WestJet reports first quarter net earnings of $37.2 million

News provided by

WESTJET, an Alberta Partnership

May 08, 2018, 06:30 ET

CALGARY, May 8, 2018 /PRNewswire/ - WestJet (TSX: WJA) today announced its first quarter results for 2018, with net earnings of $37.2 million, or $0.32 per fully diluted share. While remaining profitable in a challenging quarter, this result compares with net earnings of $46.7 million, or $0.40 per fully diluted share reported in the first quarter of 2017. WestJet achieved its 52nd consecutive quarter of profitability and flew an all-time quarterly record of 6.1 million guests. Based on the trailing twelve months, the airline achieved a return on invested capital of 9.5 per cent, down from to 10.1 per cent in the first quarter of 2017.

"Even though winter 2018 brought many operational challenges, we successfully achieved record load factors and increased revenue by 6.9 per cent on a capacity increase of 4.3 per cent," Ed Sims, WestJet President and CEO. "I want to thank every individual WestJetter for rising to the challenge through a very difficult operating quarter. Nonetheless, the quarter saw net earnings and margin decline as we continue to invest in the strategy laid out at Investor Day, in a higher fuel environment. We remain laser-focused on strategic execution to ensure we drive shareholder returns."

Operating highlights (stated in Canadian dollars)

Q1 2018

Q1 2017

Change

Net earnings (millions)

$37.2

$46.7

(20.4%)

Diluted earnings per share

$0.32

$0.40

(20.0%)

Total revenue (millions)

$1,191.7

$1,114.7

6.9%

Operating margin

4.7%

7.1%

(2.4 pts.)

ASMs (available seat miles) (billions)

8.029

7.699

4.3%

RPMs (revenue passenger miles) (billions)

6.810

6.393

6.5%

Load factor

84.8%

83.0%

1.8 pts.

Segment guests

6,088,954

5,687,659

7.1%

Yield (revenue per revenue passenger mile) (cents)

17.50

17.44

0.3%

RASM (revenue per available seat mile) (cents)

14.84

14.48

2.5%

CASM (cost per available seat mile) (cents)

14.15

13.45

5.2%

Fuel costs per litre (cents)

73

64

14.1%

CASM, excluding fuel and employee profit share (cents)*

10.57

10.30

2.6%

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

Dividend declaration
On May 7, 2018, WestJet's Board of Directors declared a cash dividend of $0.14 per common voting share and variable voting share for the second quarter of 2018, to be paid on June 29, 2018, to shareholders of record on June 13, 2018. 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 our confidence that the strategic initiatives we are pursuing position us for continued profitable growth is forward-looking information within the meaning of applicable 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, 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, 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 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 months ended March 31, 2018 which is available under WestJet's profile on SEDAR at 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 consolidated financial statements and notes for the three months ended March 31, 2018, are available through the Internet in the Media and Investor Relations section of westjet.com or under WestJet's SEDAR profile at sedar.com.

Analyst conference call
WestJet will hold its quarterly analysts' conference call today, May 8, 2018, at 8 a.m. MT (10 a.m. ET). President and CEO Ed Sims and Executive Vice-President of Finance and CFO Harry Taylor will discuss WestJet's first quarter 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 westjet.com.

About WestJet
Together with WestJet's regional airline, WestJet Encore, we offer scheduled service to more than 100 destinations in North America, Central America, the Caribbean and Europe and to more than 175 destinations in over 20 countries through our airline partnerships. WestJet Vacations offers affordable, flexible vacations to more than 60 destinations and the choice of more than 800 hotels, resorts, condos and villas. Members of the WestJet Rewards program earn WestJet dollars on flights, vacation packages and more. Members use WestJet dollars towards the purchase of flights and vacations packages to any WestJet destination with no blackout periods, and have access to Member Exclusive fares offering deals to WestJet destinations throughout our network and those of our partner airlines.

