WestJet reports second quarter net earnings

Airline achieves 45th consecutive profitable quarter and flies a record number of guests
Completes a US$400 million investment grade unsecured notes offering

CALGARY, July 26, 2016 /CNW/ - WestJet (TSX: WJA) today announced its second quarter results for 2016, with net earnings of $36.7 million, or $0.30 per fully diluted share, as compared with the net earnings of $61.6 million, or $0.49 per fully diluted share reported in the second quarter of 2015. WestJet achieved its 45th consecutive quarter of profitability and flew a record 5.3 million guests. Based on the trailing twelve months, the airline recorded a return on invested capital of 11.4 per cent, down 1.4 percentage points from the 12.8 per cent reported in the previous quarter.

"Despite the continuing economic weakness in Alberta, I am very pleased with the positive momentum we are seeing in our business including strengthening topline revenue growth. Our fundamentals remain strong, as highlighted by our recent US$400 million investment grade unsecured notes offering, and we are confident that the strategic initiatives we are pursuing position us for continued profitable growth," said WestJet President and CEO Gregg Saretsky. "My thanks go out to our almost 12,000 WestJetters for their continued energy and efforts in delivering our brand of friendly caring service to our guests."

Operating highlights (stated in Canadian dollars)


Q2 2016

Q2 2015

Change

Year-to-
date 2016

Year-to-
date 2015

Change

Net earnings (millions)

$36.7

$61.6

(40.5%)

$124.3

$202.3

(38.6%)

Diluted earnings per share

$0.30

$0.49

(38.8%)

$1.02

$1.58

(35.4%)

Total revenue (millions)

$949.3

$942.0

0.8%

$1,980.8

$2,025.5

(2.2%)

Operating margin

6.5%

10.7%

(4.2 pts)

9.3%

14.7%

(5.4 pts)

ASMs (available seat miles) (billions)

7.116

6.655

6.9%

14.410

13.473

7.0%

RPMs (revenue passenger miles) (billions)

5.749

5.199

10.6%

11.737

10.765

9.0%

Load factor

80.8%

78.1%

2.7 pts

81.5%

79.9%

1.6 pts

Segment guests

5,301,338

4,956,488

7.0%

10,626,444

9,871,067

7.7%

Yield (revenue per revenue passenger mile) (cents)

16.51

18.12

(8.9%)

16.88

18.82

(10.3%)

RASM (revenue per available seat mile) (cents)

13.34

14.16

(5.8%)

13.75

15.03

(8.5%)

CASM (cost per available seat mile) (cents)

12.48

12.65

(1.3%)

12.46

12.83

(2.9%)

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

9.93

9.28

7.0%

9.89

9.23

7.2%

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

 

Dividend declaration
On July 25, 2016, 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 2016, to be paid on September 30, 2016, to shareholders of record on September 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 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 and six months ended June 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 six months ended June 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, July 26, 2016, at 9 a.m. MDT (11 a.m. EDT). President and CEO Gregg Saretsky 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 Media and Investor Relations section of westjet.com.

About WestJet
We are proud to be Canada's highest-rated airline for customer service, powered by an award-winning culture of care and recognized as one of the country's top employers. We offer scheduled service to 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:
2015/2011/2010/2008/2007/2006/2005 Canada's Most Admired Corporate Culture (Waterstone Human Capital)
2015 Best Employers in Canada (Aon Hewitt)
2015/2014/2013 WestJet RBC World Elite MasterCard ranked #1 in Canada (MoneySense magazine)
2014/2013 WestJet RBC World Elite MasterCard ranked #1 in the Canada's Choice ranking (RewardsCanada.ca)
2014 Interbrand Canada's Best Canadian Brands (Rank #20)
2014 Brands of the Year (Strategy magazine)
2014 Canada's Most Preferred Airline (Ipsos)
2014 Value Airline of the Year (Air Transport World magazine)
2014/2013/2012 Canada's Most Attractive Employer (Randstad)
2014/2013/2012/2011 Highest equity score: airline, vacation package supplier brands (Harris/Decima EquiTrend Study)

