WestJet reports first quarter net earnings of $37.2 million

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May 08, 2018, 06:30 ET

CALGARY, May 8, 2018 /PRNewswire/ - WestJet (TSX: WJA) today announced its first quarter results for 2018, with net earnings of $37.2 million, or $0.32 per fully diluted share. While remaining profitable in a challenging quarter, this result compares with net earnings of $46.7 million, or $0.40 per fully diluted share reported in the first quarter of 2017. WestJet achieved its 52^nd consecutive quarter of profitability and flew an all-time quarterly record of 6.1 million guests. Based on the trailing twelve months, the airline achieved a return on invested capital of 9.5 per cent, down from to 10.1 per cent in the first quarter of 2017.

"Even though winter 2018 brought many operational challenges, we successfully achieved record load factors and increased revenue by 6.9 per cent on a capacity increase of 4.3 per cent," Ed Sims, WestJet President and CEO. "I want to thank every individual WestJetter for rising to the challenge through a very difficult operating quarter. Nonetheless, the quarter saw net earnings and margin decline as we continue to invest in the strategy laid out at Investor Day, in a higher fuel environment. We remain laser-focused on strategic execution to ensure we drive shareholder returns."

Operating highlights (stated in Canadian dollars)

	Q1 2018	Q1 2017	Change
Net earnings (millions)	$37.2	$46.7	(20.4%)
Diluted earnings per share	$0.32	$0.40	(20.0%)
Total revenue (millions)	$1,191.7	$1,114.7	6.9%
Operating margin	4.7%	7.1%	(2.4 pts.)
ASMs (available seat miles) (billions)	8.029	7.699	4.3%
RPMs (revenue passenger miles) (billions)	6.810	6.393	6.5%
Load factor	84.8%	83.0%	1.8 pts.
Segment guests	6,088,954	5,687,659	7.1%
Yield (revenue per revenue passenger mile) (cents)	17.50	17.44	0.3%
RASM (revenue per available seat mile) (cents)	14.84	14.48	2.5%
CASM (cost per available seat mile) (cents)	14.15	13.45	5.2%
Fuel costs per litre (cents)	73	64	14.1%
CASM, excluding fuel and employee profit share (cents)*	10.57	10.30	2.6%

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

Dividend declaration
On May 7, 2018, 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 2018, to be paid on June 29, 2018, to shareholders of record on June 13, 2018. 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 months ended March 31, 2018 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, 2018, 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, May 8, 2018, at 8 a.m. MT (10 a.m. ET). President and CEO Ed Sims 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.

About WestJet
Together with WestJet's regional airline, WestJet Encore, we offer scheduled service to more than 100 destinations in North America, Central America, the Caribbean and Europe and to more than 175 destinations in over 20 countries through our airline partnerships. WestJet Vacations offers affordable, flexible vacations to more than 60 destinations and the choice of more than 800 hotels, resorts, condos and villas. Members of the WestJet Rewards program earn WestJet dollars on flights, vacation packages and more. Members use WestJet dollars towards the purchase of flights and vacations packages to any WestJet destination with no blackout periods, and have access to Member Exclusive fares offering deals to WestJet destinations throughout our network and those of our partner airlines.

WestJet is proud to be recognized as Best Airline in Canada and Travellers' Choice winner – North America for 2017 and 2018 in the TripAdvisor Travellers' Choice awards for Airlines. The airline was also named the Travellers' Choice Winner – Economy, North America, 2018. All awards are based on authentic reviews from the travelling public on TripAdvisor, the world's largest travel site. We are one of very few airlines globally that does not commercially overbook.

WestJet is publicly traded on the Toronto Stock Exchange (TSX) under the symbol WJA.

For more information about everything WestJet, please visit westjet.com.

Recent recognition includes:
2018/2017 Best Airline in Canada and Travellers' Choice Winner Mid-Sized and Low Cost Airlines – North America(TripAdvisor Travellers' Choice awards for Airlines)
2018 Travellers' Choice Winner – Economy, North America (TripAdvisor Travellers' Choice awards for Airlines)
2017/2016 Canada's Most Trusted Airline (Gustavson School of Business at the University of Victoria)
2016 Canada's most reputable company for Corporate Social Responsibility (Reputation Institute)
2016/2015/2014/2013/2012 Ranked top three for Canadian Brands (Canadian Business Magazine)
2016/2015/2014/2013 WestJet RBC World Elite MasterCard ranked #1 in Canada (MoneySense magazine)

Connect with WestJet on Facebook at facebook.com/westjet
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Condensed Consolidated Statement of Earnings
For the three months ended March 31
(Stated in thousands of Canadian dollars, except per share amounts)
(Unaudited)

		2018	2017⁽ⁱ⁾

Revenue:
	Guest	1,109,307	1,031,420
	Other	82,417	83,251
		1,191,724	1,114,671
Operating expenses:
	Aircraft fuel	281,151	235,516
	Salaries and benefits	255,125	231,115
	Rates and fees	168,930	162,263
	Sales and marketing	119,579	102,586
	Depreciation and amortization	107,897	97,623
	Maintenance	54,921	66,948
	Aircraft Leasing	37,484	44,341
	Other	104,686	88,424
	Employee profit share	6,384	7,027
		1,136,157	1,035,843
Earnings from operations		55,567	78,828

Non-operating income (expense):
	Finance income	6,710	4,199
	Finance costs	(11,110)	(15,702)
	Loss on foreign exchange	(55)	(283)
	Gain on disposal of property and equipment	2,217	1,369
	Gain (loss) on derivatives	65	(2,317)
		(2,173)	(12,734)
Earnings before income tax		53,394	66,094

Income tax expense (recovery):
	Current	7,824	10,741
	Deferred	8,372	8,647
		16,196	19,388
Net earnings		37,198	46,706

Earnings per share:
	Basic	0.33	0.40
	Diluted	0.32	0.40

(i)	Certain 2017 numbers have been restated for the adoption of IFRS 15.

