WestJet reports record third quarter net earnings

Airline flies a record number of guests and achieves its 46th consecutive profitable quarter, reporting record third quarter net earnings of $116.0 million, up 13.9 per cent year over year

CALGARY, Nov. 1, 2016 /CNW/ - WestJet (TSX: WJA) today announced its third quarter results for 2016, with net earnings of $116.0 million, or $0.97 per fully diluted share, as compared with net earnings of $101.8 million, or $0.82 per fully diluted share reported in the third quarter of 2015. WestJet achieved its 46th consecutive quarter of profitability and flew a record 5.9 million guests. Based on the trailing twelve months, the airline recorded a return on invested capital of 11.6 per cent, up 0.2 percentage points from the 11.4 per cent reported in the previous quarter.

"I am very pleased with how our robust business model has, even during an economic downturn in Alberta, delivered not only record third quarter net earnings, but also achieved our second best ever quarterly net earnings and earnings per share in our twenty-year history. This combined with our current forward outlook, gives us confidence in achieving positive year-over-year RASM growth starting in the first quarter of 2017, and demonstrates that our strategic plan positions us well for continued profitable growth," said WestJet President and CEO Gregg Saretsky. "I want to thank our almost 12,000 WestJetters for their continued dedication to safely providing our guests with WestJet's award-winning brand of friendly caring service."

Operating highlights (stated in Canadian dollars)


Q3 2016

Q3 2015

Change

Year-to-date 2016

Year-to-date 2015

Change

Net earnings (millions)

$116.0

$101.8

13.9%

$240.3

$304.1

(21.0%)

Diluted earnings per share

$0.97

$0.82

18.3%

$1.98

$2.40

(17.5%)

Total revenue (millions)

$1,124.3

$1,045.1

7.6%

$3,105.1

$3,070.6

1.1%

Operating margin

15.1%

15.3%

(0.2 pts)

11.4%

14.9%

(3.5 pts)

ASMs (available seat miles) (billions)

7.635

6.904

10.6%

22.045

20.377

8.2%

RPMs (revenue passenger miles) (billions)

6.414

5.647

13.6%

18.152

16.412

10.6%

Load factor

84.0%

81.8%

2.2 pts

82.3%

80.5%

1.8 pts

Segment guests

5,900,967

5,517,289

7.0%

16,527,411

15,388,356

7.4%

Yield (revenue per revenue passenger mile) (cents)

17.53

18.51

(5.3%)

17.11

18.71

(8.6%)

RASM (revenue per available seat mile) (cents)

14.73

15.14

(2.7%)

14.09

15.07

(6.5%)

CASM (cost per available seat mile) (cents)

12.50

12.83

(2.6%)

12.48

12.83

(2.7%)

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

9.38

9.35

0.3%

9.72

9.27

4.9%

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

 

Dividend declaration
On October 31, 2016, WestJet's Board of Directors declared a cash dividend of $0.14 per common voting share and variable voting share for the fourth quarter of 2016, to be paid on December 30, 2016, to shareholders of record on December 14, 2016. 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 current forward outlook giving us confidence in achieving positive year-over-year RASM growth starting in the first quarter of 2017 and that our strategic plan positions us well 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 and nine months ended September 30, 2016, 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 nine months ended September 30, 2016, 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, November 1, 2016, at 8 a.m. MDT (10 a.m. EDT). President and CEO Gregg Saretsky and Executive Vice-President of Finance and CFO Harry Taylor will discuss WestJet's third 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
We are proud to be Canada's most trusted airline, powered by an award-winning culture of care and recognized as one of the country's top employers. We offer scheduled service to more than 100 destinations in North America, Central America, the Caribbean and Europe. Through our regional airline, WestJet Encore, and with partnerships with airlines representing every major region of the world, we offer our guests more than 150 destinations in more than 20 countries. Leveraging WestJet's extensive network, flight schedule and remarkable guest experience, WestJet Vacations delivers affordable, flexible travel experiences with a variety of accommodation options for every guest. Members of our WestJet Rewards program earn WestJet dollars on flights, vacation packages and more. Our members use WestJet dollars towards the purchase of WestJet flights and vacations packages on any day, at any time, to any WestJet destination with no blackout periods  ̶  even on seat sales. For more information about everything WestJet, please visit westjet.com. 

