WestJet reports record net earnings of $91 million, up 33 per cent
Airline announces it has entered into agreements to modernize its Boeing 737 fleet
CALGARY, May 7, 2013 /PRNewswire/ - WestJet (TSX: WJA) today announced its first quarter results for 2013. The airline reported record net earnings of $91.1 million, or $0.68 per diluted share, up from the net earnings of $68.3 million, or $0.49 per diluted share reported in the first quarter of 2012. These results mark WestJet's 32nd consecutive quarter of profitability. Based on the trailing twelve months, the airline achieved a return on invested capital of 14.3 per cent, up from the 13.7 per cent reported in the previous quarter.
"We are very pleased to report our best ever quarterly earnings and for the third consecutive quarter we exceeded our 12 per cent ROIC target by achieving 14.3 per cent," said WestJet President and CEO Gregg Saretsky. "The excitement is building as we move closer to the launch of WestJet Encore. I want to thank WestJetters for their dedication and tremendous efforts in providing our guests a caring and friendly experience each and every day."
|Operating highlights (stated in Canadian dollars)|
|Q1 2013||Q1 2012||Change|
|Net earnings (millions)||$91.1||$68.3||33.3%|
|Diluted earnings per share||$0.68||$0.49||38.8%|
|Total revenues (millions)||$967.2||$891.0||8.6%|
|Operating margin||13.7%||11.9%||1.8 pts|
|ASMs (available seat miles) (billions)||6.032||5.690||6.0%|
|RPMs (revenue passenger miles) (billions)||5.088||4.721||7.8%|
|Load factor||84.3%||83.0%||1.3 pts|
|Yield (revenue per revenue passenger mile) (cents)||19.01||18.87||0.7%|
|RASM (revenue per available seat mile) (cents)||16.03||15.66||2.4%|
|CASM (cost per available seat mile) (cents)||13.84||13.80||0.3%|
|CASM, excluding fuel and employee profit share (cents)*||8.94||8.95||(0.1%)|
*Refer to reconciliations in the accompanying tables for further information regarding calculations.
WestJet announced in February the first two new communities WestJet Encore will be servicing. Beginning on June 24, 2013, WestJet Encore will begin daily service from Calgary and Vancouver to Fort St. John, British Columbia, and from Calgary to Nanaimo, British Columbia.
In January 2013, WestJet launched a three-year company-wide business transformation initiative with a goal to reduce annual costs by $100 million by the end of 2015 and to undertake a longer term initiative to ensure WestJet's unit costs are competitive with low cost North American airlines. This initiative will focus on aircraft and asset utilization, distribution, productivity, and all non-operational expenses.
For the second quarter of 2013, WestJet expects strong traffic growth and earnings among its best ever for a second quarter, notwithstanding an expected moderate decline in its second quarter RASM which will be impacted by the timing of Easter and Passover, the elimination of Thomas Cook capacity purchase commitments, the loss of the one-time benefit from Air Canada's labour uncertainty in the second quarter of 2012, and accelerating capacity growth fueled by higher utilization and the launch of WestJet Encore.
For the second quarter of 2013, WestJet expects CASM, excluding fuel and employee profit share, to be flat to up one per cent year-over-year. The airline expects fuel costs to range between $0.84 and $0.86 cents per litre for the second quarter of 2013, representing a year-over-year decrease of six to nine per cent.
For the full year 2013, the airline now expects CASM, excluding fuel and employee profit share, to be flat to up one per cent year-over-year primarily as a result of cost reductions achieved and anticipated through its business transformation initiative, but excluding any benefit from the exemption it received yesterday from Transport Canada, to the requirement for one flight attendant for every forty passengers on board.
WestJet announced today it has entered into an agreement with a third party under which WestJet will sell 10 of its oldest Boeing Next-Generation 737-700 aircraft to that party in 2014 and 2015, and concurrently entered an agreement with Boeing to purchase 10 Boeing Next-Generation 737-800 aircraft in 2014 and 2015, effectively reducing the average age of WestJet's fleet by approximately one year. WestJet has deferred the delivery of five Boeing Next-Generation 737-700 aircraft from 2014 and 2015 to 2016 and 2017. "These agreements are part of our strategy to optimize and modernize our fleet mix, which will improve CASM, while maintaining fleet flexibility going forward," added Gregg Saretsky.
On May 6, 2013, WestJet's Board of Directors declared a cash dividend of $0.10 per common voting share and variable voting share for the second quarter of 2013, to be paid on June 28, 2013, to shareholders of record on June 12, 2013. All dividends paid by WestJet are, pursuant to subsection 89(14) of the Income Tax Act, designated as eligible dividends, unless indicated otherwise. An eligible dividend paid to a Canadian resident is entitled to the enhanced dividend tax credit.
