sales desk at Toll Cross Securities Inc. The average of analysts' forecasts for WestJet's share profit is 33 cents for the three months ended June 30, up sharply from 18 cents in the same period last year.
"WestJet's focus on the Canadian market has been its strength because its business is largely shielded from the turmoil around the world," Mr. Kavafian said in a note to clients. "The Canadian economy is doing relatively well, which is the main underpinning for the growth in the market."
In the second quarter, WestJet enjoyed solid increases in passenger traffic even as it expanded, resulting in jumps in its load factor, or the proportion of seats filled by paying customers.
The outlook appears bright for WestJet's revenue. On major domestic routes, the lowest available airfares on WestJet based on six-week advance purchase on July 15 show that the carrier has some pricing power, according to Raymond James Ltd.
For instance, WestJet's one-way base fare charged in mid-July for travel in late August cost $249 from Toronto to Vancouver, up from $229 in the Raymond James survey a year earlier. The year-over-year base fare rose to $239 from $219 for flying from Montreal to Calgary.
"It appears that prices in the domestic market have remained relatively firm, although we did observe more discounting at Air Canada," Raymond James analyst Ben Cherniavsky said in a research note. While the WestJet airfare index measured by Raymond James has risen, Porter Airlines Inc. has been holding "aggressive" seat sales in the Eastern Triangle of Toronto, Montreal and Ottawa, he added.
Mr. Cherniavsky said weaker fuel prices will help bolster WestJet's bottom line. "We view lower oil prices as 'gravy' for our positive investment thesis on WestJet's stock," said Mr. Cherniavsky, who raised WestJet's 52-week target price to $19.50 from $17.50.
Air Canada will release its second-quarter results on Aug. 8.
"Although our financial outlook for Air Canada has improved slightly, we believe that caution is still warranted on its stock until key labour and pension issues are resolved," Mr. Cherniavsky wrote. "We are also more guarded about the revenue outlook for overseas air travel – especially transatlantic – in the current economic environment."