WestJet reports third quarter net earnings of $65 million
Airline achieves 34th consecutive profitable quarter and flies over 300,000 additional guests year over year
CALGARY, Nov. 5, 2013 /PRNewswire/ - WestJet (TSX: WJA) today announced its third quarter 2013 results, with net earnings of $65.1 million, or $0.50 per diluted share. This compares with the net earnings of $70.6 million, or $0.52 per diluted share reported in the third quarter of 2012. Based on the trailing twelve months, the airline achieved a return on invested capital of 13.8 per cent, compared with the 14.4 per cent reported in the previous quarter, and one of the best third quarters in WestJet history.
"We had a strong third quarter in which we flew a record number of guests, exceeded our 12 per cent ROIC target for the fifth consecutive quarter, and reached our initial business transformation initiative milestone one year early by implementing and identifying various opportunities which we believe will result in approximately $100 million in future cost savings in 2014," said WestJet President and CEO Gregg Saretsky. "With the market launch of our Plus product in August, we are now providing our business and leisure guests with even more flexibility, comfort and convenience, and my thanks go to WestJetters for their ongoing efforts to take care of our guests."
|Operating highlights (stated in Canadian dollars)|
|Q3 2013||Q3 2012||Change||
|Net earnings (millions)||$65.1||$70.6||(7.8%)||$200.9||$181.4||10.7%|
|Diluted earnings per share||$0.50||$0.52||(3.8%)||$1.51||$1.33||13.5%|
|Total revenues (millions)||$924.8||$866.5||6.7%||$2,735.8||$2,566.8||6.6%|
|Operating margin||10.7%||12.5%||(1.8 pts)||10.9%||11.1%||(0.2 pts)|
|ASMs (available seat miles) (billions)||6.109||5.498||11.1%||18.029||16.576||8.8%|
|RPMs (revenue passenger miles) (billions)||5.059||4.654||8.7%||14.823||13.770||7.6%|
|Load factor||82.8%||84.6%||(1.8 pts)||82.2%||83.1%||(0.9 pts)|
|Yield (revenue per revenue passenger mile) (cents)||18.28||18.62||(1.8%)||18.46||18.64||(1.0%)|
|RASM (revenue per available seat mile) (cents)||15.14||15.76||(3.9%)||15.17||15.48||(2.0%)|
|CASM (cost per available seat mile) (cents)||13.52||13.80||(2.0%)||13.52||13.77||(1.8%)|
|CASM, excluding fuel and employee profit share (cents)*||8.96||9.10||(1.5%)||8.99||9.06||(0.8%)|
*Refer to reconciliations in the accompanying tables for further information regarding calculations.
During the third quarter, WestJet continued the roll-out of WestJet Encore, beginning service to Brandon, Manitoba on September 3 and announcing Terrace, B.C. as a new community that will welcome its first Encore flight on November 25, 2013. WestJet Encore also added new non-stop routes joining the dots in WestJet's network, including flights between Winnipeg and Saskatoon, Winnipeg and Regina and between Vancouver and Kamloops, B.C. "We are very pleased with the overwhelming community support WestJet Encore has received, as we give even more Canadians access to lower fares, stimulate demand in smaller communities, and repeat WestJet's success in the regional space," said Gregg Saretsky.
In the third quarter, WestJet entered into a definitive purchase agreement for 65 Boeing 737 MAX aircraft with deliveries scheduled from 2017 through 2027. This order will enable the airline to enhance its inflight guest experience, support its low-cost business model, and contribute to its profitable growth by utilizing a lower operating cost aircraft that is expected to reduce fuel burn and CO2 emissions by 13 per cent, as compared with the most fuel-efficient single-aisle aircraft currently available.
With the impact on demand caused by the summer flooding in Calgary, Alberta and the surrounding communities behind the airline, WestJet expects continued strong traffic and revenue growth in the fourth quarter of 2013. The airline anticipates its 2013 fourth quarter RASM to be roughly flat as compared to the same period in the prior year.
The airline expects jet fuel costs to range between 90 and 92 cents per litre for the fourth quarter of 2013, representing a down 1.0 to up 1.0 per cent year-over-year change. For the full year 2013, the airline now expects CASM, excluding fuel and employee profit share, to be down approximately 0.5 per cent year-over-year.
On November 4, 2013, WestJet's Board of Directors declared a cash dividend of $0.10 per common voting share and variable voting share for the fourth quarter of 2013, to be paid on December 31, 2013, to shareholders of record on December 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 and the $100 million in future cost savings in 2014; WestJet Encore and the communities it will serve; the anticipated timing of the 737 MAX deliveries and the expected financial and operational benefits of these aircraft; traffic and revenue growth in the fourth quarter of 2013; 2013 fourth quarter RASM; jet fuel costs in the fourth quarter of 2013; and CASM, excluding fuel and employee profit share for the fourth quarter of 2013 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, 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, the specifications of the 737 MAX aircraft and the LEAP-1B engine, 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.
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 nine months ended September 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 nine months ended September 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, November 5, 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 third 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.
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.
