WestJet reports record second quarter net earnings

Airline announces an increase to its quarterly dividend
WestJet to introduce a premium economy product

CALGARY, Aug. 1, 2012 /PRNewswire/ - WestJet (TSX: WJA) today announced a second quarter net earnings record of $42.5 million, or $0.31 per diluted share; up from the net earnings of $25.6 million, or $0.18 per diluted share, reported in the second quarter of 2011. These financial results mark WestJet's 29th consecutive quarter of profitability. Based on the trailing twelve months, the airline achieved a return on invested capital of 11.4 per cent, up from the 10.8 per cent reported last quarter.

"It was another record quarter as we set new second quarter highs for both net earnings and load factor," said WestJet President and CEO Gregg Saretsky. "Momentum continues at WestJet and we are very pleased with the operating margin expansion achieved again this quarter as we progress towards our return on invested capital target."

Today, WestJet also announced that it will be introducing a premium economy product on its entire Boeing 737 fleet featuring extra legroom, convenience and other amenities. Modifications to the aircraft will begin in August and the airline expects to have the fleet fully reconfigured by the end of 2012. "We believe that both business and leisure guests will appreciate the added value a premium economy product will offer and look forward to providing further details as we roll it out early next year," noted Gregg Saretsky.

Operating highlights (stated in Canadian dollars)

  Q2 2012  Q2 2011 Change Year-to-date 2012 Year-to-date 2011 Change
Net earnings (millions) $42.5 $25.6 65.9% $110.8 $73.9 50.0%
Diluted earnings per share $0.31 $0.18 72.2% $0.81 $0.52 55.8%
Total revenues (millions) $809.3 $742.3 9.0% $1,700.2 $1,514.7 12.2%
Operating margin 8.7% 6.9% 1.8 pts. 10.4% 8.7% 1.7 pts.
ASMs (available seat miles) (billions) 5.389 5.238 2.9% 11.079 10.468 5.8%
RPMs (revenue passenger miles) (billions) 4.395 4.092 7.4% 9.116 8.382 8.8%
Load factor 81.6% 78.1% 3.5 pts. 82.3% 80.1% 2.2 pts.
Segment guests 4,267,598 3,941,609 8.3% 8,498,013 7,840,717 8.4%
Yield (revenue per revenue passenger mile) (cents) 18.41 18.14 1.5% 18.65 18.07 3.2%
RASM (revenue per available seat mile) (cents) 15.02 14.17 6.0% 15.35 14.47 6.1%
CASM (cost per available seat mile) (cents) 13.71 13.19 3.9% 13.76 13.22 4.1%
CASM, excluding fuel and employee profit share (cents)* 9.12 8.70 4.8% 9.03 8.81 2.5%

*Refer to reconciliations in the accompanying tables for further information regarding calculations.

WestJet expects RASM growth in the third quarter to be moderately stronger than the first half growth and anticipates ongoing operating margin expansion in the second half of 2012. "Demand remains strong as guests continue to choose our airline in record numbers thanks in large part to our amazing WestJetters who make the travel experience so enjoyable," commented Gregg Saretsky. "We continue to invest in our capabilities and products as we strive to offer our guests more convenience, comfort and flexibility."

WestJet now projects its full-year CASM, excluding fuel and employee profit share to increase between three to 3.5 per cent year over year from its previous expectation of up 1.5 to 2.5 per cent. This revision is primarily due to higher flight operations and inflight recruitment and training expenses in the fourth quarter in anticipation of our expanded winter schedule which was only recently finalized, increased maintenance expense and a slight reduction in capacity associated with the aircraft reconfiguration project. The airline anticipates that its fuel costs will range between $0.90 and $0.92 per litre for the third quarter of 2012.

