Airline announces an increase to its quarterly dividend
WestJet to introduce a premium economy product
CALGARY, Aug. 1, 2012 /PRNewswire/ - WestJet (TSX: WJA) today announced a second quarter net earnings record of $42.5 million, or $0.31 per diluted share; up from the net earnings of $25.6 million, or $0.18 per diluted share, reported in the second quarter of 2011. These financial results mark WestJet's 29th consecutive quarter of profitability. Based on the trailing twelve months, the airline achieved a return on invested capital of 11.4 per cent, up from the 10.8 per cent reported last quarter.
"It was another record quarter as we set new second quarter highs for both net earnings and load factor," said WestJet President and CEO Gregg Saretsky. "Momentum continues at WestJet and we are very pleased with the operating margin expansion achieved again this quarter as we progress towards our return on invested capital target."
Today, WestJet also announced that it will be introducing a premium economy product on its entire Boeing 737 fleet featuring extra legroom, convenience and other amenities. Modifications to the aircraft will begin in August and the airline expects to have the fleet fully reconfigured by the end of 2012. "We believe that both business and leisure guests will appreciate the added value a premium economy product will offer and look forward to providing further details as we roll it out early next year," noted Gregg Saretsky.
Operating highlights (stated in Canadian dollars)
| Q2 2012 | Q2 2011 | Change | Year-to-date 2012 | Year-to-date 2011 | Change | |
| Net earnings (millions) | $42.5 | $25.6 | 65.9% | $110.8 | $73.9 | 50.0% |
| Diluted earnings per share | $0.31 | $0.18 | 72.2% | $0.81 | $0.52 | 55.8% |
| Total revenues (millions) | $809.3 | $742.3 | 9.0% | $1,700.2 | $1,514.7 | 12.2% |
| Operating margin | 8.7% | 6.9% | 1.8 pts. | 10.4% | 8.7% | 1.7 pts. |
| ASMs (available seat miles) (billions) | 5.389 | 5.238 | 2.9% | 11.079 | 10.468 | 5.8% |
| RPMs (revenue passenger miles) (billions) | 4.395 | 4.092 | 7.4% | 9.116 | 8.382 | 8.8% |
| Load factor | 81.6% | 78.1% | 3.5 pts. | 82.3% | 80.1% | 2.2 pts. |
| Segment guests | 4,267,598 | 3,941,609 | 8.3% | 8,498,013 | 7,840,717 | 8.4% |
| Yield (revenue per revenue passenger mile) (cents) | 18.41 | 18.14 | 1.5% | 18.65 | 18.07 | 3.2% |
| RASM (revenue per available seat mile) (cents) | 15.02 | 14.17 | 6.0% | 15.35 | 14.47 | 6.1% |
| CASM (cost per available seat mile) (cents) | 13.71 | 13.19 | 3.9% | 13.76 | 13.22 | 4.1% |
| CASM, excluding fuel and employee profit share (cents)* | 9.12 | 8.70 | 4.8% | 9.03 | 8.81 | 2.5% |
*Refer to reconciliations in the accompanying tables for further information regarding calculations.
WestJet expects RASM growth in the third quarter to be moderately stronger than the first half growth and anticipates ongoing operating margin expansion in the second half of 2012. "Demand remains strong as guests continue to choose our airline in record numbers thanks in large part to our amazing WestJetters who make the travel experience so enjoyable," commented Gregg Saretsky. "We continue to invest in our capabilities and products as we strive to offer our guests more convenience, comfort and flexibility."
WestJet now projects its full-year CASM, excluding fuel and employee profit share to increase between three to 3.5 per cent year over year from its previous expectation of up 1.5 to 2.5 per cent. This revision is primarily due to higher flight operations and inflight recruitment and training expenses in the fourth quarter in anticipation of our expanded winter schedule which was only recently finalized, increased maintenance expense and a slight reduction in capacity associated with the aircraft reconfiguration project. The airline anticipates that its fuel costs will range between $0.90 and $0.92 per litre for the third quarter of 2012.
The airline also declared an increase to its quarterly dividend from $0.06 to $0.08. "Our decision to increase the quarterly dividend demonstrates the robustness of our business model, inclusive of our new regional airline, and its ability to deliver continued profitable growth. We are committed to not only creating value for our shareholders, but also returning value to them," added Gregg Saretsky
WestJet and Bombardier signed a definitive purchase agreement on July 31, 2012. The purchase agreement includes a firm order of 20 Q400 NextGen turboprop aircraft with purchase options for an additional 25 Q400 aircraft. Of the firm orders, seven turboprops are scheduled to be delivered in 2013. This will be followed by seven more of the confirmed orders in 2014, four in 2015 and two in 2016. The scheduled delivery slots for the 25 optional aircraft range between 2014 and 2018.
