WestJet reports record second quarter net earnings

Airline achieves earnings per share of $0.34, up 10 per cent

CALGARY, July 30, 2013 /PRNewswire/ - WestJet (TSX: WJA) today announced its 33rd consecutive quarter of profitability, with record second quarter net earnings of $44.7 million, or $0.34 per diluted share. This compares with the net earnings of $42.5 million, or $0.31 per diluted share reported in the second quarter of 2012. These results include $8.4 million of one-time pre-tax transition costs associated with WestJet's business transformation initiative. Based on the trailing twelve months, the airline achieved a return on invested capital of 14.4 per cent, up from the 14.3 per cent reported in the previous quarter.

"We are pleased with another quarter of record earnings and achieving an ROIC of 14.4 per cent, which for the fourth consecutive quarter surpassed our 12 per cent target," said WestJet President and CEO Gregg Saretsky. "We continue to make good progress with our company-wide business transformation initiative and I want to thank WestJetters for their tremendous dedication to the continued success of our airline."

Operating highlights (stated in Canadian dollars)

  Q2 2013  Q2 2012 Change Year-to-
date 2013
Year-to-
date 2012
Change
Net earnings (millions) $44.7 $42.5 5.2% $135.8 $110.8 22.6%
Diluted earnings per share $0.34 $0.31 9.7% $1.02 $0.81 25.9%
Total revenues (millions) $843.7 $809.3 4.3% $1,810.9 $1,700.2 6.5%
Operating margin 7.9% 8.7% (0.8 pts) 11.0% 10.4% 0.6 pts
ASMs (available seat miles) (billions) 5.888 5.389 9.3% 11.920 11.079 7.6%
RPMs (revenue passenger miles) (billions) 4.675 4.395 6.4% 9.763 9.116 7.1%
Load factor 79.4% 81.6% (2.2 pts) 81.9% 82.3% (0.4 pts)
Segment guests 4,493,271 4,267,598 5.3% 8,986,595 8,498,013 5.7%
Yield (revenue per revenue passenger mile) (cents) 18.05 18.41 (2.0%) 18.55 18.65 (0.5%)
RASM (revenue per available seat mile) (cents) 14.33 15.02 (4.6%) 15.19 15.35 (1.0%)
CASM (cost per available seat mile) (cents) 13.20 13.71 (3.7%) 13.52 13.76 (1.7%)
CASM, excluding fuel and employee profit share (cents)* 9.06 9.12 (0.7%) 9.00 9.03 (0.3%)

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

In the second quarter, WestJet successfully launched WestJet Encore, Canada's newest regional airline with its first two new Bombardier Q400 NextGen aircraft. WestJet's new regional airline will provide more Canadians with access to WestJet's low fares and caring guest experience, while enhancing the airline's value to the business market. "We are pleased with initial results in both the local market and the significant connecting traffic flows from the new regional service," said Gregg Saretsky.

WestJet expects to continue its strong traffic and revenue growth in the third quarter of 2013. The airline anticipates its 2013 third quarter RASM, as compared to the same period in the prior year, to experience a similar level of year-over-year percentage decline as the second quarter of 2013, primarily as a result of increased capacity associated with higher utilization, the reconfiguration of WestJet's Boeing 737-800 fleet, and the ramping up of WestJet Encore. June and July traffic experienced some booking weakness due to the impact of flooding in Calgary and the surrounding communities.

The airline expects jet fuel costs to range between 90 and 92 cents per litre for the third quarter of 2013, representing a flat to up two per cent year-over-year increase. In terms of CASM, excluding fuel and employee profit share, WestJet expects it to be down 0.5 to down 1.5 per cent in the third quarter of 2013.

For the full year 2013, the airline now expects CASM, excluding fuel and employee profit share, to be down 0.5 to down 1.0 per cent year-over-year primarily as a result of cost reductions achieved and anticipated through its previously announced company-wide business transformation initiative.

For the full-year 2014, the airline anticipates system-wide capacity growth between four and six per cent. "The flexibility we have built into our fleet plan through lease renewal options and our ability to deploy a mix of Boeing 737 and Bombardier Q400 aircraft allows us to tailor capacity and continue our profitable growth while aligning with market conditions," noted Gregg Saretsky.

