Will WestJet Implement Fuel Hedges in Q4?
With the rapid decline in oil prices boosting investor interest in airlines, WestJet Airlines Ltd. (WJAVF.PK) could reap the benefits since it may use as much as five million barrels of fuel in 2009. RBC Capital Markets analyst Nick Morton estimates that every $10 per barrel decline in the price of oil adds C$56-million to the airline’s earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs [EBITDAR]. While WestJet implemented fuel hedges for the third quarter of 2008, Mr. Morton does not think it is hedged for the fourth quarter. However, he believes it has began a systematic hedging policy that could see 30% to 40% of its estimated 2009 needs hedged. Recent results from U.S. airlines show that fuel continues to be a concern. “Despite the recent decline in oil prices, they remain above year-ago levels and continue to pressure industry margins,” the analyst said, citing Southwest Airlines Co.’s (LUV) industry-leading hedging success. For example. 8