WestJet is proud to be recognized as Best Airline in Canada and Travellers' Choice winner – North America for 2017 and 2018 in the TripAdvisor Travellers' Choice awards for Airlines. The airline was also named the Travellers' Choice Winner – Economy, North America, 2018. All awards are based on authentic reviews from the travelling public on TripAdvisor, the world's largest travel site. We are one of very few airlines globally that does not commercially overbook.

WestJet is publicly traded on the Toronto Stock Exchange (TSX) under the symbol WJA.

For more information about everything WestJet, please visit westjet.com.  

Recent recognition includes:
2018/2017 Best Airline in Canada and Travellers' Choice Winner Mid-Sized and Low Cost Airlines – North America(TripAdvisor Travellers' Choice awards for Airlines)
2018 Travellers' Choice Winner – Economy, North America (TripAdvisor Travellers' Choice awards for Airlines)
2017/2016 Canada's Most Trusted Airline (Gustavson School of Business at the University of Victoria)
2016 Canada's most reputable company for Corporate Social Responsibility (Reputation Institute)
2016/2015/2014/2013/2012 Ranked top three for Canadian Brands (Canadian Business Magazine)
2016/2015/2014/2013 WestJet RBC World Elite MasterCard ranked #1 in Canada (MoneySense magazine)

Connect with WestJet on Facebook at facebook.com/westjet
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Subscribe to WestJet on YouTube at youtube.com/westjet
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Read the WestJet blog at blog.westjet.com

Condensed Consolidated Statement of Earnings

For the three months ended March 31

(Stated in thousands of Canadian dollars, except per share amounts)

(Unaudited)




2018

2017(i)



Revenue:


Guest

1,109,307

1,031,420

Other

82,417

83,251

1,191,724

1,114,671

Operating expenses:


Aircraft fuel

281,151

235,516

Salaries and benefits

255,125

231,115

Rates and fees

168,930

162,263

Sales and marketing

119,579

102,586

Depreciation and amortization

107,897

97,623

Maintenance

54,921

66,948

Aircraft Leasing

37,484

44,341

Other

104,686

88,424

Employee profit share

6,384

7,027

1,136,157

1,035,843

Earnings from operations

55,567

78,828



Non-operating income (expense):


Finance income

6,710

4,199

Finance costs

(11,110)

(15,702)

Loss on foreign exchange

(55)

(283)

Gain on disposal of property and equipment

2,217

1,369

Gain (loss) on derivatives

65

(2,317)

(2,173)

(12,734)

Earnings before income tax

53,394

66,094



Income tax expense (recovery):


Current

7,824

10,741

Deferred

8,372

8,647

16,196

19,388

Net earnings

37,198

46,706



Earnings per share:




Basic

0.33

0.40

Diluted

0.32

0.40

(i)  

  Certain 2017 numbers have been restated for the adoption of IFRS 15.

Condensed Consolidated Statement of Financial Position

(Stated in thousands of Canadian dollars)

(Unaudited)


March 31

2018

December 31

2017(i)

Assets

Current assets:


Cash and cash equivalents

1,187,458

1,147,076

Marketable securities

230,290

226,090


Total cash, cash equivalents and marketable securities

1,417,748

1,373,166

Restricted cash

96,804

109,700

Accounts receivable

150,506

152,492

Prepaid expenses, deposits and other

124,665

138,676

Inventory

38,032

43,045

1,827,755

1,817,079

Non-current assets:


Property and equipment

4,627,897

4,567,504

Intangible assets

58,132

59,517

Other assets

81,278

78,584

Total assets

6,595,062

6,522,684



Liabilities and shareholders' equity

Current liabilities:


Accounts payable and accrued liabilities

559,391

546,505

Advance ticket sales

684,156

659,953

Deferred Rewards program

189,096

185,991

Non-refundable guest credits

64,284

58,575

Current portion of maintenance provisions

81,995

82,129

Current portion of long-term debt

154,289

153,149

1,733,211

1,686,302

Non-current liabilities:


Maintenance provisions

266,030

270,347

Long-term debt

1,890,910

1,895,898

Other liabilities

18,921

19,171

Deferred income tax

400,905

392,111

Total liabilities

4,309,977

4,263,829



Shareholders' equity:


Share capital

549,486

548,977

Equity reserves

100,872

97,514

Hedge reserves

(763)

(1,902)

Retained earnings

1,635,490

1,614,266

Total shareholders' equity

2,285,085

2,258,855

Total liabilities and shareholders' equity

6,595,062

6,522,684

(i)  

Certain 2017 numbers have been restated for the adoption of IFRS 15.