The airline also declared an increase to its quarterly dividend from $0.06 to $0.08. "Our decision to increase the quarterly dividend demonstrates the robustness of our business model, inclusive of our new regional airline, and its ability to deliver continued profitable growth. We are committed to not only creating value for our shareholders, but also returning value to them," added Gregg Saretsky

WestJet and Bombardier signed a definitive purchase agreement on July 31, 2012. The purchase agreement includes a firm order of 20 Q400 NextGen turboprop aircraft with purchase options for an additional 25 Q400 aircraft. Of the firm orders, seven turboprops are scheduled to be delivered in 2013. This will be followed by seven more of the confirmed orders in 2014, four in 2015 and two in 2016. The scheduled delivery slots for the 25 optional aircraft range between 2014 and 2018.

"The planned launch of our new low-cost regional airline remains on track for the second half of 2013. We have now met with representatives from over 30 airports across Canada who are all hoping to have WestJet service and hiring has commenced on the first of up to 1,800 new jobs the regional airline will create. The excitement is growing both internally here at WestJet and externally across the country as we gear up to bring our remarkable guest experience to many new communities," added Gregg Saretsky.

Dividend declaration
On July 31, 2012 WestJet's Board of Directors declared a cash dividend of $0.08 per common voting share and variable voting share for the third quarter of 2012, to be paid on September 28, 2012, to shareholders of record on September 12, 2012. 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, the introduction of  a premium economy product, timing of the Q400 NextGen firm orders and information regarding the launch of the regional airline in the second half of 2013, RASM growth in the third quarter of 2012, fuel costs in the third quarter of 2012 and CASM, excluding fuel and employee profit share, for the full-year 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 budget, forecasts and strategy, our fleet plan, realized jet fuel prices for July 2012 and forward-curve prices for August and September 2012, the expected exchange rate of the Canadian dollar to the U.S. dollar in the third quarter of 2012, along with available implementation plans, agreements and bookings, but may vary due to factors including, but not limited to, changes in consumer demand, changes in fuel prices, delays in aircraft delivery, changes in guest demand, 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 quarters. 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 three and six months ended June 30, 2012, 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 interim financial statements and notes for the three and six months ended June 30, 2012, 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, August 1, 2012, at 9 a.m. MDT (11 a.m. EDT). President and CEO Gregg Saretsky and Executive Vice-President of Finance and CFO Vito Culmone will discuss WestJet's second quarter 2012 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.

About WestJet
WestJet is Canada's preferred airline, offering scheduled service to 80 destinations in North America, Central America and the Caribbean. Powered by an award-winning culture of care, WestJet has pioneered low-cost flying in Canada. Recognized nationally as a top employer, WestJet now has more than 8,600 WestJetters across Canada. Operating a fleet of 99 Boeing Next-Generation 737 aircraft with future confirmed deliveries for an additional 36 Boeing Next-Generation 737 aircraft through 2018 and plans to launch a low-cost regional airline in 2013, WestJet strives to be one of the five most successful international airlines in the world.

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Condensed Consolidated Statement of Earnings
(Stated in thousands of Canadian dollars, except per share amounts)
(Unaudited)

       
    Three months ended June 30 Six months ended June 30
    2012 2011 2012 2011
           
Revenue:          
   Guest   740,492 675,844 1,542,778 1,364,432
   Other   68,790 66,444 157,454 150,278
    809,282 742,288 1,700,232 1,514,710
Expenses:          
  Aircraft fuel   242,662 230,577 504,734 449,540
  Airport operations   109,183 99,064 222,989 208,215
  Flight operations and navigational charges   91,202 86,468 182,986 170,565
  Sales and distribution   71,420 67,807 158,516 149,970
  Marketing, general and administration   49,434 48,502 97,563 90,977
  Depreciation and amortization   47,147 43,508 92,291 86,815
  Aircraft leasing   42,518 41,624 88,845 82,337
  Maintenance   42,120 34,505 79,847 65,127
  Inflight   38,480 34,316 77,553 67,815
  Employee profit share   4,651 4,577 18,785 12,169
    738,817 690,948 1,524,109 1,383,530
Earnings from operations   70,465 51,340 176,123 131,180
           
