WestJet reports first quarter results

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May 3, 2016 6:30 AM UTC

Achieves second highest ever first quarter fully diluted earnings per shareAssigned investment grade credit rating by Moody's Investors Services

CALGARY, May 3, 2016 /PRNewswire/ - WestJet (TSX: WJA) today announced its 44th consecutive profitable quarter, with first quarter 2016 net earnings of $87.6 million, or $0.71 per diluted share. This compares with the all-time high quarterly net earnings of $140.7 million, or $1.09 per diluted share reported in the first quarter of 2015. WestJet achieved an on-time performance rate of 83.0 per cent in the first quarter, a significant year-over-year improvement of 5.0 percentage points. Based on the trailing twelve months, the airline achieved a return on invested capital of 12.8 per cent, compared with the 15.3 per cent reported in the previous quarter.

"Although we continue to feel the impact of economic weakness in Alberta, the fundamentals of our business remain strong as demonstrated by our recent assignment of an investment grade credit rating by Moody's, and we are seeing positive trends as a result of adjustments we have made to our schedules and the strategic initiatives we are undertaking," said WestJet President and CEO Gregg Saretsky. "My thanks go out to our more than 11,000 WestJetters for continuing to provide our award-winning brand of friendly caring service as we celebrate our 20th year of operations."

Operating highlights (stated in Canadian dollars)

Q1 2016

Q1 2015

Change

Net earnings (millions)

$87.6

$140.7

(37.7%)

Diluted earnings per share

$0.71

$1.09

(34.9%)

Total revenues (millions)

$1,031.4

$1,083.5

(4.8%)

Operating margin

12.0%

18.2%

(6.2 pts)

ASMs (available seat miles) (billions)

7.294

6.819

7.0%

RPMs (revenue passenger miles) (billions)

5.988

5.566

7.6%

Load factor

82.1%

81.6%

0.5 pts

Segment guests

5,325,106

4,914,579

8.4%

Yield (revenue per revenue passenger mile) (cents)

17.22

19.47

(11.6%)

RASM (revenue per available seat mile) (cents)

14.14

15.89

(11.0%)

CASM (cost per available seat mile) (cents)

12.45

13.00

(4.2%)

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

9.86

9.18

7.4%

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

Credit ratingsWestJet recently announced that Moody's Investors Services has assigned it an investment grade 'Baa2' senior unsecured issuer rating and a 'Baa2' senior unsecured notes rating with a stable outlook. This is the second credit rating agency to assign WestJet with an investment grade corporate credit rating. In March, Standard & Poor's confirmed WestJet's corporate credit rating of 'BBB-' with a stable outlook.

Normal course issuer bidToday, WestJet also announced intention, upon the expiry of the 12-month period of its current normal course issuer bid, to make an application to the Toronto Stock Exchange to initiate a further normal course issuer bid to purchase up to 4,000,000 Common Voting and Variable Voting Shares.

Dividend declarationOn May 2, 2016, 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 2016, to be paid on June 30, 2016, to shareholders of record on June 15, 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 informationCertain information set forth in this news release, including, without limitation, information regarding our intention upon the expiry of the 12-month period of its current normal course issuer bid, to make an application to the Toronto Stock Exchange to initiate a further normal course issuer bid 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 measuresThis 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, 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 months ended March 31, 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 callWestJet will hold its quarterly analysts' conference call today, May 3, 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 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.

Annual general meeting (AGM)WestJet will hold its AGM today, May 3, 2016, at 10 a.m. MDT (12 p.m. EDT) at WestJet's Calgary Campus at 22 Aerial Place NE. The AGM webcast will be available live in the Media and Investor Relations section of westjet.com.

About WestJetWe 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

For the three months ended March 31

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

(Unaudited)

2016

2015

Revenue:

Guest

886,220

956,946

Other

145,224

126,551

1,031,444

1,083,497

Operating expenses:

Aircraft fuel

166,415

210,445

Salaries and benefits

222,321

203,081

Rates and fees

153,747

134,190

Sales and marketing

89,077

82,723

Depreciation and amortization

81,769

57,179

Maintenance

52,938

35,477

Aircraft Leasing

46,307

47,655

Other

73,098

65,824

Employee profit share

22,501

49,763

908,173

886,337

Earnings from operations

123,271

197,160

Non-operating income (expense):

Finance income

3,746

4,219

Finance costs

(5,161)

(13,921)

Gain (loss) on foreign exchange

4,721

(627)

Gain (loss) on disposal of property and equipment

(1,080)

5,618

Loss on derivatives

(1,312)

-

914

(4,711)

Earnings before income tax

124,185

192,449

Income tax expense (recovery):

Current

39,485

39,576

Deferred

(2,944)

12,136

36,541

51,712

Net earnings

87,644

140,737

Earnings per share:

Basic

0.71

1.11

Diluted

0.71

1.09

 

Condensed Consolidated Statement of Financial Position

(Stated in thousands of Canadian dollars)

(Unaudited)

March 312016

December 312015

Assets

Current assets:

Cash and cash equivalents

1,406,910

1,183,797

Restricted cash

62,722

68,573

Accounts receivable

79,905

82,136

Prepaid expenses, deposits and other

102,708

131,747

Inventory

36,508

36,018

1,688,753

1,502,271

Non-current assets:

Property and equipment

3,619,606

3,473,262

Intangible assets

63,097

63,549

Other assets

77,912

89,942

Total assets

5,449,368

5,129,024

Liabilities and shareholders' equity

Current liabilities:

Accounts payable and accrued liabilities

520,747

545,438

Advance ticket sales

602,159

620,216

Deferred Rewards program

125,706

117,959

Non-refundable guest credits

42,184

40,921

Current portion of maintenance provisions

95,531

85,819

Current portion of long-term debt

139,848

141,572

1,526,175

1,551,925

Non-current liabilities:

Maintenance provisions

235,053

243,214

Long-term debt

1,347,104

1,033,261

Other liabilities

16,357

13,603

Deferred income tax

318,562

327,028

Total liabilities

3,443,251

3,169,031

Shareholders' equity:

Share capital

579,115

582,796

Equity reserves

86,911

82,713

Hedge reserves

(12,786)

1,903

Retained earnings

1,352,877

1,292,581

Total shareholders' equity

2,006,117

1,959,993

Total liabilities and shareholders' equity

5,449,368

5,129,024

 

Condensed Consolidated Statement of Cash Flows

For the three months ended March 31

(Stated in thousands of Canadian dollars)

(Unaudited)

2016

2015

Operating activities:

Net earnings

87,644

140,737

Items not involving cash:

Depreciation and amortization

81,769

57,179

Change in maintenance provisions

21,963

5,140

Amortization of transaction costs

1,233

1,220

Amortization of hedge settlements

320

350

Loss on derivatives

1,312

-

(Gain) loss on disposal of property and equipment

1,080

(5,618)

Share-based payment expense

4,412

3,500

Deferred income tax expense (recovery)

(2,944)

12,136

Unrealized foreign exchange gain

(907)

(7,352)

Change in non-cash working capital

14,107

63,819

Change in restricted cash

5,851

4,045

Change in other assets

7,120

(9,205)

Change in other liabilities

(719)

(186)

Purchase of shares pursuant to compensation plans

(146)

(7,962)

222,095

257,803

Investing activities:

Aircraft additions

(211,546)

(209,455)

Aircraft disposals

203

47,434

Other property and equipment and intangible additions

(17,399)

(15,647)

Changes in non-cash working capital

(4,963)

5,116

(233,705)

(172,552)

Financing activities:

Increase in long-term debt

352,695

66,324

Repayment of long-term debt

(41,612)

(42,486)

Shares repurchased

(13,965)

(44,305)

Dividends paid

(17,132)

(17,672)

Cash interest paid

(16,354)

(15,339)

Change in non-cash working capital

(13,124)

(3,370)

250,508

(56,848)

Cash flow from operating, investing and financing activities

238,898

28,403

Effect of foreign exchange on cash and cash equivalents

(15,785)

18,865

Net change in cash and cash equivalents

223,113

47,268

Cash and cash equivalents, beginning of period

1,183,797

1,358,071

Cash and cash equivalents, end of period

1,406,910

1,405,339

Supplemental disclosure of operating cash flows

Cash interest received

3,579

4,642

Cash taxes paid, net

44,939

(31,272)

 

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 thebusiness. Fuel expense is excluded from operating results due to the fact that fuel prices are impacted by a host of factors outsideWestJet'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 isexcluded from operating results due to its variable nature and excluding this expense allows greater comparability.

Three months ended March 31

2016

2015

Change

Operating expenses

908,173

886,337

21,836

Aircraft fuel expense

(166,415)

(210,445)

(44,030)

Employee profit share expense

(22,501)

(49,763)

(27,262)

Operating expenses, adjusted

719,257

626,129

93,128

ASMs

7,294,404,117

6,818,613,161

7.0%

CASM, excluding above items (cents)

9.86

9.18

7.4%

 

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 iscalculated based on our earnings before tax, excluding special items, finance costs and implied interest on our off-balance-sheetaircraft leases. Invested capital includes average long-term debt, average finance lease obligations, average shareholders' equity andoff-balance-sheet aircraft operating leases.

March 312016

December 312015

Change

Earnings before income taxes

451,994

520,258

(68,264)

Add:

Finance costs

44,905

53,665

(8,760)

Implicit interest in operating leases(i)

90,689

91,397

(708)

587,588

665,320

(77,732)

Invested capital:

Average long-term debt(ii)

1,350,395

1,181,748

168,647

Average shareholders' equity

1,930,309

1,868,748

61,561

Off-balance-sheet aircraft leases(iii)

1,295,558

1,305,668

(10,110)

4,576,262

4,356,164

220,098

Return on invested capital

12.8%

15.3%

(2.5 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 notnecessarily 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, 2016, the trailing 12months of aircraft leasing expenses totaled $172,741 (December 31, 2015 – $174,089).

 

SOURCE WestJet


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