Dividend declaration

On July 29, 2013, WestJet's Board of Directors declared a cash dividend of $0.10 per common voting share and variable voting share for the third quarter of 2013, to be paid on September 30, 2013, to shareholders of record on September 18, 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 WestJet's business transformation initiative, WestJet Encore and the benefits it will provide, expected traffic, revenue growth and RASM for the third quarter of 2013, jet fuel costs in the third quarter of 2013, CASM, excluding fuel and employee profit share for the third quarter of 2013 and full-year 2013, and full-year 2014 system wide capacity 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 for WestJet and WestJet Encore, the expected demand environment, anticipated capacity increases, the utilization of our fleet, the forward-curve for jet fuel price, the expected exchange rate of the Canadian dollar to the U.S. dollar, future aircraft deliveries, WestJet's business transformation initiative 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.

Non-GAAP measures

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 three and six months ended June 30, 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 and six months ended June 30, 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, July 30, 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 second 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.

About WestJet

WestJet is Canada's most preferred airline, offering scheduled service to 87 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 9,600 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. This year, WestJet launched its new regional airline, WestJet Encore.

Connect with WestJet on Facebook at www.facebook.com/westjet
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Read the WestJet blog at blog.westjet.com

                                        

             
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
    2013 2012   2013 2012
             
Revenue:            
  Guest   768,612 740,492   1,648,006 1,542,778
  Other   75,082 68,790   162,930 157,454
    843,694 809,282   1,810,936 1,700,232
Expenses:            
  Aircraft fuel   241,204 242,662   512,252 504,734
  Airport operations   110,956 102,935   226,047 208,116
  Flight operations and navigational charges   102,751 93,033   204,810 187,410
  Sales and distribution   82,730 75,837   174,040 168,964
  Marketing, general and administration   54,485 47,990   104,000 94,904
  Depreciation and amortization   49,154 47,147   97,173 92,291
  Inflight   48,974 39,924   95,293 80,213
  Aircraft leasing   43,884 42,518   91,393 88,845
  Maintenance   40,253 42,120   79,950 79,847
  Employee profit share   2,834 4,651   27,145 18,785
    777,225 738,817   1,612,103 1,524,109
Earnings from operations   66,469 70,465   198,833 176,123
             
Non-operating income (expense):            
  Finance income   4,438 4,491   9,182 8,831
  Finance costs   (10,263) (12,258)   (20,961) (24,995)
  Gain (loss) on foreign exchange   1,672 (1,206)   1,751 80
  Gain (loss) on disposal of property and equipment   (762) 358   (1,780) 377
  Loss on fuel derivatives   - (3,062)   - (6,512)
    (4,915) (11,677)   (11,808) (22,219)
Earnings before income tax   61,554 58,788   187,025 153,904
             
Income tax expense (recovery):            
  Current   15,795 11,837   62,448 40,836
  Deferred   1,024 4,472   (11,231) 2,268
    16,819 16,309   51,217 43,104
Net earnings   44,735 42,479   135,808 110,800
             
Earnings per share:            
  Basic   0.34 0.31   1.03 0.81
  Diluted   0.34 0.31   1.02 0.81
               

         
Condensed Consolidated Statement of Financial Position
(Stated in thousands of Canadian dollars)
(Unaudited)
   
         
    June 30, 2013   December 31, 2012
Assets        
Current assets:        
  Cash and cash equivalents   1,223,598   1,408,199
  Restricted cash   37,019   51,623
  Accounts receivable   36,764   37,576
  Prepaid expenses, deposits and other   103,707   101,802
  Inventory   27,368   35,595
    1,428,456   1,634,795
Non-current assets:        
  Property and equipment   2,198,899   1,985,599
  Intangible assets   53,847   50,808
  Other assets   77,502   75,413
Total assets   3,758,704   3,746,615
         
Liabilities and shareholders' equity        
Current liabilities:        
  Accounts payable and accrued liabilities   396,790   460,003
  Advance ticket sales   509,761   480,947
  Non-refundable guest credits   46,181   47,859
  Current portion of maintenance provisions   66,694   34,135
  Current portion of long-term debt   167,603   164,909
    1,187,029   1,187,853
Non-current liabilities:        
  Maintenance provisions   136,289   145,656
  Long-term debt   522,016   574,139
  Other liabilities   11,827   9,914
  Deferred income tax   348,048   356,748
Total liabilities   2,205,209   2,274,310
         
Shareholders' equity:        
  Share capital   614,195   614,899
  Equity reserves   66,122   69,856
  Hedge reserves   2,141   (5,746)
  Retained earnings   871,037   793,296
Total shareholders' equity   1,553,495   1,472,305
         
Total liabilities and shareholders' equity   3,758,704   3,746,615
         

             
Condensed Consolidated Statement of Cash Flows
(Stated in thousands of Canadian dollars)
(Unaudited)
           