Non-operating income (expense):          
  Finance income   4,491 3,808 8,831 7,739
  Finance costs   (12,258) (15,585) (24,995) (31,783)
  (Loss) gain on foreign exchange   (1,206) 639 80 2,138
  Gain on disposal of property and equipment   358 16 377 9
  Loss on derivatives   (3,062) (4,159) (6,512) (6,416)
    (11,677) (15,281) (22,219) (28,313)
Earnings before income tax   58,788 36,059 153,904 102,867
           
Income tax expense:          
  Current   11,837 603 40,836 1,184
  Deferred   4,472 9,854 2,268 27,832
    16,309 10,457 43,104 29,016
Net earnings   42,479 25,602 110,800 73,851
           
Earnings per share:          
  Basic   0.31 0.18 0.81 0.52
  Diluted   0.31 0.18 0.81 0.52

Condensed Consolidated Statement of Financial Position
(Stated in thousands of Canadian dollars)
(Unaudited)

       
    June 30 December 31
    2012 2011
Assets      
Current assets:      
  Cash and cash equivalents   1,264,218 1,243,605
  Restricted cash   29,930 48,341
  Accounts receivable   39,391 34,122
  Prepaid expenses, deposits and other   53,892 66,936
  Inventory   34,419 31,695
    1,421,850 1,424,699
Non-current assets:      
  Property and equipment   2,016,954 1,911,227
  Intangible assets   44,704 33,793
  Other assets   101,988 103,959
Total assets   3,585,496 3,473,678
       
Liabilities and shareholders' equity      
Current liabilities:      
  Accounts payable and accrued liabilities   354,594 307,279
  Advance ticket sales   458,278 432,186
  Non-refundable guest credits   44,100 43,485
  Current portion of long-term debt   164,765 158,832
  Current portion of obligations under finance leases   78 75
    1,021,815 941,857
Non-current liabilities:      
  Maintenance provisions   165,136 151,645
  Long-term debt   656,860 669,880
  Obligations under finance leases   3,135 3,174
  Other liabilities   10,296 10,449
  Deferred income tax   328,067 326,456
Total liabilities   2,185,309 2,103,461
       
Shareholders' equity:      
  Share capital   618,515 630,408
  Equity reserves   70,823 74,184
  Hedge reserves   (4,555) (3,353)
  Retained earnings   715,404 668,978
Total shareholders' equity   1,400,187 1,370,217
       
Total liabilities and shareholders' equity   3,585,496 3,473,678

Condensed Consolidated Statement of Cash Flows
(Stated in thousands of Canadian dollars)
(Unaudited)

       
    Three months ended June 30 Six months ended June 30
    2012 2011 2012 2011
           
Operating activities:          
Net earnings   42,479 25,602 110,800 73,851
Items not involving cash:          
  Depreciation and amortization   47,147 43,508 92,291 86,815
  Change in long-term maintenance provisions   10,442 7,806 18,269 14,504
  Change in other liabilities   (13) 277 (212) 68
  Amortization of hedge settlements   350 350 700 700
  Loss on derivative instruments   3,062 4,159 6,512 6,416
  Gain on disposal of property and equipment   (358) (16) (377) (9)
  Share-based payment expense   3,899 3,743 6,590 7,112
  Deferred income tax expense   4,472 9,854 2,268 27,832
  Finance income   (4,491) (3,808) (8,831) (7,739)
  Finance costs   12,258 15,585 24,995 31,783
  Unrealized foreign exchange (gain) loss   (1,335) 1,651 (1,840) 2,083
  Change in non-cash working capital   (55,277) (31,809) 65,952 46,078
Change in restricted cash   17,370 11,543 18,411 2,797
Purchase of shares pursuant to compensation plans   (1,306) (1,306)
Change in other assets   (2,486) (1,162) (4,027) (3,462)
Cash taxes paid   (399) (395) (806) (766)
Cash interest received   4,147 3,148 8,738 6,058
    79,961 90,036 338,127 294,121
           