Recent recognition includes:
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)
2015/2011/2010/2008/2007/2006/2005 Canada's Most Admired Corporate Culture (Waterstone Human Capital)
2015 Best Employers in Canada (Aon Hewitt)

Connect with WestJet on Facebook at facebook.com/westjet
Follow WestJet on Twitter at twitter.com/westjet
Subscribe to WestJet on YouTube at 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


2016

2015

2016

2015






Revenue:






Guest

988,329

928,821

2,688,952

2,714,676


Other

136,013

116,234

416,148

355,874


1,124,342

1,045,055

3,105,100

3,070,550

Operating expenses:






Salaries and benefits

208,804

197,811

649,376

603,404


Aircraft fuel

206,381

206,924

555,378

632,317


Rates and fees

160,586

150,505

466,802

423,212


Sales and marketing

92,030

84,019

265,225

241,118


Depreciation and amortization

88,171

69,739

256,761

189,684


Maintenance

50,958

44,659

154,241

117,145


Aircraft leasing

45,178

40,572

136,458

132,208


Other

70,522

58,334

213,139

182,300


Employee profit share

31,579

32,974

52,889

92,096


954,209

885,537

2,750,269

2,613,484

Earnings from operations

170,133

159,518

354,831

457,066






Non-operating income (expense):






Finance income

4,579

3,550

11,873

12,020


Finance cost

(15,739)

(13,314)

(33,694)

(40,712)


Gain (loss) on foreign exchange

1,327

(549)

7,621

(236)


Gain (loss) on disposal of property and equipment

45

(2,766)

(2,817)

(364)


Gain (loss) on derivatives

2,218

(144)

658

(144)


(7,570)

(13,223)

(16,359)

(29,436)

Earnings before income tax

162,563

146,295

338,472

427,630






Income tax expense (recovery):






Current

46,049

39,645

100,479

106,066


Deferred

543

4,847

(2,276)

17,470


46,592

44,492

98,203

123,536

Net earnings

115,971

101,803

240,269

304,094






Earnings per share:






Basic

0.97

0.82

1.98

2.42


Diluted

0.97

0.82

1.98

2.40

 

Condensed Consolidated Statement of Financial Position
(Stated in thousands of Canadian dollars)
(Unaudited)


September 30

2016

December 31

2015

Assets



Current assets:




Cash and cash equivalents

1,773,250

1,183,797


Restricted cash

81,486

68,573


Accounts receivable

122,589

82,136


Prepaid expenses, deposits and other

91,529

131,747


Inventory

31,412

36,018


2,100,266

1,502,271

Non-current assets:




Property and equipment

3,874,320

3,473,262


Intangible assets

63,139

63,549


Other assets

86,843

89,942

Total assets

6,124,568

5,129,024




Liabilities and shareholders' equity



Current liabilities:




Accounts payable and accrued liabilities

533,341

545,438


Advance ticket sales

664,508

620,216


Deferred Rewards program

139,164

117,959


Non-refundable guest credits

40,221

40,921


Current portion of maintenance provisions

90,148

85,819


Current portion of long-term debt

140,913

141,572


1,608,295

1,551,925

Non-current liabilities:




Maintenance provisions

247,789

243,214


Long-term debt

1,884,484

1,033,261


Other liabilities

15,274

13,603


Deferred income tax

318,310

327,028

Total liabilities

4,074,152

3,169,031




Shareholders' equity:




Share capital

563,665

582,796


Equity reserves

89,579

82,713


Hedge reserves

(14,857)

1,903


Retained earnings

1,412,029

1,292,581

Total shareholders' equity

2,050,416

1,959,993




Total liabilities and shareholders' equity

6,124,568

5,129,024

 

Condensed Consolidated Statement of Cash Flows
(Stated in thousands of Canadian dollars)
(Unaudited)



Three months ended

September 30

Nine months ended

September 30


2016

2015

2016

2015






Operating activities:





Net earnings

115,971

101,803

240,269

304,094

Items not involving cash:






Depreciation and amortization

88,171

69,739

256,761

189,684


Change in maintenance provisions

18,293

19,196

60,378

49,741


Amortization of transaction costs

1,913

1,099

4,075

3,410


Amortization of hedge settlements

187

350

754

1,050


(Gain) loss on derivatives

(2,005)