Caution regarding forward-looking information
Certain information set forth in this news release, including, without limitation, information regarding the launch of WestJet Encore and the communities it will serve, WestJet's company-wide business transformation initiative, traffic and earnings for the second quarter of 2013, second quarter RASM, fuel costs in the second quarter of 2013, CASM, excluding fuel and employee profit share for the second quarter of 2013 and full-year 2013, and the aircraft agreements with a third party and with Boeing is forward-looking information within the meaning of applicable Canadian securities laws. By its nature, forward-looking information is subject to numerous risks and uncertainties, some of which are beyond WestJet's control. The forward-looking information contained in this news release is based on WestJet's current forecasts and strategy, the expected demand environment, our fleet plan, forward-curve jet fuel prices, and the expected exchange rate of the Canadian dollar to the U.S. dollar, along with available implementation plans, agreements and bookings, but may vary due to factors including, but not limited to, changes in guest demand, changes in fuel prices, delays in aircraft delivery, general economic conditions, competitive environment, ability to effectively implement and maintain critical systems and other factors and risks described in WestJet's public reports and filings which are available under WestJet's profile at www.sedar.com. Readers are cautioned that undue reliance should not be placed on forward-looking information as actual results may vary materially from the forward-looking information. WestJet does not undertake to update, correct or revise any forward-looking information as a result of any new information, future events or otherwise, except as may be required by applicable law.
This news release contains disclosure respecting non-GAAP performance measures including, without limitation, CASM, excluding fuel and employee profit share and return on invested capital. These measures are included to enhance the overall understanding of WestJet's current financial performance and to provide an alternative method for assessing WestJet's operating results in a manner that is focused on the performance of WestJet's ongoing operations, and to provide a more consistent basis for comparison between reporting periods. These measures are not calculated in accordance with, or an alternative to, GAAP and do not have standardized meanings. Therefore, they may not be comparable to similar measures provided by other entities. Readers are urged to review the section entitled "Reconciliation of non-GAAP and additional GAAP measures" in WestJet's management's discussion and analysis of financial results for the quarter ended March 31, 2013, which is available under WestJet's profile on SEDAR at www.sedar.com, for a further discussion of such non-GAAP measures and a reconciliation of such measures to GAAP. The financial information accompanying this news release was prepared in accordance with International Financial Reporting Standards unless otherwise noted.
Management's discussion and analysis of financial results and condensed consolidated financial statements and notes for the three months ended March 31, 2013, are available through the Internet in the Media and Investor Relations section of www.westjet.com or under WestJet's SEDAR profile at www.sedar.com.
Analyst conference call
WestJet will hold its quarterly analysts' conference call today, May 7, 2013, at 8 a.m. MDT (10 a.m. EDT). President and CEO Gregg Saretsky and Executive Vice-President of Finance and CFO Vito Culmone will discuss WestJet's first quarter 2013 results and answer questions from financial analysts and members of the media. The conference call will be available in Toronto by calling 416-915-3239, in Vancouver by calling 604-638-5340 and across Canada and the United States through the toll-free telephone number 1-800-319-4610. The call can also be heard live through an Internet webcast accessible via the Media and Investor Relations section of www.westjet.com.
Annual general meeting (AGM)
WestJet will hold its AGM today, May 7, 2013, at 2 p.m. MDT (4 p.m. EDT) at WestJet's Calgary Campus at 22 Aerial Place NE. The AGM webcast will be available live in the Media and Investor Relations section of www.westjet.com.
WestJet is Canada's most preferred airline, offering scheduled service to 85 destinations in North America, Central America and the Caribbean. Powered by an award-winning culture of care, WestJet pioneered low-cost flying in Canada. Recognized nationally as a top employer, WestJet now has more than 9,000 WestJetters across Canada. Operating a fleet of more than 100 Boeing Next-Generation 737 and Bombardier Q400 NextGen aircraft, WestJet strives to be one of the five most successful international airlines in the world.
