WestJet reports record second quarter net earnings

Airline achieves 41st consecutive profitable quarter, record return on invested capital and record quarterly earnings per share of $0.49, up 23 per cent for the second quarter

CALGARY, July 28, 2015 /CNW/ – WestJet (TSX: WJA) today announced its second quarter results for 2015, with net earnings of $61.6 million, or $0.49 per fully diluted share, as compared with the net earnings of $51.8 million, or $0.40 per fully diluted share reported in the second quarter of 2014. WestJet achieved an on-time performance rate of 91.3 per cent in the second quarter, a year-over-year improvement of 6.8 percentage points, placing WestJet as the top performing North American airline during the quarter. Based on the trailing twelve months, the airline achieved a return on invested capital of 16.0 per cent, up 0.2 percentage points from the 15.8 per cent reported in the previous quarter.

“I would like to congratulate our more than 10,000 WestJetters on these exceptional second quarter results which marked our 5th quarter of consecutive record adjusted net earnings,” said WestJet President and CEO Gregg Saretsky. “The second quarter is historically our most challenging quarter as capacity is transitioned from southern to domestic markets, so it is particularly rewarding to turn in a double digit margin this quarter. With another quarter of record earnings, and after having exceeded our ROIC target for 12 consecutive quarters, we are pleased to announce that we are increasing our target to 13 to 16 per cent, while continuing our commitment to our brand of friendly, caring service and affordable fares.”

Operating highlights (stated in Canadian dollars)

	Q2 2015	Q2 2014	Change	Year-to-date 2015	Year-to-date 2014	Change
Net earnings (millions)	$61.6	$51.8	18.9%	$202.3	$141.1	43.4%
Diluted earnings per share	$0.49	$0.40	22.5%	$1.58	$1.09	45.0%
Total revenue (millions)	$942.0	$930.3	1.3%	$2,025.5	$1,972.4	2.7%
Operating margin	10.7%	8.4%	2.3 pts	14.7%	10.6%	4.1 pts
ASMs (available seat miles) (billions)	6.655	6.193	7.5%	13.473	12.707	6.0%
RPMs (revenue passenger miles) (billions)	5.199	4.930	5.5%	10.765	10.347	4.0%
Load factor	78.1%	79.6%	(1.5 pts)	79.9%	81.4%	(1.5 pts)
Segment guests	4,956,488	4,772,324	3.9%	9,871,067	9,579,009	3.0%
Yield (revenue per revenue passenger mile) (cents)	18.12	18.87	(4.0%)	18.82	19.06	(1.3%)
RASM (revenue per available seat mile) (cents)	14.16	15.02	(5.7%)	15.03	15.52	(3.2%)
CASM (cost per available seat mile) (cents)	12.65	13.76	(8.1%)	12.83	13.87	(7.5%)
CASM, excluding fuel and employee profit share (cents)*	9.28	9.23	0.5%	9.23	9.26	(0.3%)

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

Normal course issuer bid
Today, WestJet also announced that the Toronto Stock Exchange has approved WestJet’s amendment to its existing normal course issuer bid to increase the maximum number of shares the Company is authorized to purchase from 2.0 million shares to 4.0 million shares during the period of May 13, 2015 to May 12, 2016.

Dividend declaration
On July 27, 2015, 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 2015, to be paid on September 30, 2015, to shareholders of record on September 16, 2015. 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 return on invested capital target and our intention to amend our existing normal course issuer bid is forward-looking information within the meaning of applicable Canadian securities law. 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, 2015, 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 condensed consolidated financial statements and notes for the three and six months ended June 30, 2015, 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, July 28, 2015, at 9 a.m. MDT (11 a.m. EDT). President and CEO Gregg Saretsky and Interim CFO Candice Li 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 www.westjet.com.

