WestJet reports record third quarter net earnings

CALGARY, Nov. 3, 2015 /CNW/ – WestJet (TSX: WJA) today announced its third quarter 2015 results, with record net earnings of $101.8 million, or $0.82 per diluted share, as compared with the adjusted net earnings¹ of $85.4 million, or $0.66 per diluted share reported in the third quarter of 2014, up 19.2 per cent and 24.2 per cent, respectively, notwithstanding the significant weakening of the Canadian dollar year over year and the softening of the Western Canadian economy as a result of the collapse in energy prices. WestJet achieved an on-time performance rate of 86.0 per cent in the third quarter, a year-over-year improvement of 4.1 percentage points, placing WestJet as the top performing North American airline for the second consecutive quarter. Based on the trailing twelve months, the airline achieved a record return on invested capital of 16.1 per cent, compared with the 16.0 per cent reported in the previous quarter while our total assets surpassed $5 billion for the first time in WestJet’s history.

“We are very pleased with another quarter of record financial results, as we improved our return on invested capital and operating margin while leading North American airlines in on-time performance for a second straight quarter,” said WestJet President and CEO Gregg Saretsky. “We are very excited about the next chapter of WestJet’s evolution, as we recently began flying wide-body aircraft in scheduled revenue service for the first time and announced non-stop service to London Gatwick from six Canadian cities beginning in the spring of 2016. I want to thank our 11,000 WestJetters for their commitment to delivering our award-winning brand of friendly caring service, and I look forward to celebrating a record November profit share with them later this month.”

Operating highlights (stated in Canadian dollars)

 

	Q3 2015	Q3 2014	Change	Year-to-date 2015	Year-to-date 2014	Change
Net earnings (millions)	$101.8	$52.2	95.0%	$304.1	$193.2	57.4%
Adjusted net earnings (millions)1	$101.8	$85.4	19.2%	$304.1	$226.5	34.3%
Diluted earnings per share	$0.82	$0.40	105.0%	$2.40	$1.50	60.0%
Adjusted diluted earnings per share1	$0.82	$0.66	24.2%	$2.40	$1.76	36.4%
Total revenue (millions)	$1,045.1	$1,009.7	3.5%	$3,070.6	$2,982.2	3.0%
Operating margin	15.3%	12.5%	2.8 pts	14.9%	11.3%	3.6 pts
ASMs (available seat miles) (billions)	6.904	6.498	6.2%	20.377	19.206	6.1%
RPMs (revenue passenger miles) (billions)	5.647	5.401	4.5%	16.412	15.748	4.2%
Load factor	81.8%	83.1%	(1.3 pts)	80.5%	82.0%	(1.5 pts)
Segment guests	5,517,289	5,246,819	5.2%	15,388,356	14,825,828	3.8%
Yield (revenue per revenue passenger mile) (cents)	18.51	18.70	(1.0%)	18.71	18.94	(1.2%)
RASM (revenue per available seat mile) (cents)	15.14	15.54	(2.6%)	15.07	15.53	(3.0%)
CASM (cost per available seat mile) (cents)	12.83	13.60	(5.7%)	12.83	13.78	(6.9%)
CASM, excluding fuel and employee profit share (cents)*	9.35	8.90	5.1%	9.27	9.13	1.5%

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

Dividend declaration

On November 2, 2015, 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 2015, to be paid on December 31, 2015, to shareholders of record on December 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 WestJet’s expected service to London Gatwick 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 the Corporation’s control, including those risk factors 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.

¹Non-GAAP measures

This news release contains disclosure respecting non-GAAP performance measures including, without limitation, adjusted net earnings, adjusted diluted earnings per share, 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, 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 nine months ended September 30, 2015, 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 3, 2015, at 8 a.m. MST (10 a.m. EST). President and CEO Gregg Saretsky and Executive Vice-President of Finance and CFO Harry Taylor will discuss WestJet’s third quarter 2015 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:

2015/2014/2013/2012 Top three brands in Canada (Canadian Business magazine)