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|Condensed Consolidated Statement of Earnings|
|(Stated in thousands of Canadian dollars, except per share amounts)|
Three months ended
Nine months ended
|Flight operations and navigational charges||104,677||94,232||309,487||281,642|
|Sales and distribution||88,681||82,643||262,721||251,607|
|Marketing, general and administration||54,005||49,989||158,005||144,893|
|Depreciation and amortization||51,499||46,935||148,672||139,226|
|Employee profit share||11,969||16,161||39,114||34,946|
|Earnings from operations||99,002||107,997||297,835||284,120|
|Non-operating income (expense):|
|Gain (loss) on foreign exchange||(793)||463||958||543|
|Gain (loss) on disposal of property and equipment||(545)||4||(2,325)||381|
|Loss on fuel derivatives||−||−||−||(6,512)|
|Earnings before income tax||90,887||100,782||277,912||254,686|
|Income tax expense (recovery):|
|Earnings per share:|
|Condensed Consolidated Statement of Financial Position|
|(Stated in thousands of Canadian dollars)|
|September 30, 2013||December 31, 2012|
|Cash and cash equivalents||1,232,963||1,408,199|
|Prepaid expenses, deposits and other||105,315||101,802|
|Property and equipment||2,359,363||1,985,599|
|Liabilities and shareholders' equity|
|Accounts payable and accrued liabilities||465,022||460,003|
|Advance ticket sales||542,586||480,947|
|Non-refundable guest credits||43,612||47,859|
|Current portion of maintenance provisions||68,154||34,135|
|Current portion of long-term debt||178,808||164,909|
|Deferred income tax||339,908||356,748|
|Total shareholders' equity||1,558,965||1,472,305|
|Total liabilities and shareholders' equity||3,952,975||3,746,615|
|Condensed Consolidated Statement of Cash Flows|
|(Stated in thousands of Canadian dollars)|
Three months ended
Nine months ended
|Items not involving cash:|
|Depreciation and amortization||51,499||46,935||148,672||139,226|
|Change in maintenance provisions||5,444||8,499||18,822||27,130|
|Change in other liabilities||(196)||(178)||1,985||(390)|
|Amortization of hedge settlements||350||350||1,050||1,050|
|Loss on fuel derivatives||−||−||−||6,512|
|(Gain) loss on disposal of property and equipment||545||(4)||2,325||(381)|
|Share-based payment expense||3,594||3,104||10,648||9,694|
|Deferred income tax expense/(recovery)||(6,577)||13,394||(17,808)||15,662|
|Unrealized foreign exchange gain||(4,258)||(251)||(8,543)||(2,091)|
|Change in non-cash working capital||109,823||163,450||210,644||245,701|
|Change in restricted cash||(19,813)||(18,712)||(5,210)||(301)|
|Change in other assets||874||(1,568)||(1,873)||(5,595)|
|Cash interest received||4,272||4,580||14,165||13,318|
|Cash taxes paid||(23,494)||75||(121,008)||(731)|
|Purchase of shares pursuant to compensation plans||(63)||−||(6,650)||(1,306)|
|Other property and equipment and intangible additions||(19,923)||(8,130)||(59,159)||(41,220)|
|Increase in long-term debt||144,291||-||177,365||72,995|
|Repayment of long-term debt||(47,081)||(41,191)||(129,646)||(121,273)|
|Decrease in obligations under finance leases||−||(19)||−||(56)|
|Issuance of shares pursuant to compensation plans||36||52||69||162|
|Cash interest paid||(8,763)||(10,746)||(27,176)||(32,877)|
|Change in non-cash working capital||474||(1,726)||(83)||(5,086)|
|Cash flow from operating, investing and financing activities||6,807||190,749||(185,180)||209,302|
|Effect of foreign exchange on cash and cash equivalents||2,558||(2,033)||9,944||27|
|Net change in cash and cash equivalents||9,365||188,716||(175,236)||209,329|
|Cash and cash equivalents, beginning of period||1,223,598||1,264,218||1,408,199||1,243,605|
|Cash and cash equivalents, end of period||1,232,963||1,452,934||1,232,963||1,452,934|
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 September 30||Nine months ended September 30|
|($ in thousands)||2013||2012||Change||2013||2012||Change|
|Aircraft fuel expense||(266,668)||(241,837)||(24,831)||(778,920)||(746,571)||(32,349)|
|Employee profit share expense||(11,969)||(16,161)||4,192||(39,114)||(34,946)||(4,168)|
|Operating expenses, adjusted||547,205||500,542||46,663||1,619,911||1,501,132||118,779|
|CASM, excluding above items (cents)||8.96||9.10||(1.5%)||8.99||9.06||(0.8%)|
Return on invested capital
(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 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)||September 30, 2013||December 31, 2012||Change|
|Earnings before income taxes||363,454||340,229||23,225|
|Implicit interest in operating leases(i)||92,879||91,041||1,838|
|Average long-term debt(ii)||783,593||783,880||(287)|
|Average obligations under finance leases(iii)||1,597||1,625||(28)|
|Average shareholders' equity||1,504,108||1,421,261||82,847|
|Off-balance-sheet aircraft leases(iv)||1,326,848||1,300,590||26,258|
|Return on invested capital||13.8%||13.7%||0.1pts|
|(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 September 30, 2013, the trailing 12 months of aircraft leasing costs totaled $176,913 (December 31, 2012 - $173,412).|