"The planned launch of our new low-cost regional airline remains on track for the second half of 2013. We have now met with representatives from over 30 airports across Canada who are all hoping to have WestJet service and hiring has commenced on the first of up to 1,800 new jobs the regional airline will create. The excitement is growing both internally here at WestJet and externally across the country as we gear up to bring our remarkable guest experience to many new communities," added Gregg Saretsky.
Dividend declaration
On July 31, 2012 WestJet's Board of Directors declared a cash dividend of $0.08 per common voting share and variable voting share for the third quarter of 2012, to be paid on September 28, 2012, to shareholders of record on September 12, 2012. 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, the introduction of a premium economy product, timing of the Q400 NextGen firm orders and information regarding the launch of the regional airline in the second half of 2013, RASM growth in the third quarter of 2012, fuel costs in the third quarter of 2012 and CASM, excluding fuel and employee profit share, for the full-year is forward-looking information within the meaning of applicable Canadian 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 budget, forecasts and strategy, our fleet plan, realized jet fuel prices for July 2012 and forward-curve prices for August and September 2012, the expected exchange rate of the Canadian dollar to the U.S. dollar in the third quarter of 2012, along with available implementation plans, agreements and bookings, but may vary due to factors including, but not limited to, changes in consumer demand, changes in fuel prices, delays in aircraft delivery, changes in guest demand, 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 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.
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 quarters. 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, 2012, 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 interim financial statements and notes for the three and six months ended June 30, 2012, 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, August 1, 2012, at 9 a.m. MDT (11 a.m. EDT). President and CEO Gregg Saretsky and Executive Vice-President of Finance and CFO Vito Culmone will discuss WestJet's second quarter 2012 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
WestJet is Canada's preferred airline, offering scheduled service to 80 destinations in North America, Central America and the Caribbean. Powered by an award-winning culture of care, WestJet has pioneered low-cost flying in Canada. Recognized nationally as a top employer, WestJet now has more than 8,600 WestJetters across Canada. Operating a fleet of 99 Boeing Next-Generation 737 aircraft with future confirmed deliveries for an additional 36 Boeing Next-Generation 737 aircraft through 2018 and plans to launch a low-cost regional airline in 2013, WestJet strives to be one of the five most successful international airlines in the world.
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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 | |||||
| 2012 | 2011 | 2012 | 2011 | |||
| Revenue: | ||||||
| Guest | 740,492 | 675,844 | 1,542,778 | 1,364,432 | ||
| Other | 68,790 | 66,444 | 157,454 | 150,278 | ||
| 809,282 | 742,288 | 1,700,232 | 1,514,710 | |||
| Expenses: | ||||||
| Aircraft fuel | 242,662 | 230,577 | 504,734 | 449,540 | ||
| Airport operations | 109,183 | 99,064 | 222,989 | 208,215 | ||
| Flight operations and navigational charges | 91,202 | 86,468 | 182,986 | 170,565 | ||
| Sales and distribution | 71,420 | 67,807 | 158,516 | 149,970 | ||
| Marketing, general and administration | 49,434 | 48,502 | 97,563 | 90,977 | ||
| Depreciation and amortization | 47,147 | 43,508 | 92,291 | 86,815 | ||
| Aircraft leasing | 42,518 | 41,624 | 88,845 | 82,337 | ||
| Maintenance | 42,120 | 34,505 | 79,847 | 65,127 | ||
| Inflight | 38,480 | 34,316 | 77,553 | 67,815 | ||
| Employee profit share | 4,651 | 4,577 | 18,785 | 12,169 | ||
| 738,817 | 690,948 | 1,524,109 | 1,383,530 | |||
| Earnings from operations | 70,465 | 51,340 | 176,123 | 131,180 | ||
| Non-operating income (expense): | ||||||
| Finance income | 4,491 | 3,808 | 8,831 | 7,739 | ||