Condensed Consolidated Statement of Cash Flows

For the three months ended March 31 

(Stated in thousands of Canadian dollars)

(Unaudited)




2018

2017(i)



Operating activities:

Net earnings

37,198

46,706

Items not involving cash:


Depreciation and amortization

107,897

97,623

Change in maintenance provisions

12,554

35,312

Amortization of transaction costs

1,136

1,426

(Gain) loss on derivatives

(267)

4,528

Gain on disposal of property and equipment

(2,217)

(1,369)

Share-based payment expense

3,878

4,145

Deferred income tax expense

8,372

8,647

Unrealized foreign exchange (gain) loss

293

(2,392)

Change in non-cash working capital

83,683

59,699

Change in restricted cash

12,896

11,050

Change in other assets

(1,964)

3,020

Change in other liabilities

6,368

967

Purchase of shares pursuant to compensation plans

(15)

(179)

Maintenance provision settlements

(24,872)

(7,939)

244,940

261,244



Investing activities:

Aircraft additions

(149,222)

(155,122)

Aircraft disposals

4,310

2,185

Other property and equipment and intangible additions and disposals

(19,777)

(9,318)

Purchases of marketable securities

(1,169)

(99,747)

Changes in non-cash working capital

3,453

(18,464)

(162,405)

(280,466)



Financing activities:

Increase in long-term debt

20,555

41,708

Repayment of long-term debt

(37,623)

(38,507)

Dividends paid

(15,970)

(16,408)

Cash interest paid

(14,027)

(14,478)

Change in non-cash working capital

(2,319)

(1,566)

(49,384)

(29,251)



Cash flow from operating, investing and financing activities

33,151

(48,473)

Effect of foreign exchange on cash and cash equivalents

7,231

(721)

Net change in cash and cash equivalents

40,382

(49,194)



Cash and cash equivalents, beginning of period

1,147,076

1,520,822



Cash and cash equivalents, end of period

1,187,458

1,471,628



Supplemental disclosure of operating cash flows

Cash interest received

6,780

4,075

Cash taxes paid, net

(19,640)

(44,982)

(i)  

Certain 2017 numbers have been restated for the adoption of IFRS 15.

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 March 31

2018

2017(i)

Change

Operating expenses

1,136,157

1,035,843

100,314

Aircraft fuel expense

(281,151)

(235,516)

(45,635)

Employee profit share expense

(6,384)

(7,027)

643

Operating expenses, adjusted

848,622

793,300

55,322

ASMs

8,028,866,429

7,699,062,691

4.3%

CASM, excluding above items (cents)

10.57

10.30

2.6%

(i)  

Certain 2017 numbers have been restated for the adoption of IFRS 15.

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.



March 31

2018

March 31
2017(iv)

Change

Earnings before income taxes

385,241

369,795

15,446

Add:



Finance costs

49,119

59,615

(10,496)

Implicit interest in operating leases(i)

83,498

92,651

(9,153)

517,858

522,061

(4,203)

Invested capital:



Average long-term debt(ii)

2,045,485

1,766,361

279,124

Average shareholders' equity

2,214,999

2,097,329

117,670

Off-balance-sheet aircraft leases(iii)

1,192,830

1,323,593

(130,763)

5,453,314

5,187,283

266,031

Return on invested capital

9.5%

10.1%

   (0.6 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)

Off-balance-sheet aircraft leases are calculated by multiplying the trailing 12 months of aircraft leasing expense by 7.5. At March 31, 2018, the trailing 12 months of aircraft leasing expenses totaled $159,044 (March 31, 2017 – $176,479).

(iv)

Certain 2017 numbers have been restated for the adoption of IFRS 15.

SOURCE WESTJET, an Alberta Partnership