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Press release from PR Newswire

WestJet reports third quarter net earnings of $65 million

Tuesday, November 05, 2013

WestJet reports third quarter net earnings of $65 million

06:30 EST Tuesday, November 05, 2013

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 Year-to- date 2013 Year-to- date 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)
Segment guests 4,940,943 4,611,315 7.1% 13,927,538 13,109,328 6.2%
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.

Dividend declaration 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.

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 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.

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 Follow WestJet on Twitter at www.twitter.com/westjet Subscribe to WestJet on YouTube at www.youtube.com/westjet 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 September 30   Nine months ended September 30
    2013   2012   2013   2012
                 
Revenue:                
  Guest   853,164   806,964   2,501,170   2,349,742
  Other   71,680   59,573   234,610   217,027
    924,844   866,537   2,735,780   2,566,769
Expenses:                
  Aircraft fuel   266,668   241,837   778,920   746,571
  Airport operations   117,480   106,900   343,527   315,016
  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
  Inflight   44,824   40,036   140,117   120,249
  Aircraft leasing   41,791   40,838   133,184   129,683
  Maintenance   44,248   38,969   124,198   118,816
  Employee profit share   11,969   16,161   39,114   34,946
    825,842   758,540   2,437,945   2,282,649
Earnings from operations   99,002   107,997   297,835   284,120
                 
Non-operating income (expense):                
  Finance income   4,144   4,587   13,326   13,418
  Finance costs   (10,921)   (12,269)   (31,882)   (37,264)
  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)
    (8,115)   (7,215)   (19,923)   (29,434)
Earnings before income tax   90,887   100,782   277,912   254,686
                 
Income tax expense (recovery):                
  Current   32,357   16,740   94,805   57,576
  Deferred   (6,577)   13,394   (17,808)   15,662
    25,780   30,134   76,997   73,238
Net earnings   65,107   70,648   200,915   181,448
                 
Earnings per share:                
  Basic   0.50   0.53   1.53   1.34
  Diluted   0.50   0.52   1.51   1.33
                   

         
Condensed Consolidated Statement of Financial Position        
(Stated in thousands of Canadian dollars)        
(Unaudited)        
         
    September 30, 2013   December 31, 2012
         
Assets        
Current assets:        
  Cash and cash equivalents   1,232,963   1,408,199
  Restricted cash   56,833   51,623
  Accounts receivable   41,535   37,576
  Prepaid expenses, deposits and other   105,315   101,802
  Inventory   29,764   35,595
    1,466,410   1,634,795
Non-current assets:        
  Property and equipment   2,359,363   1,985,599
  Intangible assets   55,905   50,808
  Other assets   71,297   75,413
Total assets   3,952,975   3,746,615
         
Liabilities and shareholders' equity        
Current liabilities:        
  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
    1,298,182   1,187,853
Non-current liabilities:        
  Maintenance provisions   136,364   145,656
  Long-term debt   607,924   574,139
  Other liabilities   11,632   9,914
  Deferred income tax   339,908   356,748
Total liabilities   2,394,010   2,274,310
         
Shareholders' equity:        
  Share capital   606,445   614,899
  Equity reserves   67,762   69,856
  Hedge reserves   (1,944)   (5,746)
  Retained earnings   886,702   793,296
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)            
(Unaudited)            
             
    Three months ended September 30   Nine months ended September 30
    2013   2012   2013   2012
                 
Operating activities:                
Net earnings   65,107   70,648   200,915   181,448
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)
    187,107   290,322   448,134   628,946
                 
Investing activities:                
Aircraft additions   (190,215)   (16,991)   (472,560)   (186,445)
Other property and equipment and intangible additions   (19,923)   (8,130)   (59,159)   (41,220)
    (210,138)   (25,121)   (531,719)   (227,665)
                 
Financing activities:                
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)
Shares repurchased   (46,184)   (10,123)   (82,797)   (78,872)
Dividends paid   (12,935)   (10,699)   (39,327)   (26,972)
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)
    29,838   (74,452)   (101,595)   (191,979)
                 
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) (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 September 30   Nine months ended September 30
($ in thousands) 2013   2012   Change   2013   2012   Change
Operating expenses 825,842   758,540   67,302   2,437,945   2,282,649   155,296
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
ASMs 6,108,626,819   5,497,528,681   11.1%   18,028,888,568   16,576,116,108   8.8%
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) (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) September 30, 2013   December 31, 2012   Change
Earnings before income taxes 363,454   340,229   23,225
Add:          
  Finance costs 43,518   48,900   (5,382)
  Implicit interest in operating leases(i) 92,879   91,041   1,838
  499,851   480,170   19,681
Invested capital:          
  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
  3,616,146   3,507,356   108,790
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).

 

SOURCE WestJet

For further information: <p> WestJet Media Relations<br/> 1-888-WJ-4-NEWS (1-888-954-6397)<br/> Email: <a href="mailto:media@westjet.com">media@westjet.com</a> </p> <p> WestJet Investor Relations<br/> 1-877-493-7853<br/> Email: <a href="mailto:investor_relations@westjet.com">investor_relations@westjet.com</a> </p> <p> Website: <a href="http://www.westjet.com">www.westjet.com</a> </p>

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