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 September 30						Nine months ended September 30
			2015				2014		2015				2014
Revenue:
		Guest	928,821				930,103		2,714,676				2,714,386
		Other	116,234				79,625		355,874				267,772
			1,045,055				1,009,728		3,070,550				2,982,158
Operating expenses:
		Aircraft fuel	206,924				286,817		632,317				846,514
		Airport operations	142,176				128,381		412,510				377,178
		Flight operations and navigational charges	126,821				112,886		372,560				339,616
		Sales and distribution	98,351				94,764		285,304				282,598
		Depreciation and amortization	69,739				56,620		189,684				172,044
		Marketing, general and administration	58,604				50,647		175,108				164,030
		Maintenance	62,347				48,062		171,599				151,612
		Inflight	47,029				43,600		150,098				130,410
		Aircraft leasing	40,572				43,082		132,208				136,904
		Employee profit share	32,974				19,039		92,096				45,388
			885,537				883,898		2,613,484				2,646,294
Earnings from operations			159,518				125,830		457,066				335,864
Non-operating income (expense):
		Finance income	3,550				4,220		12,020				12,349
		Finance cost	(13,314)				(14,588)		(40,712)				(37,646)
		Gain (loss) on foreign exchange	(549)				1,377		(236)				407
		Loss on disposal of property and equipment	(2,766)				(45,438)		(364)				(45,483)
		Loss on derivatives	(144)				?		(144)				?
			(13,223)				(54,429)		(29,436)				(70,373)
Earnings before income tax			146,295				71,401		427,630				265,491
Income tax expense (recovery):
		Current	39,645				18,829		106,066				86,298
		Deferred	4,847				381		17,470				(14,051)
			44,492				19,210		123,536				72,247
Net earnings			101,803				52,191		304,094				193,244
Earnings per share:
		Basic	0.82				0.41		2.42				1.51
		Diluted	0.82				0.40		2.40				1.50

 

Condensed Consolidated Statement of Financial Position

(Stated in thousands of Canadian dollars)

(Unaudited)

			September 30 2015		December 31 2014
Assets
Current assets:
		Cash and cash equivalents	1,419,679		1,358,071
		Restricted cash	57,315		58,149
		Accounts receivable	74,218		54,950
		Prepaid expenses, deposits and other	98,670		144,192
		Inventory	33,540		36,658
		Assets held for sale	?		78,306
			1,683,422		1,730,326
Non-current assets:
		Property and equipment	3,231,294		2,793,194
		Intangible assets	61,975		60,623
		Other assets	88,513		62,290
Total assets			5,065,204		4,646,433
Liabilities and shareholders’ equity
Current liabilities:
		Accounts payable and accrued liabilities	546,417		415,562
		Advance ticket sales	624,509		575,781
		Deferred Rewards program	114,034		86,870
		Non-refundable guest credits	36,499		45,434
		Current portion of maintenance provisions	69,809		54,811
		Current portion of long-term debt	150,264		159,843
			1,541,532		1,338,301
Non-current liabilities:
		Maintenance provisions	233,527		191,768
		Long-term debt	1,047,696		1,028,820
		Other liabilities	17,141		13,150
		Deferred income tax	314,709		296,892
Total liabilities			3,154,605		2,868,931
Shareholders’ equity:
		Share capital	583,478		603,287
		Equity reserves	78,828		75,094
		Hedge reserves	(1,147)		(3,179)
		Retained earnings	1,249,440		1,102,300
Total shareholders’ equity			1,910,599		1,777,502
Total liabilities and shareholders’ equity			5,065,204		4,646,433

 

Condensed Consolidated Statement of Cash Flows

(Stated in thousands of Canadian dollars)

(Unaudited)