About WestJet
We are proud to be Canada’s most-preferred 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 90 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 120 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 vacation 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 Best Employers in Canada (Aon Hewitt)
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 WestJet RBC MasterCard ranked #1 in Canada (Money Sense magazine and RewardsCanada.ca)
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
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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			Six months ended
							June 30			June 30
							2015		2014	2015		2014
Revenue:
						Guest	828,909		847,454	1,785,855		1,784,283
						Other	113,089		82,886	239,640		188,147
							941,998		930,340	2,025,495		1,972,430
Operating expenses:
						Aircraft fuel	214,948		274,861	425,393		559,697
						Airport operations	132,718		121,436	270,334		248,797
						Flight operations and navigational charges	120,517		110,585	245,739		226,730
						Sales and distribution	88,685		86,524	186,954		187,834
						Depreciation and amortization	62,766		54,402	119,945		115,424
						Marketing, general and administration	58,420		61,162	116,503		113,383
						Maintenance	55,531		50,755	109,252		103,550
						Inflight	54,685		42,108	103,069		86,810
						Aircraft leasing	43,981		44,714	91,636		93,822
						Employee profit share	9,359		5,351	59,122		26,349
							841,610		851,898	1,727,947		1,762,396
Earnings from operations							100,388		78,442	297,548		210,034
Non-operating income (expense):
						Finance income	4,251		3,772	8,470		8,129
						Finance cost	(13,477)		(11,390)	(27,398)		(23,058)
						Gain (loss) on foreign exchange	940		517	313		(970)
						Loss on disposal of property and equipment	(3,216)		(56)	2,402		(45)
							(11,502)		(7,157)	(16,213)		(15,944)
Earnings before income tax							88,886		71,285	281,335		194,090
Income tax expense (recovery):
						Current	26,845		22,775	66,421		67,469
						Deferred	487		(3,252)	12,623		(14,432)
							27,332		19,523	79,044		53,037
Net earnings							61,554		51,762	202,291		141,053
Earnings per share:
						Basic	0.49		0.41	1.60		1.10
						Diluted	0.49		0.40	1.58		1.09

 

 

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

					June 30	December 31
					2015	2014
Assets
Current assets:
				Cash and cash equivalents	1,329,552	1,358,071
				Restricted cash	42,617	58,149
				Accounts receivable	65,294	54,950
				Prepaid expenses, deposits and other	94,022	144,192
				Inventory	33,652	36,658
				Assets held for sale	–	78,306
					1,565,137	1,730,326
Non-current assets:
				Property and equipment	3,141,807	2,793,194
				Intangible assets	64,105	60,623
				Other assets	88,492	62,290
Total assets					4,859,541	4,646,433
Liabilities and shareholders’ equity
Current liabilities:
				Accounts payable and accrued liabilities	428,831	415,562
				Advance ticket sales	595,939	575,781
				Deferred Rewards program	108,338	86,870
				Non-refundable guest credits	38,277	45,434
				Current portion of maintenance provisions	64,105	54,811
				Current portion of long-term debt	158,834	159,843
					1,394,324	1,338,301
Non-current liabilities:
				Maintenance provisions	207,913	191,768
				Long-term debt	1,064,314	1,028,820
				Other liabilities	15,519	13,150
				Deferred income tax	309,200	296,892
Total liabilities					2,991,270	2,868,931
Shareholders’ equity:
				Share capital	592,499	603,287
				Equity reserves	75,574	75,094
				Hedge reserves	(3,303)	(3,179)
				Retained earnings	1,203,501	1,102,300
Total shareholders’ equity					1,868,271	1,777,502
Total liabilities and shareholders’ equity					4,859,541	4,646,433

 

 

