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[PRESS VOLT] WestJet reports record second quarter net earnings

CALGARY | July 29 2014 | SMADE Press Volt |  WestJet (TSX: WJA)

  • Airline achieves 37th consecutive profitable quarter and earnings per share of $0.40, up 18 per cent
  • WestJet Encore exercises options to purchase five additional Bombardier Q400 NextGen aircraft

Today announced its second quarter results for 2014, with net earnings of $51.8 million, or $0.40 per fully diluted share, as compared with the net earnings of $44.7 million, or $0.34 per fully diluted share reported in the second quarter of 2013. Based on the trailing twelve months, the airline achieved a return on invested capital of 13.7 per cent, consistent with the 13.7 per cent reported in the previous quarter.

“We had a great second quarter, reporting record earnings, exceeding our ROIC target for the eighth consecutive quarter, and achieving an on-time performance rate of 84.5 per cent, a year over year improvement of 3.5 percentage points,” said WestJet President and CEO Gregg Saretsky. “We continue to execute on our growth plans, including new service to Dublin, Ireland, success with our fare bundles initiative, and the expansion of WestJet Encore. Encore celebrated its first birthday in June, recently welcomed its one-millionth guest, and exercised five additional purchase options for Q400 aircraft. I want to thank all of our 10,000 WestJetters for their commitment to providing our award winning brand of friendly caring service, which is the foundation of our success.”

Operating highlights (stated in Canadian dollars)

Q2 2014 Q2 2013 Change Year-to-date 2014 Year-to-date 2013 Change
Net earnings (millions) $51.8 $44.7 15.9% $141.1 $135.8 3.9%
Diluted earnings per share $0.40 $0.34 17.6% $1.09 $1.02 6.9%
Total revenue (millions) $930.3 $843.7 10.3% $1,972.4 $1,810.9 8.9%
Operating margin 8.4% 7.9% 0.5 pts 10.6% 11.0% (0.4 pts)
ASMs (available seat miles) (billions) 6.193 5.888 5.2% 12.707 11.920 6.6%
RPMs (revenue passenger miles) (billions) 4.930 4.675 5.5% 10.347 9.763 6.0%
Load factor 79.6% 79.4% 0.2 pts 81.4% 81.9% (0.5 pts)
Segment guests 4,772,324 4,493,271 6.2% 9,579,009 8,986,595 6.6%
Yield (revenue per revenue passenger mile) (cents) 18.87 18.05 4.5% 19.06 18.55 2.7%
RASM (revenue per available seat mile) (cents) 15.02 14.33 4.8% 15.52 15.19 2.2%
CASM (cost per available seat mile) (cents) 13.76 13.20 4.2% 13.87 13.52 2.6%
CASM, excluding fuel and employee profit share (cents)* 9.23 9.06 1.9% 9.26 9.00 2.9%

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

On July 7th, WestJet announced that it was in the advanced stages of sourcing aircraft for its entry into wide-body service. A natural, next-step evolution for the airline, WestJet has recently selected four Boeing 767-300ERW series aircraft which will initially operate on routes between Alberta and Hawaii during the winter season beginning in late 2015. The airline’s current winter service between Alberta and Hawaii, via two Boeing 757-200s operated by Thomas Cook, is ending in the spring of 2015. WestJet expects to expand its operation into overseas markets starting in the summer of 2016. Further announcements regarding WestJet’s wide-body schedule will be released at a later date.

Dividend declaration
On July 28, 2014, WestJet’s Board of Directors declared a cash dividend of $0.12 per common voting share and variable voting share for the third quarter of 2014, to be paid on September 30, 2014, to shareholders of record onSeptember 17, 2014. 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 plans to initially operate four Boeing 767-300ERW series aircraft on routes between Alberta and Hawaii during the winter season beginning in late 2015; WestJet’s expectations that it will expand its wide-body operations into overseas markets starting in the summer of 2016; and the timing of further announcements regarding WestJet’s wide-body schedule 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.

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, 2014, which is available under WestJet’s profile on SEDAR at www.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, 2014, 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 29, 2014, at 8 a.m. MDT (10 a.m. EDT). President and CEO Gregg Saretsky and Executive Vice-President of Finance and CFO Vito Culmone 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 Canadaand 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.

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
2014 2013 2014 2013
Revenue:
Guest 847,454 768,612 1,784,283 1,648,006
Other 82,886 75,082 188,147 162,930
930,340 843,694 1,972,430 1,810,936
Operating expenses:
Aircraft fuel 274,861 241,204 559,697 512,252
Airport operations 121,436 111,273 248,797 226,548
Flight operations and navigational charges 110,585 102,434 226,730 204,309
Sales and distribution 86,524 82,730 187,834 174,040
Depreciation and amortization 54,402 49,154 115,424 97,173
Marketing, general and administratio 61,162 54,485 113,383 104,000
Maintenance 50,755 40,253 103,550 79,950
Aircraft leasing 44,714 43,884 93,822 91,393
Inflight 42,108 48,974 86,810 95,293
Employee profit share 5,351 2,834 26,349 27,145
851,898 777,225 1,762,396 1,612,103
Earnings from operations 78,442 66,469 210,034 198,833
Non-operating income (expense):
Finance income 3,772 4,438 8,129 9,182
Finance cost (11,390) (10,263) (23,058) (20,961)
Gain (loss) on foreign exchange 517 1,672 (970) 1,751
Loss on disposal of property and equipment (56) (762) (45) (1,780)
(7,157) (4,915) (15,944) (11,808)
Earnings before income tax 71,285 61,554 194,090 187,025
Income tax expense (recovery):
Current 22,775 15,795 67,469 62,448
Deferred (3,252) 1,024 (14,432) (11,231)
19,523 16,819 53,037 51,217
Net earnings 51,762 44,735 141,053 135,808
Earnings per share:
Basic 0.41 0.34 1.10 1.03
Diluted 0.40 0.34 1.09 1.02