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

			March 31 2018	December 31 2017⁽ⁱ⁾
Assets
Current assets:
	Cash and cash equivalents		1,187,458	1,147,076
	Marketable securities		230,290	226,090
		Total cash, cash equivalents and marketable securities	1,417,748	1,373,166
	Restricted cash		96,804	109,700
	Accounts receivable		150,506	152,492
	Prepaid expenses, deposits and other		124,665	138,676
	Inventory		38,032	43,045
			1,827,755	1,817,079
Non-current assets:
	Property and equipment		4,627,897	4,567,504
	Intangible assets		58,132	59,517
	Other assets		81,278	78,584
Total assets			6,595,062	6,522,684

Liabilities and shareholders' equity
Current liabilities:
	Accounts payable and accrued liabilities		559,391	546,505
	Advance ticket sales		684,156	659,953
	Deferred Rewards program		189,096	185,991
	Non-refundable guest credits		64,284	58,575
	Current portion of maintenance provisions		81,995	82,129
	Current portion of long-term debt		154,289	153,149
			1,733,211	1,686,302
Non-current liabilities:
	Maintenance provisions		266,030	270,347
	Long-term debt		1,890,910	1,895,898
	Other liabilities		18,921	19,171
	Deferred income tax		400,905	392,111
Total liabilities			4,309,977	4,263,829

Shareholders' equity:
	Share capital		549,486	548,977
	Equity reserves		100,872	97,514
	Hedge reserves		(763)	(1,902)
	Retained earnings		1,635,490	1,614,266
Total shareholders' equity			2,285,085	2,258,855
Total liabilities and shareholders' equity			6,595,062	6,522,684

(i)	Certain 2017 numbers have been restated for the adoption of IFRS 15.

Condensed Consolidated Statement of Cash Flows
For the three months ended March 31
(Stated in thousands of Canadian dollars)
(Unaudited)

		2018	2017⁽ⁱ⁾

Operating activities:
Net earnings		37,198	46,706
Items not involving cash:
	Depreciation and amortization	107,897	97,623
	Change in maintenance provisions	12,554	35,312
	Amortization of transaction costs	1,136	1,426
	(Gain) loss on derivatives	(267)	4,528
	Gain on disposal of property and equipment	(2,217)	(1,369)
	Share-based payment expense	3,878	4,145
	Deferred income tax expense	8,372	8,647
	Unrealized foreign exchange (gain) loss	293	(2,392)
Change in non-cash working capital		83,683	59,699
Change in restricted cash		12,896	11,050
Change in other assets		(1,964)	3,020
Change in other liabilities		6,368	967
Purchase of shares pursuant to compensation plans		(15)	(179)
Maintenance provision settlements		(24,872)	(7,939)
		244,940	261,244

Investing activities:
Aircraft additions		(149,222)	(155,122)
Aircraft disposals		4,310	2,185
Other property and equipment and intangible additions and disposals		(19,777)	(9,318)
Purchases of marketable securities		(1,169)	(99,747)
Changes in non-cash working capital		3,453	(18,464)
		(162,405)	(280,466)

Financing activities:
Increase in long-term debt		20,555	41,708
Repayment of long-term debt		(37,623)	(38,507)
Dividends paid		(15,970)	(16,408)
Cash interest paid		(14,027)	(14,478)
Change in non-cash working capital		(2,319)	(1,566)
		(49,384)	(29,251)

Cash flow from operating, investing and financing activities		33,151	(48,473)
Effect of foreign exchange on cash and cash equivalents		7,231	(721)
Net change in cash and cash equivalents		40,382	(49,194)

Cash and cash equivalents, beginning of period		1,147,076	1,520,822

Cash and cash equivalents, end of period		1,187,458	1,471,628

Supplemental disclosure of operating cash flows
Cash interest received		6,780	4,075
Cash taxes paid, net		(19,640)	(44,982)

(i)	Certain 2017 numbers have been restated for the adoption of IFRS 15.

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 March 31
	2018	2017⁽ⁱ⁾	Change
Operating expenses	1,136,157	1,035,843	100,314
Aircraft fuel expense	(281,151)	(235,516)	(45,635)
Employee profit share expense	(6,384)	(7,027)	643
Operating expenses, adjusted	848,622	793,300	55,322
ASMs	8,028,866,429	7,699,062,691	4.3%
CASM, excluding above items (cents)	10.57	10.30	2.6%

(i)	Certain 2017 numbers have been restated for the adoption of IFRS 15.

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.


		March 31 2018	March 31 2017^(iv)	Change
Earnings before income taxes		385,241	369,795	15,446
Add:
	Finance costs	49,119	59,615	(10,496)
	Implicit interest in operating leases⁽ⁱ⁾	83,498	92,651	(9,153)
		517,858	522,061	(4,203)
Invested capital:
	Average long-term debt⁽ⁱⁱ⁾	2,045,485	1,766,361	279,124
	Average shareholders' equity	2,214,999	2,097,329	117,670
	Off-balance-sheet aircraft leases⁽ⁱⁱⁱ⁾	1,192,830	1,323,593	(130,763)
		5,453,314	5,187,283	266,031
Return on invested capital		9.5%	10.1%	(0.6 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 March 31, 2018, the trailing 12 months of aircraft leasing expenses totaled $159,044 (March 31, 2017 – $176,479).
(iv)	Certain 2017 numbers have been restated for the adoption of IFRS 15.