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

			Three months ended			Six months ended
			June 30			June 30
			2015		2014	2015		2014
Operating activities:
Net earnings			61,554		51,762	202,291		141,053
Items not involving cash:
		Depreciation and amortization	62,766		54,402	119,945		115,424
		Change in maintenance provisions	2,551		9,650	7,691		10,082
		Change in other liabilities	469		(152)	283		(227)
		Amortization of hedge settlements	350		350	700		700
		Loss on disposal of property and equipment	3,216		56	(2,402)		45
		Share-based payment expense	5,250		5,904	8,750		9,762
		Deferred income tax recovery	487		(3,252)	12,623		(14,432)
		Unrealized foreign exchange gain	(4,417)		(2,318)	(11,769)		(5,126)
Change in non-cash working capital			(12,874)		12,261	50,945		(80,997)
Change in restricted cash			11,487		11,843	15,532		23,402
Change in other assets			3,313		(19,974)	(5,892)		(11,423)
Purchase of shares pursuant to compensation plans			(5,109)		(4,985)	(13,071)		(10,417)
			129,043		115,547	385,626		177,846
Investing activities:
Aircraft additions			(192,078)		(201,114)	(395,095)		(338,077)
Aircraft disposals			35,217		–	82,651		58
Other property and equipment and intangible additions			(9,864)		(19,822)	(26,833)		(29,579)
			(166,725)		(220,936)	(339,277)		(367,598)
Financing activities:
Increase in long-term debt			51,546		148,756	117,870		181,186
Repayment of long-term debt			(41,920)		(48,127)	(83,186)		(95,801)
Shares repurchased			(27,601)		(4,851)	(71,906)		(29,575)
Dividends paid			(17,535)		(15,312)	(35,207)		(30,637)
Issuance of shares pursuant to compensation plans			36		–	36		40
Cash interest paid			(8,490)		(9,616)	(23,829)		(19,802)
Change in non-cash working capital			3,344		(9)	(26)		(427)
			(40,620)		70,841	(96,248)		4,984
Cash flow from operating, investing and financing activities			(78,302)		(34,548)	(49,899)		(184,768)
Effect of foreign exchange on cash and cash equivalents			2,515		(1,265)	21,380		5,434
Net change in cash and cash equivalents			(75,787)		(35,813)	(28,519)		(179,334)
Cash and cash equivalents, beginning of period			1,405,339		1,112,484	1,358,071		1,256,005
Cash and cash equivalents, end of period			1,329,552		1,076,671	1,329,552		1,076,671
Supplemental disclosure of operating cash flows
Cash interest received			4,511		4,127	9,153		8,619
Cash taxes paid, net			(30,032)		(40,412)	(61,304)		(170,074)

 

 

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)	2015			2014	Change	2015			2014	Change
Operating expenses	841,610			851,898	(10,288)	1,727,947			1,762,396	(34,449)
Aircraft fuel expense	(214,948)			(274,861)	59,913	(425,393)			(559,697)	134,304
Employee profit share expense	(9,359)			(5,351)	(4,008)	(59,122)			(26,349)	(32,773)
Operating expenses, adjusted	617,303			571,686	45,617	1,243,432			1,176,350	67,082
ASMs	6,654,631,242			6,192,880,483	7.5%	13,473,244,403			12,707,465,553	6.0%
CASM, excluding above items (cents)	9.28			9.23	0.5%	9.23			9.26	(0.3%)

 

 

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	December 31Â
						2015	2014	Change
Earnings before income taxes						477,552	390,307	87,245
					Special item(i)	45,459	45,459	–
Adjusted earnings before income taxes						523,011	435,766	87,245
Add:
					Finance costs	56,178	51,838	4,340
					Implicit interest in operating leases(ii)	94,639	95,786	(1,147)
						673,828	583,390	90,438
Invested capital:
					Average long-term debt(iii)	1,093,497	1,033,529	59,968
					Average shareholders’ equity	1,765,271	1,683,671	81,600
					Off-balance-sheet aircraft leases(iv)	1,351,980	1,368,375	(16,395)
						4,210,748	4,085,575	125,173
Return on invested capital						16.0%	14.3%	1.7 pts.

 

(i)	Pre-tax non-cash loss recorded in 2014 associated with the sale of 10 aircraft to Southwest.
(ii)	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.
(iii)	Average long-term debt includes 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 June 30, 2015, the trailing 12 months of aircraft leasing costs totaled $180,264 (December 31, 2014 – $182,450).

 

 

SOURCE WestJet

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