Condensed Consolidated Statement of Earnings
(Stated in thousands of Canadian dollars, except per share amounts)
|Three months ended March 31|
|Flight operations and navigational charges||102,059||94,377|
|Sales and distribution||91,310||93,127|
|Marketing, general and administration||49,515||46,914|
|Depreciation and amortization||48,019||45,144|
|Employee profit share||24,311||14,134|
|Earnings from operations||132,364||105,658|
|Non-operating income (expense):|
|Gain on foreign exchange||79||1,286|
|Gain (loss) on disposal of property and equipment||(1,018)||19|
|Loss on fuel derivatives||-||(3,450)|
|Earnings before income tax||125,471||95,116|
|Income tax expense (recovery):|
|Earnings per share:|
Condensed Consolidated Statement of Financial Position
(Stated in thousands of Canadian dollars)
|Cash and cash equivalents||1,364,800||1,408,199|
|Prepaid expenses, deposits and other||96,891||101,802|
|Property and equipment||2,082,783||1,985,599|
|Liabilities and shareholders' equity|
|Accounts payable and accrued liabilities||485,634||460,003|
|Advance ticket sales||462,134||480,947|
|Non-refundable guest credits||47,511||47,859|
|Current portion of maintenance provisions||40,203||34,135|
|Current portion of long-term debt||165,091||164,909|
|Deferred income tax||345,151||356,748|
|Total shareholders' equity||1,549,428||1,472,305|
|Total liabilities and shareholders' equity||3,789,730||3,746,615|
Condensed Consolidated Statement of Cash Flows
(Stated in thousands of Canadian dollars)
|Three months ended March 31|
|Items not involving cash:|
|Depreciation and amortization||48,019||45,144|
|Change in maintenance provisions||9,082||8,064|
|Change in other liabilities||(207)||(199)|
|Amortization of hedge settlements||350||350|
|Loss on fuel derivatives||-||3,450|
|(Gain) loss on disposal of property and equipment||1,018||(19)|
|Share-based payment expense||3,575||2,691|
|Deferred income tax recovery||(12,255)||(2,204)|
|Unrealized foreign exchange gain||(1,125)||(505)|
|Change in non-cash working capital||105,480||129,552|
|Change in restricted cash||1,499||1,041|
|Change in other assets||(1,939)||(1,541)|
|Cash taxes paid||(77,183)||(407)|
|Cash interest received||5,353||4,591|
|Purchase of shares pursuant to compensation plans||(1,486)||-|
|Other property and equipment and intangible additions||(22,990)||(12,480)|
|Increase in long-term debt||-||35,303|
|Repayment of long-term debt||(41,240)||(39,631)|
|Decrease in obligations under finance leases||-||(19)|
|Issuance of shares pursuant to compensation plans||33||-|
|Cash interest paid||(9,568)||(11,271)|
|Change in non-cash working capital||(455)||(1,628)|
|Cash flow from operating, investing and financing activities||(45,742)||157,792|
|Effect of foreign exchange on cash and cash equivalents||2,343||(585)|
|Net change in cash and cash equivalents||(43,399)||157,207|
|Cash and cash equivalents, beginning of period||1,408,199||1,243,605|
|Cash and cash equivalents, end of period||1,364,800||1,400,812|
CASM, excluding fuel and employee profit share
(Stated in thousands of Canadian dollars, except percentage, mile and per unit data)
WestJet excludes the effects of aircraft fuel expense and employee profit share expense to assess the operating performance of the business. Fuel expense is excluded from operating results due to the fact that fuel prices are impacted by a host of factors outside WestJet's control, such as significant weather events, geopolitical tensions, refinery capacity and global demand and supply. Excluding this expense allows WestJet to analyze its operating results on a comparable basis. Employee profit share expense is excluded from operating results due to its variable nature and excluding this expense allows greater comparability.
|Three months ended March 31|
|CASM, excluding fuel and employee profit share|
|Aircraft fuel expense||(271,048)||(262,072)||(8,976)|
|Employee profit share expense||(24,311)||(14,134)||(10,177)|
|Operating expenses, adjusted||539,519||509,086||30,433|
|CASM, excluding above items (cents)||8.94||8.95||(0.1%)|
Return on invested capital (ROIC)
(Stated in thousands of Canadian dollars, except percentages)
ROIC is a measure commonly used to assess the efficiency with which a company allocates its capital to generate returns. Return is calculated based on earnings before tax, excluding special items, finance costs and implied interest on off-balance-sheet aircraft leases. Invested capital includes average long-term debt, average finance lease obligations, average shareholders' equity and off-balance-sheet aircraft operating leases.
|Return on invested capital|
|Earnings before income taxes||370,583||340,229||30,354|
|Implicit interest in operating leases(i)||91,662||91,041||621|
|Average long-term debt(ii)||761,118||783,880||(22,762)|
|Average obligations under finance leases(iii)||1,616||1,625||(9)|
|Average shareholders' equity||1,481,111||1,421,261||59,850|
|Off-balance-sheet aircraft leases(iv)||1,309,455||1,300,590||8,865|
|Return on invested capital||14.3%||13.7%||0.6 pts|
Interest implicit in operating leases is equal to 7.0 per cent of 7.5
times the trailing
12 months of aircraft lease expense. 7.0 per cent is a proxy and does not necessarily
represent actual for any given period.
|(ii)||Average long-term debt includes the current portion and long-term portion.|
|(iii)||Average obligations under finance leases include the current portion and long-term portion.|
Off-balance-sheet aircraft leases are calculated by multiplying the
trailing 12 months of
aircraft leasing expense by 7.5. At March 31, 2013, the trailing 12 months of aircraft leasing costs
totaled $174,594 (December 31, 2012 - $173,412).