             
    Three months ended June 30   Six months ended June 30
    2013 2012   2013 2012
             
Operating activities:            
Net earnings   44,735 42,479   135,808 110,800
Items not involving cash:            
  Depreciation and amortization   49,154 47,147   97,173 92,291
  Change in maintenance provisions   4,296 10,567   13,378 18,631
  Change in other liabilities   2,388 (13)   2,181 (212)
  Amortization of hedge settlements   350 350   700 700
  Loss on fuel derivatives   - 3,062   - 6,512
  (Gain) loss on disposal of property and equipment   762 (358)   1,780 (377)
  Share-based payment expense   3,479 3,899   7,054 6,590
  Deferred income tax expense/(recovery)   1,024 4,472   (11,231) 2,268
  Unrealized foreign exchange gain   (3,160) (1,335)   (4,285) (1,840)
Change in non-cash working capital   (4,659) (47,301)   100,821 82,251
Change in restricted cash   13,104 17,370   14,603 18,411
Change in other assets   (808) (2,486)   (2,747) (4,027)
Cash interest received   4,540 4,147   9,893 8,738
Cash taxes paid   (20,331) (399)   (97,514) (806)
Purchase of shares pursuant to compensation plans   (5,101) (1,306)   (6,587) (1,306)
    89,773 80,295   261,027 338,624
             
Investing activities:            
Aircraft additions   (156,864) (125,690)   (282,345) (169,454)
Other property and equipment and intangible additions   (16,246) (20,610)   (39,236) (33,090)
    (173,110) (146,300)   (321,581) (202,544)
             
Financing activities:            
Increase in long-term debt   33,074 37,692   33,074 72,995
Repayment of long-term debt   (41,325) (40,451)   (82,565) (80,082)
Decrease in obligations under finance leases   - (18)   - (37)
Shares repurchased   (32,549) (49,928)   (36,613) (68,749)
Dividends paid   (13,161) (8,047)   (26,392) (16,273)
Issuance of shares pursuant to compensation plans   - 110   33 110
Cash interest paid   (8,845) (10,860)   (18,413) (22,131)
Change in non-cash working capital   (102) (1,732)   (557) (3,360)
    (62,908) (73,234)   (131,433) (117,527)
             
Cash flow from operating, investing and financing activities   (146,245) (139,239)   (191,987) 18,553
Effect of foreign exchange on cash and cash equivalents   5,043 2,645   7,386 2,060
Net change in cash and cash equivalents   (141,202) (136,594)   (184,601) 20,613
             
Cash and cash equivalents, beginning of period   1,364,800 1,400,812   1,408,199 1,243,605
             
Cash and cash equivalents, end of period   1,223,598 1,264,218   1,223,598 1,264,218
             

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
($ in thousands) 2013   2012   Change   2013   2012   Change
Operating expenses 777,225   738,817   38,408   1,612,103   1,524,109   87,994
Aircraft fuel expense (241,204)   (242,662)   1,458   (512,252)   (504,734)   (7,518)
Employee profit share expense (2,834)   (4,651)   1,817   (27,145)   (18,785)   (8,360)
Operating expenses, adjusted 533,187   491,504   41,683   1,072,706   1,000,590   72,116
ASMs 5,888,165,679   5,388,935,462   9.3%   11,920,261,749   11,078,587,427   7.6%
CASM, excluding above items (cents) 9.06   9.12   (0.7%)   9.00   9.03   (0.3%)
                       

Return on invested capital
(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.

           
($ in thousands) June 30, 2013   March 31, 2013   Change
Earnings before income taxes 373,349   370,583   2,766
Add:          
  Finance costs 44,866   46,861   (1,995)
  Implicit interest in operating leases(i) 92,379   91,662   717
  510,594   509,106   1,488
Invested capital:          
  Average long-term debt(ii) 755,622   761,118   (5,496)
  Average obligations under finance leases(iii) 1,607   1,616   (9)
  Average shareholders' equity 1,476,841   1,481,111   (4,270)
  Off-balance-sheet aircraft leases(iv) 1,319,700   1,309,455   10,245
  3,553,770   3,553,300   470
Return on invested capital 14.4%   14.3%   0.1 pts.
(i)      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.
(iv)      Off-balance-sheet aircraft leases are calculated by multiplying the trailing 12 months of aircraft leasing expense by 7.5.
At June 30, 2013, the trailing 12 months of aircraft leasing costs totalled $175,960 (March 31, 2013 - $174,594).
   

 

 

 

 

SOURCE WestJet



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