Investing activities:          
Aircraft additions   (125,690) (4,468) (169,454) (47,608)
Other property and equipment and intangible additions   (20,610) (6,956) (33,090) (16,336)
    (146,300) (11,424) (202,544) (63,944)
           
Financing activities:          
Increase in long-term debt   37,692 72,995
Repayment of long-term debt   (40,451) (49,763) (80,082) (91,046)
Decrease in obligations under finance leases   (18) (18) (37) (72)
Shares repurchased   (49,928) (29,535) (68,749) (57,831)
Issuance of shares   110 110
Dividends paid   (8,047) (6,969) (16,273) (21,174)
Cash interest paid   (10,860) (12,980) (22,131) (27,004)
Change in non-cash working capital   (1,398) (1,662) (2,863) 2,316
    (72,900) (100,927) (117,030) (194,811)
           
Cash flow from operating, investing and financing activities   (139,239) (22,315) 18,553 35,366
Effect of foreign exchange on cash and cash equivalents   2,645 (2,528) 2,060 (4,438)
Net change in cash and cash equivalents   (136,594) (24,843) 20,613 30,928
           
Cash and cash equivalents, beginning of period   1,400,812 1,215,087 1,243,605 1,159,316
           
Cash and cash equivalents, end of period   1,264,218 1,190,244 1,264,218 1,190,244

CASM, excluding fuel and employee profit share
(Stated in thousands of Canadian dollars, except percentage, mile and per unit data)
(Unaudited)

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 June 30 Six months ended June 30                 
  2012 2011 Change 2012 2011 Change
CASM, excluding fuel and employee profit share            
Operating expenses 738,817 690,948 47,869 1,524,109 1,383,530 140,579
Aircraft fuel expense (242,662) (230,577) (12,085) (504,734) (449,540) (55,194)
Employee profit share expense (4,651) (4,577) (74) (18,785) (12,169) (6,616)
Operating expenses, adjusted 491,504 455,794 35,710 1,000,590 921,821 78,768
ASMs 5,388,935,462 5,237,968,810 2.9% 11,078,587,427 10,468,245,560 5.8%
CASM, excluding above items (cents) 9.12 8.70 4.8% 9.03 8.81 2.5%

Return on invested capital (ROIC)
(Stated in thousands of Canadian dollars, except percentages)
(Unaudited)

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 our earnings before tax, excluding special items, finance costs and implied interest on our 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.

       
  June 30,
2012
December 31,
2011
Change
Return on invested capital(i)      
Earnings before income taxes 259,043 208,006 51,037
Add:      
  Finance costs 54,123 60,911 (6,788)
  Implicit interest in operating leases(ii) 90,341 86,925 3,416
  403,507 355,842 47,665
Invested capital:      
  Average long-term debt(iii) 878,324 927,757 (49,433)
  Average obligations under finance leases(iv) 3,250 3,303 (54)
  Average shareholders' equity 1,356,611 1,337,225 19,386
  Off-balance-sheet aircraft leases(v) 1,290,593 1,241,783 48,810
  3,528,778 3,510,068 18,710
Return on invested capital 11.4% 10.1% 1.3 pts.

(i)     The trailing 12 months are used in the calculation of ROIC.
(ii)     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.
(iii)     Average long-term debt includes the current portion and long-term portion.
(iv)     Average capital lease obligations include the current portion and long-term portion.
(v)     Off-balance-sheet aircraft leases are calculated by multiplying the trailing 12 months of aircraft leasing expense by 7.5. At June 30, 2012, the trailing 12 months of aircraft leasing costs totalled $172,079 (December 31, 2011 - $165,571).

 

 

 

 

 

 

 

 

SOURCE WestJet



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