			Three months ended September 30						Nine months ended September 30
			2015				2014		2015				2014
Operating activities:
Net earnings			101,803				52,191		304,094				193,244
Items not involving cash:
		Depreciation and amortization	69,739				56,620		189,684				172,044
		Change in maintenance provisions	13,612				9,444		21,303				19,526
		Change in other liabilities	(238)				(144)		45				(371)
		Amortization of hedge settlements	350				350		1,050				1,050
		Loss on derivatives	144				?		144				?
		Loss on disposal of property and equipment	2,766				45,438		364				45,483
		Share-based payment expense	4,125				4,548		12,875				14,310
		Deferred income tax recovery	4,847				381		17,470				(14,051)
		Unrealized foreign exchange gain	(9,772)				(3,185)		(21,541)				(8,311)
Change in non-cash working capital			161,447				102,934		212,392				21,937
Change in restricted cash			(14,697)				(19,152)		835				4,250
Change in other assets			(3,240)				4,695		(9,132)				(6,728)
Purchase of shares pursuant to compensation plans			(601)				(406)		(13,672)				(10,823)
			330,285				253,714		715,911				431,560
Investing activities:
Aircraft additions			(128,332)				(128,017)		(523,427)				(466,094)
Aircraft disposals			565				?		83,216				58
Other property and equipment and intangible additions			(22,242)				(11,501)		(49,075)				(41,080)
			(150,009)				(139,518)		(489,286)				(507,116)
Financing activities:
Increase in long-term debt			17,510				416,192		135,380				597,378
Repayment of long-term debt			(42,795)				(167,531)		(125,981)				(263,332)
Shares repurchased			(47,897)				?		(119,803)				(29,575)
Dividends paid			(17,258)				(15,342)		(52,465)				(45,979)
Issuance of shares pursuant to compensation plans			?				?		36				40
Cash interest paid			(15,540)				(10,284)		(39,369)				(30,086)
Change in non-cash working capital			(3,708)				2,429		(3,734)				2,002
			(109,688)				225,464		(205,936)				230,448
Cash flow from operating, investing and financing activities			70,588				339,660		20,689				154,892
Effect of foreign exchange on cash and cash equivalents			19,539				8,415		40,919				13,849
Net change in cash and cash equivalents			90,127				348,075		61,608				168,741
Cash and cash equivalents, beginning of period			1,329,552				1,076,671		1,358,071				1,256,005
Cash and cash equivalents, end of period			1,419,679				1,424,746		1,419,679				1,424,746
Supplemental disclosure of operating cash flows
Cash interest received			3,619				3,848		12,772				12,467
Cash taxes paid, net			(27,781)				(23,521)		(89,085)				(193,595)

 

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)		2015		2014		Change		2015		2014		Change
Operating expenses		885,537		883,898		1,639		2,613,484		2,646,294		(32,810)
Aircraft fuel expense		(206,924)		(286,817)		79,893		(632,317)		(846,514)		214,197
Employee profit share expense		(32,974)		(19,039)		(13,935)		(92,096)		(45,388)		(46,708)
Operating expenses, adjusted		645,639		578,042		67,597		1,889,071		1,754,392		134,679
ASMs		6,904,193,981		6,498,320,506		6.2%		20,377,438,384		19,205,786,059		6.1%
CASM, excluding above items (cents)		9.35		8.90		5.1%		9.27		9.13		1.5%

 

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 2015		December 31 2014		Change
Earnings before income taxes			552,446		390,307		162,139
	Special item(i)		–		45,459		(45,459)
Adjusted earnings before income taxes			552,446		435,766		116,680
Add:
	Finance costs		54,904		51,838		3,066
	Implicit interest in operating leases(ii)		93,321		95,786		(2,465)
			700,671		583,390		117,281
Invested capital:
	Average long-term debt(iii)		1,205,220		1,033,529		171,691
	Average shareholders’ equity		1,809,238		1,683,671		125,567
	Off-balance-sheet aircraft leases(iv)		1,333,155		1,368,375		(35,220)
			4,347,613		4,085,575		262,038
Return on invested capital			16.1%		14.3%		1.8 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 September 30, 2015, the trailing 12 months of aircraft leasing costs totaled $177,754 (December 31, 2014 – $182,450).

Adjusted net earnings/Adjusted diluted earnings per share

(Stated in thousands of Canadian dollars, except percentages)

(Unaudited)

WestJet excludes the effect of the after-tax non-cash loss related to the 10 aircraft sold to Southwest being classified as held for sale in the third quarter of 2014 from net earnings to calculate an adjusted diluted earnings per share.

			Three months ended September 30
($ in thousands, except share and per share data)			2015		2014		Change
Net earnings			101,803		52,191		49,612
Adjusted for:
	Special item(i)		?		33,231		(33,231)
Adjusted net earnings			101,803		85,422		16,381
Weighted average number of shares outstanding – diluted			124,720,091		129,175,388		(4,455,297)
Adjusted diluted earnings per share			0.82		0.66		24.2%
			Nine months ended September 30
($ in thousands, except share and per share data)			2015		2014		Change
Net earnings			304,094		193,244		110,850
Adjusted for:
	Special item(i)		?		33,231		(33,231)
Adjusted net earnings			304,094		226,475		77,619
Weighted average number of shares outstanding – diluted			126,671,206		128,961,472		(2,290,266)
Adjusted diluted earnings per share			2.40		1.76		36.4%
(i)   After-tax non-cash loss recorded in the third quarter of 2014 associated with the sale of 10 aircraft to Southwest.

 

 

SOURCE WestJet

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