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

June 30
2014
December 31
2013
Assets
Current assets:
Cash and cash equivalents 1,076,671 1,256,005
Restricted cash 34,704 58,106
Accounts receivable 56,421 42,164
Prepaid expenses, deposits and other 104,221 133,263
Inventory 35,423 36,722
1,307,440 1,526,260
Non-current assets:
Property and equipment 2,746,785 2,487,734
Intangible assets 62,914 58,691
Other assets 62,341 70,778
Total assets 4,179,480 4,143,463
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable and accrued liabilities 407,753 543,167
Advance ticket sales 572,436 551,022
Non-refundable guest credits 44,582 46,975
Current portion of maintenance provisions 95,623 76,105
Current portion of long-term debt 185,285 189,191
1,305,679 1,406,460
Non-current liabilities:
Maintenance provisions 133,500 142,411
Long-term debt 778,560 689,204
Other liabilities 10,181 8,834
Deferred income tax 289,289 306,714
Total liabilities 2,517,209 2,553,623
Shareholders’ equity:
Share capital 600,070 603,861
Equity reserves 71,095 69,079
Hedge reserves (7,690) 105
Retained earnings 998,796 916,795
Total shareholders’ equity 1,662,271 1,589,840
Total liabilities and shareholders’ equity 4,179,480 4,143,463
Condensed Consolidated Statement of Cash Flows
(Stated in thousands of Canadian dollars)
(Unaudited)
Three months ended
June 30
Six months ended
June 30
2014 2013 2014 2013
Operating activities:
Net earnings 51,762 44,735 141,053 135,808
Items not involving cash:
Depreciation and amortization 54,402 49,154 115,424 97,173
Change in maintenance provisions 9,650 4,296 10,082 13,378
Change in other liabilities (152) 2,388 (227) 2,181
Amortization of hedge settlements 350 350 700 700
Loss on disposal of property and equipment 56 762 45 1,780
Share-based payment expense 5,904 3,479 9,762 7,054
Deferred income tax recovery (3,252) 1,024 (14,432) (11,231)
Unrealized foreign exchange gain (2,318) (3,160) (5,126) (4,285)
Change in non-cash working capital 48,546 (4,659) 80,458 100,821
Change in restricted cash 11,843 13,104 23,402 14,603
Change in other assets (19,974) (808) (11,423) (2,747)
Cash interest received 4,127 4,540 8,619 9,893
Cash taxes paid (40,412) (20,331) (170,074) (97,514)
Purchase of shares pursuant to compensation plans (4,985) (5,101) (10,417) (6,587)
115,547 89,773 177,846 261,027
Investing activities:
Aircraft additions (201,114) (156,864) (338,019) (282,345)
Other property and equipment and intangible additions (19,822) (16,246) (29,579) (39,236)
(220,936) (173,110) (367,598) (321,581)
Financing activities:
Increase in long-term debt 148,756 33,074 181,186 33,074
Repayment of long-term debt (48,127) (41,325) (95,801) (82,565)
Shares repurchased (4,851) (32,549) (29,575) (36,613)
Dividends paid (15,312) (13,161) (30,637) (26,392)
Issuance of shares pursuant to compensation plans 40 33
Cash interest paid (9,616) (8,845) (19,802) (18,413)
Change in non-cash working capital (9) (102) (427) (557)
70,841 (62,908) 4,984 (131,433)
Cash flow from operating, investing and financing activities (34,548) (146,245) (184,768) (191,987)
Effect of foreign exchange on cash and cash equivalents (1,265) 5,043 5,434 7,386
Net change in cash and cash equivalents (35,813) (141,202) (179,334) (184,601)
Cash and cash equivalents, beginning of period 1,112,484 1,364,800 1,256,005 1,408,199
Cash and cash equivalents, end of period 1,076,671 1,223,598 1,076,671 1,223,598

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) 2014 2013 Change 2014 2013 Change
Operating expenses 851,898 777,225 74,673 1,762,396 1,612,103 150,293
Aircraft fuel expense (274,861) (241,204) (33,657) (559,697) (512,252) (47,445)
Employee profit share expense (5,351) (2,834) (2,517) (26,349) (27,145) 796
Operating expenses, adjusted 571,686 533,187 38,499 1,176,350 1,072,706 103,644
ASMs 6,192,880,483 5,888,165,679 5.2% 12,707,465,553 11,920,261,749 6.6%
CASM, excluding above items (cents) 9.23 9.06 1.9% 9.26 9.00 2.9%

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.

June 30
2014
December 31
2013
Change
Earnings before income taxes 379,150 372,085 7,065
Add:
Finance costs 45,544 43,447 2,097
Implicit interest in operating leases(i) 93,489 92,214 1,275
518,183 507,746 10,437
Invested capital:
Average long-term debt(ii) 826,732 808,722 18,010
Average shareholders’ equity 1,607,883 1,531,072 76,811
Off-balance-sheet aircraft leases(iii) 1,335,563 1,317,345 18,218
3,770,178 3,657,139 113,039
Return on invested capital 13.7% 13.9% (0.2 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, 2014, the trailing 12 months of aircraft leasing costs totaled $178,075 (December 31, 2013 – $175,646).

 

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