WestJet reports second quarter net loss of $20.8 million

News provided by

WESTJET, an Alberta Partnership

Jul 31, 2018, 06:30 ET

CALGARY, July 31, 2018 /PRNewswire/ - WestJet (TSX: WJA) today announced its second quarter results for 2018, with a net loss of $20.8 million, or $0.18 per fully diluted share. This result compares with net earnings of $48.6 million, or $0.41 per fully diluted share reported in the second quarter of 2017. Based on the trailing twelve months, the airline achieved a return on invested capital of 7.7 per cent, down from 9.8 per cent in the second quarter of 2017. Year-to-date, WestJet recorded net earnings of $16.4 million, or $0.14 per fully diluted share.

"The impact of the threat of industrial action, in combination with the dramatic increase in fuel price and competitive capacity provided particularly significant challenges in the second quarter." Ed Sims, WestJet President and CEO. "While we are disappointed with these results, all WestJetters can take great satisfaction from the successful delivery of key strategic initiatives like Swoop and WestJet Link."

Operating highlights (stated in Canadian dollars)

Q2 2018

Q2 2017

Change

Net earnings (loss) (millions)

($20.8)

$48.6

(142.7%)

Diluted earnings (loss) per share

($0.18)

$0.41

(143.9%)

Total revenue (millions)

$1,087.6

$1,058.3

2.8%

Operating margin

(2.5%)

7.4%

(9.9 pts.)

ASMs (available seat miles) (billions)

7.922

7.564

4.7%

RPMs (revenue passenger miles) (billions)

6.646

6.260

6.2%

Load factor

83.9%

82.8%

1.1 pts.

Segment guests

6,276,226

5,908,876

6.2%

Yield (revenue per revenue passenger mile) (cents)

16.36

16.91

(3.2%)

RASM (revenue per available seat mile) (cents)

13.73

13.99

(1.9%)

CASM (cost per available seat mile) (cents)

14.08

12.95

8.7%

Fuel costs per litre (cents)

81

62

30.6%

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

10.30

9.88

4.3%

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

Dividend declaration
On July 30, 2018, WestJet's Board of Directors declared a cash dividend of $0.14 per common voting share and variable voting share for the third quarter of 2018, to be paid on September 28, 2018, to shareholders of record on September 12, 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 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 and six months ended June 30, 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 and six months ended June 30, 2018, are available through the Internet in the 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, July 31, 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 second 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 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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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

2018

2017(i)

2018

2017(i)



Revenue:




Guest

1,039,317

1,003,168

2,148,624

2,034,588

Other

48,256

55,114

130,673

138,365

1,087,573

1,058,282

2,279,297

2,172,953

Operating expenses:




Aircraft fuel

302,261

224,935

583,412

460,451

Salaries and benefits

247,659

228,810

502,784

459,925

Rates and fees

175,624

163,863

344,554

326,126

Depreciation and amortization

108,599

99,342

216,496

196,965

Sales and marketing

98,871

91,347

218,450

193,933

Maintenance

52,992

46,553

107,913

113,501

Aircraft leasing

36,889

40,565

74,373

84,907

Other

95,509

76,736

200,195

165,160

Employee profit share

(3,257)

7,755

3,127

14,782

1,115,147

979,906

2,251,304

2,015,750

Earnings (loss) from operations

(27,574)

78,376

27,993

157,203



Non-operating income (expense):




Finance income

7,191

4,448

13,901

8,647

Finance cost

(13,284)

(13,154)

(24,394)

(28,855)

Gain (loss) on foreign exchange

4,707

(4,230)

4,652

(4,513)

Gain on disposal of property and equipment

595

2,549

2,812

3,917

Gain (loss) on derivatives

(30)

353

35

(1,964)

(821)

(10,034)

(2,994)

(22,768)

Earnings (loss) before income tax

(28,395)

68,342

24,999

134,435



Income tax expense (recovery):




Current

(7,597)

9,311

227

20,052

Deferred

(40)

10,420

8,332

19,067

(7,637)

19,731

8,559

39,119

Net earnings (loss)

(20,758)

48,611

16,440

95,316



Earnings (loss) per share:






Basic

(0.18)

0.42

0.14

0.81

Diluted

(0.18)

0.41

0.14

0.81

(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)

June 30

2018

December 31

2017(i)

Assets

Current assets:


Cash and cash equivalents

1,054,683

1,147,076

Marketable securities

216,242

226,090

Total cash, cash equivalents and marketable securities

1,270,925

1,373,166

Restricted cash

71,157

109,700

Accounts receivable

164,874

152,492

Prepaid expenses, deposits and other

114,811

138,676

Inventory

39,830

43,045

1,661,597

1,817,079

Non-current assets:


Property and equipment

4,711,758

4,567,504

Intangible assets

56,143

59,517

Other assets

88,055

78,584

Total assets

6,517,553

6,522,684

Liabilities and shareholders' equity

Current liabilities:


Accounts payable and accrued liabilities

434,295

546,505

Advance ticket sales

739,858

659,953

Deferred Rewards program

205,691

185,991

Non-refundable guest credits

64,897

58,575

Current portion of maintenance provisions

106,082

82,129

Current portion of long-term debt

153,718

153,149

1,704,541

1,686,302

Non-current liabilities:


