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WestJet trades popularity for profits

Also: Carfinco Financial gets a tasty takeover premium from an unusual source

When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at mfawcett@albertaventure.com

Sep 16, 2014

by Max Fawcett

In terms of its public relations impact, the decision by WestJet (TSE:WJA) to start charging a $25 fee for the first checked bag on some fares within Canada and the U.S. is a net negative. The airline fought back against the predictable flood of complaints yesterday by pointing out that virtually every other airline in North America already has a first-bag charge, and that it was merely keeping up with the new normal. Whether that damages the value of the company’s brand – not an inconsequential asset for WestJet – remains to be seen. The fact that Air Canada is almost certain to follow suit – RBC Dominion Securities analyst Walter Spracklin said in a research note Monday that an announcement could actually come as soon as this week – may minimize the number of aggrieved travellers who switch their loyalties. But from a financial perspective? It’s a no brainer. AltaCorp analyst Chris Murray thinks the decision will add $11.9 million in revenue in 2014 and $87.5 million in 2015, and will push earnings per share from $2.92 in 2015 to $3.26. He also bumped his price target from $34 to $38, a decent premium on where its shares currently trade.

Shareholders of Carfinco Financial Group (TSE:CFN) should be easily able to afford the new bag fee, given that their company received a friendly takeover offer Monday evening from the Canadian holding company of Spanish banking giant Banco Santander S.A. The $11.25 all-cash offer represented a 32.12 premium over Carfinco’s 90-day trading average, and a nearly $3 bump over where its shares closed yesterday. Under the terms of the deal, Carfinco has agreed to declare and pay out a special dividend (the amount of which is still to be determined) for shareholders of record on the closing date, which is expected to arrive before the end of 2014.

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