144

(444)

144


(Gain) loss on disposal of property and equipment

(45)

2,766

2,817

364


Share-based payment expense

2,878

4,125

14,248

12,875


Deferred income tax expense (recovery)

544

4,847

(2,276)

17,470


Unrealized foreign exchange (gain)/loss

3,491

(9,772)

(2,692)

(21,541)

Change in non-cash working capital

94,484

161,447

117,893

212,392

Change in restricted cash

(35,979)

(14,697)

(12,913)

835

Change in other assets

197

(3,240)

6,996

(9,132)

Change in other liabilities

(65)

(238)

(1,042)

45

Purchase of shares pursuant to compensation plans

(182)

(601)

(6,565)

(13,672)

Maintenance provision settlements

(10,816)

(5,584)

(34,452)

(28,438)


277,037

331,384

643,807

719,321






Investing activities:





Aircraft additions

(140,568)

(126,045)

(608,815)

(570,208)

Aircraft disposals

3,992

565

4,065

83,216

Other property and equipment and intangible additions

(18,817)

(34,374)

(55,476)

(66,247)

Change in non-cash working capital

4,808

9,845

(24,419)

63,953


(150,585)

(150,009)

(684,645)

(489,286)






Financing activities:





Increase in long-term debt

41,207

17,510

955,998

135,380

Repayment of long-term debt

(37,385)

(43,894)

(122,489)

(129,391)

Shares repurchased

(23,318)

(47,897)

(90,251)

(119,803)

Dividends paid

(16,645)

(17,258)

(50,559)

(52,465)

Issuance of shares pursuant to compensation plans

-

-

40

36

Cash interest paid

(14,779)

(15,540)

(39,494)

(39,369)

Change in non-cash working capital

(818)

(3,708)

(11,178)

(3,734)


(51,738)

(110,787)

642,067

(209,346)






Cash flow from operating, investing and financing activities

74,714

70,588

601,229

20,689

Effect of foreign exchange on cash and cash equivalents

288

19,539

(11,776)

40,919

Net change in cash and cash equivalents

75,002

90,127

589,453

61,608






Cash and cash equivalents, beginning of period

1,698,248

1,329,552

1,183,797

1,358,071






Cash and cash equivalents, end of period

1,773,250

1,419,679

1,773,250

1,419,679



Supplemental disclosure of operating cash flows





Cash interest received

4,590

3,619

11,689

12,772

Cash taxes paid, net

(26,876)

(27,781)

(101,348)

(89,085)

 

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)

2016

2015

Change

2016

2015

Change

Operating expenses

954,209

885,537

68,672

2,750,269

2,613,484

136,785

Aircraft fuel expense

(206,381)

(206,924)

543

(555,378)

(632,317)

76,939

Employee profit share expense

(31,579)

(32,974)

1,395

(52,889)

(92,096)

39,207

Operating expenses, adjusted

716,249

645,639

70,610

2,142,002

1,889,071

252,931

ASMs

7,635,077,139

6,904,193,981

10.6%

22,045,058,760

20,377,438,384

8.2%

CASM, excluding above items (cents)

9.38

9.35

0.3%

9.72

9.27

4.9%

 

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.






September 30

2016

December 31

2015

Change

Earnings before income taxes

431,099

520,258

(89,159)

Add:





Finance costs

46,646

53,665

(7,019)


Implicit interest in operating leases(i)

93,628

91,397

2,231


571,373

665,320

(93,947)

Invested capital:





Average long-term debt(ii)

1,611,679

1,181,748

429,931


Average shareholders' equity

1,980,508

1,868,748

111,760


Off-balance-sheet aircraft leases(iii)

1,337,543

1,305,668

31,875


4,929,730

4,356,164

573,566

Return on invested capital

11.6%

15.3%

(3.7 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 September 30, 2016, the trailing 12 months of aircraft leasing costs totaled $178,339 (December 31, 2015 – $174,089).

 

SOURCE WestJet

For further information: WestJet Media Relations, 1-888-WJ-4-NEWS (1-888-954-6397), Email: media@westjet.com, Website: www.westjet.com; WestJet Investor Relations, 1-877-493-7853, Email: investor_relations@westjet.com

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