Maintenance provisions

261,116

270,347

Long-term debt

1,883,372

1,895,898

Other liabilities

16,528

19,171

Deferred income tax

401,856

392,111

Total liabilities

4,267,413

4,263,829

Shareholders' equity:


Share capital

548,961

548,977

Equity reserves

102,288

97,514

Hedge reserves

1,915

(1,902)

Retained earnings

1,596,976

1,614,266

Total shareholders' equity

2,250,140

2,258,855

Total liabilities and shareholders' equity

6,517,553

6,522,684

(i)

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

Condensed Consolidated Statement of Cash Flows

(Stated in thousands of Canadian dollars)

(Unaudited)

Three months ended

June 30

Six months ended

June 30

2018

2017(i)

2018

2017(i)



Operating activities:



Net earnings (loss)

(20,758)

48,611

16,440

95,316

Items not involving cash:




Depreciation and amortization

108,599

99,342

216,496

196,965

Change in maintenance provisions

12,557

8,658

25,111

43,970

Amortization of transaction costs

1,132

1,128

2,268

2,554

(Gain) loss on derivatives

33

(372)

(234)

4,156

Gain on disposal of property and equipment

(595)

(2,549)

(2,812)

(3,917)

Share-based payment expense

4,513

5,704

8,391

9,849

Deferred income tax expense (recovery)

(40)

10,420

8,332

19,067

Unrealized foreign exchange (gain) loss

(5,303)

2,968

(5,010)

576

Change in non-cash working capital

(34,586)

19,441

49,097

79,141

Change in restricted cash

25,647

18,950

38,543

30,000

Change in other assets

(299)

(3,716)

(2,263)

(696)

Change in other liabilities

(50)

(72)

6,318

895

Purchase of shares pursuant to compensation plans

(3,021)

(3,338)

(3,036)

(3,517)

Maintenance provision settlements

(102)

(23,287)

(24,974)

(31,227)

87,727

181,888

332,667

443,132



Investing activities:



Aircraft additions

(187,559)

(336,874)

(336,781)

(491,996)

Aircraft disposals

565

5,656

4,875

7,841

Other property and equipment and intangible additions

(2,882)

(14,313)

(22,659)

(23,631)

Purchase of marketable securities

(32,739)

(50,271)

(33,908)

(150,018)

Maturities of marketable securities

50,000

-

50,000

-

Change in non-cash working capital

4,402

11,833

7,855

(6,631)

(168,213)

(383,969)

(330,618)

(664,435)



Financing activities:



Increase in long-term debt

20,576

84,245

41,131

125,953

Repayment of long-term debt

(39,719)

(39,375)

(77,342)

(77,882)

Shares repurchased

(2,386)

(4,214)

(2,386)

(4,214)

Dividends paid

(15,970)

(16,387)

(31,940)

(32,795)

Cash interest paid

(16,465)

(16,889)

(30,492)

(31,367)

Change in non-cash working capital

(4,725)

(4,827)

(7,044)

(6,393)

(58,689)

2,553

(108,073)

(26,698)



Cash flow from operating, investing and financing activities

(139,175)

(199,528)

(106,024)

(248,001)

Effect of foreign exchange on cash and cash equivalents

6,400

(6,490)

13,631

(7,211)

Net change in cash and cash equivalents

(132,775)

(206,018)

(92,393)

(255,212)



Cash and cash equivalents, beginning of period

1,187,458

1,471,628

1,147,076

1,520,822



Cash and cash equivalents, end of period

1,054,683

1,265,610

1,054,683

1,265,610



Supplemental disclosure of operating cash flows



Cash interest received

7,211

4,239

13,991

8,314

Cash taxes paid, net

(14,891)

(31,571)

(34,531)

(76,553)


(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 June 30

Six months ended June 30

($ in thousands)

2018

2017(i)

Change

2018

2017(i)

Change

Operating expenses

1,115,147

979,906

135,241

2,251,304

2,015,750

235,554

Aircraft fuel expense

(302,261)

(224,935)

(77,326)

(583,412)

(460,451)

(122,961)

Employee profit share expense

3,257

(7,755)

11,012

(3,127)

(14,782)

11,655

Operating expenses, adjusted

816,143

747,216

68,927

1,664,765

1,540,517

124,248

ASMs

7,921,730,038

7,563,808,125

4.7%

15,950,596,467

15,262,870,816

4.5%

CASM, excluding above items (cents)

10.30

9.88

4.3%

10.44

10.09

3.5%

(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.



June 30

2018

June 30 
2017(iv)

Change

Earnings before income taxes (trailing twelve months)

288,503

381,955

(93,452)

Add:



Finance costs

49,248

59,975

(10,727)

Implicit interest in operating leases(i)

81,569

90,337

(8,768)

Return

419,320

532,267

(112,947)

Invested capital:



Average long-term debt(ii)

2,057,588

2,044,618

12,970

Average shareholders' equity

2,213,952

2,074,289

139,663

Off-balance-sheet aircraft leases(iii)

1,165,268

1,290,533

(125,265)

Invested capital

5,436,808

5,409,440

27,368

Return on invested capital

7.7%

9.8%

(2.1pts.)

(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)

Off-balance-sheet aircraft leases are calculated by multiplying the trailing 12 months of aircraft leasing expense by 7.5. At June 30, 2018, the trailing 12 months of aircraft leasing costs totaled $155,369 (June 30, 2017 – $172,071).

(iv)

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

SOURCE WESTJET, an Alberta Partnership