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

June 30

Six months ended

June 30


2016

2015

2016

2015






Revenue:






Guest

814,402

828,909

1,700,622

1,785,855


Other

134,911

113,089

280,136

239,640


949,313

941,998

1,980,758

2,025,495

Operating expenses:






Salaries and benefits

218,250

202,513

440,573

405,594


Aircraft fuel

182,583

214,948

348,998

425,393


Rates and fees

152,470

138,516

306,214

272,706


Sales and marketing

84,118

74,376

173,195

157,099


Depreciation and amortization

86,821

62,766

168,590

119,945


Maintenance

50,345

37,009

103,283

72,486


Aircraft leasing

44,973

43,981

91,280

91,636


Other

69,519

58,142

142,617

123,966


Employee profit share

(1,192)

9,359

21,310

59,122


887,887

841,610

1,796,060

1,727,947

Earnings from operations

61,426

100,388

184,698

297,548






Non-operating income (expense):






Finance income

3,547

4,251

7,294

8,470


Finance cost

(12,793)

(13,477)

(17,955)

(27,398)


Gain (loss) on foreign exchange

1,574

940

6,295

313


Loss on disposal of property and equipment

(1,782)

(3,216)

(2,862)

2,402


Loss on derivatives

(249)

-

(1,561)

-


(9,703)

(11,502)

(8,789)

(16,213)

Earnings before income tax

51,723

88,886

175,909

281,335






Income tax expense (recovery):






Current

14,945

26,845

54,430

66,421


Deferred

124

487

(2,820)

12,623


15,069

27,332

51,610

79,044

Net earnings

36,654

61,554

124,299

202,291






Earnings per share:






Basic

0.30

0.49

1.02

1.60


Diluted

0.30

0.49

1.02

1.58


 

 

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





June 30

2016

December 31

2015

Assets



Current assets:




Cash and cash equivalents

1,698,248

1,183,797


Restricted cash

45,507

68,573


Accounts receivable

113,642

82,136


Prepaid expenses, deposits and other

91,553

131,747


Inventory

32,684

36,018


1,981,634

1,502,271

Non-current assets:




Property and equipment

3,808,352

3,473,262


Intangible assets

61,840

63,549


Other assets

81,301

89,942

Total assets

5,933,127

5,129,024




Liabilities and shareholders' equity



Current liabilities:




Accounts payable and accrued liabilities

420,750

545,438


Advance ticket sales

695,799

620,216


Deferred Rewards program

132,812

117,959


Non-refundable guest credits

42,157

40,921


Current portion of maintenance provisions

91,083

85,819


Current portion of long-term debt

140,558

141,572


1,523,159

1,551,925

Non-current liabilities:




Maintenance provisions

234,480

243,214


Long-term debt

1,870,591

1,033,261


Other liabilities

16,580

13,603


Deferred income tax

317,504

327,028

Total liabilities

3,962,314

3,169,031




Shareholders' equity:




Share capital

567,979

582,796


Equity reserves

87,265

82,713


Hedge reserves

(15,757)

1,903


Retained earnings

1,331,326

1,292,581

Total shareholders' equity

1,970,813

1,959,993




Total liabilities and shareholders' equity

5,933,127

5,129,024

 

 

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






Three months ended

June 30

Six months ended

June 30


2016

2015

2016

2015






Operating activities:





Net earnings

36,654

61,554

124,299

202,291

Items not involving cash:






Depreciation and amortization

86,821

62,766

168,590

119,945


Change in maintenance provisions

19,760

14,300

42,085

30,545


Amortization of transaction costs

929

1,091

2,162

2,311


Amortization of hedge settlements

247

350

567

700


Loss on derivatives

249

-

1,561

-


(Gain) loss on disposal of property and equipment

1,782

3,216

2,862

(2,402)


