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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

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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