Share-based payment expense

6,958

5,250

11,370

8,750


Deferred income tax expense (recovery)

124

487

(2,820)

12,623


Unrealized foreign exchange gain

(5,276)

(4,417)

(6,183)

(11,769)

Change in non-cash working capital

9,302

(12,874)

23,409

50,945

Change in restricted cash

17,215

11,487

23,066

15,532

Change in other assets

(321)

3,313

6,799

(5,892)

Change in other liabilities

(258)

469

(977)

283

Purchase of shares pursuant to compensation plans

(6,237)

(5,109)

(6,383)

(13,071)

Maintenance provision settlements

(23,275)

(11,749)

(23,637)

(22,854)


144,674

130,134

366,770

387,937






Investing activities:





Aircraft additions

(256,701)

(234,708)

(468,247)

(444,163)

Aircraft disposals

(130)

35,217

73

82,651

Other property and equipment and intangible additions

(19,260)

(16,226)

(36,659)

(31,873)

Change in non-cash working capital

(24,264)

48,992

(29,227)

54,108


(300,355)

(166,725)

(534,060)

(339,277)






Financing activities:





Increase in long-term debt

562,096

51,546

914,791

117,870

Repayment of long-term debt

(43,492)

(43,011)

(85,104)

(85,497)

Shares repurchased

(52,968)

(27,601)

(66,933)

(71,906)

Dividends paid

(16,782)

(17,535)

(33,914)

(35,207)

Issuance of shares pursuant to compensation plans

40

36

40

36

Cash interest paid

(8,361)

(8,490)

(24,715)

(23,829)

Change in non-cash working capital

2,764

3,344

(10,360)

(26)


443,297

(41,711)

693,805

(98,559)






Cash flow from operating, investing and financing activities

287,616

(78,302)

526,515

(49,899)

Effect of foreign exchange on cash and cash equivalents

3,722

2,515

(12,064)

21,380

Net change in cash and cash equivalents

291,338

(75,787)

514,451

(28,519)






Cash and cash equivalents, beginning of period

1,406,910

1,405,339

1,183,797

1,358,071






Cash and cash equivalents, end of period

1,698,248

1,329,552

1,698,248

1,329,552






Supplemental disclosure of operating cash flows





Cash interest received

3,520

4,511

7,099

9,153

Cash taxes paid, net

(29,533)

(30,032)

(74,472)

(61,304)

 

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)

2016

2015

Change

2016

2015

Change

Operating expenses

887,887

841,610

46,277

1,796,060

1,727,947

68,113

Aircraft fuel expense

(182,583)

(214,948)

32,365

(348,998)

(425,393)

76,395

Employee profit share expense

1,192

(9,359)

10,550

(21,310)

(59,122)

37,812

Operating expenses, adjusted

706,496

617,303

89,192

1,425,752

1,243,432

182,320

ASMs

7,115,577,504

6,654,631,242

6.9%

14,409,981,621

13,473,244,403

7.0%

CASM, excluding above items (cents)

9.93

9.28

7.0%

9.89

9.23

7.2%


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

2016

December 31
2015

Change

Earnings before income taxes

414,831

520,258

(105,427)

Add:





Finance costs

44,221

53,665

(9,444)


Implicit interest in operating leases(i)

91,210

91,397

(187)


550,262

665,320

(115,058)

Invested capital:





Average long-term debt(ii)

1,617,149

1,181,748

435,401


Average shareholders' equity

1,919,542

1,868,748

50,794


Off-balance-sheet aircraft leases(iii)

1,302,998

1,305,668

(2,670)


4,839,689

4,356,164

483,525

Return on invested capital

11.4%

15.3%

(3.9 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 June 30, 2016, the trailing 12 months of aircraft leasing costs totaled $173,733 (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; WestJet Investor Relations, 1-877-493-7853, Email: investor_relations@westjet.com, Website: www.westjet.com

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