| Finance costs | (12,258) | (15,585) | (24,995) | (31,783) | ||
| (Loss) gain on foreign exchange | (1,206) | 639 | 80 | 2,138 | ||
| Gain on disposal of property and equipment | 358 | 16 | 377 | 9 | ||
| Loss on derivatives | (3,062) | (4,159) | (6,512) | (6,416) | ||
| (11,677) | (15,281) | (22,219) | (28,313) | |||
| Earnings before income tax | 58,788 | 36,059 | 153,904 | 102,867 | ||
| Income tax expense: | ||||||
| Current | 11,837 | 603 | 40,836 | 1,184 | ||
| Deferred | 4,472 | 9,854 | 2,268 | 27,832 | ||
| 16,309 | 10,457 | 43,104 | 29,016 | |||
| Net earnings | 42,479 | 25,602 | 110,800 | 73,851 | ||
| Earnings per share: | ||||||
| Basic | 0.31 | 0.18 | 0.81 | 0.52 | ||
| Diluted | 0.31 | 0.18 | 0.81 | 0.52 | ||
Condensed Consolidated Statement of Financial Position
(Stated in thousands of Canadian dollars)
(Unaudited)
| June 30 | December 31 | |||||||
| 2012 | 2011 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | 1,264,218 | 1,243,605 | ||||||
| Restricted cash | 29,930 | 48,341 | ||||||
| Accounts receivable | 39,391 | 34,122 | ||||||
| Prepaid expenses, deposits and other | 53,892 | 66,936 | ||||||
| Inventory | 34,419 | 31,695 | ||||||
| 1,421,850 | 1,424,699 | |||||||
| Non-current assets: | ||||||||
| Property and equipment | 2,016,954 | 1,911,227 | ||||||
| Intangible assets | 44,704 | 33,793 | ||||||
| Other assets | 101,988 | 103,959 | ||||||
| Total assets | 3,585,496 | 3,473,678 | ||||||
| Liabilities and shareholders' equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | 354,594 | 307,279 | ||||||
| Advance ticket sales | 458,278 | 432,186 | ||||||
| Non-refundable guest credits | 44,100 | 43,485 | ||||||
| Current portion of long-term debt | 164,765 | 158,832 | ||||||
| Current portion of obligations under finance leases | 78 | 75 | ||||||
| 1,021,815 | 941,857 | |||||||
| Non-current liabilities: | ||||||||
| Maintenance provisions | 165,136 | 151,645 | ||||||
| Long-term debt | 656,860 | 669,880 | ||||||
| Obligations under finance leases | 3,135 | 3,174 | ||||||
| Other liabilities | 10,296 | 10,449 | ||||||
| Deferred income tax | 328,067 | 326,456 | ||||||
| Total liabilities | 2,185,309 | 2,103,461 | ||||||
| Shareholders' equity: | ||||||||
| Share capital | 618,515 | 630,408 | ||||||
| Equity reserves | 70,823 | 74,184 | ||||||
| Hedge reserves | (4,555) | (3,353) | ||||||
| Retained earnings | 715,404 | 668,978 | ||||||
| Total shareholders' equity | 1,400,187 | 1,370,217 | ||||||
| Total liabilities and shareholders' equity | 3,585,496 | 3,473,678 | ||||||
Condensed Consolidated Statement of Cash Flows
(Stated in thousands of Canadian dollars)
(Unaudited)
| Three months ended June 30 | Six months ended June 30 | |||||
| 2012 | 2011 | 2012 | 2011 | |||
| Operating activities: | ||||||
| Net earnings | 42,479 | 25,602 | 110,800 | 73,851 | ||
| Items not involving cash: | ||||||
| Depreciation and amortization | 47,147 | 43,508 | 92,291 | 86,815 | ||
| Change in long-term maintenance provisions | 10,442 | 7,806 | 18,269 | 14,504 | ||
| Change in other liabilities | (13) | 277 | (212) | 68 | ||
| Amortization of hedge settlements | 350 | 350 | 700 | 700 | ||
| Loss on derivative instruments | 3,062 | 4,159 | 6,512 | 6,416 | ||
| Gain on disposal of property and equipment | (358) | (16) | (377) | (9) | ||
| Share-based payment expense | 3,899 | 3,743 | 6,590 | 7,112 | ||
| Deferred income tax expense | 4,472 | 9,854 | 2,268 | 27,832 | ||
| Finance income | (4,491) | (3,808) | (8,831) | (7,739) | ||
| Finance costs | 12,258 | 15,585 | 24,995 | 31,783 | ||
| Unrealized foreign exchange (gain) loss | (1,335) | 1,651 | (1,840) | 2,083 | ||
| Change in non-cash working capital | (55,277) | (31,809) | 65,952 | 46,078 | ||
| Change in restricted cash | 17,370 | 11,543 | 18,411 | 2,797 | ||
| Purchase of shares pursuant to compensation plans | (1,306) | − | (1,306) | − | ||
| Change in other assets | (2,486) | (1,162) | (4,027) | (3,462) | ||
| Cash taxes paid | (399) | (395) | (806) | (766) | ||
| Cash interest received | 4,147 | 3,148 | 8,738 | 6,058 | ||
| 79,961 | 90,036 | 338,127 | 294,121 | |||
| Investing activities: | ||||||
| Aircraft additions | (125,690) | (4,468) | (169,454) | (47,608) | ||
| Other property and equipment and intangible additions | (20,610) | (6,956) | (33,090) | (16,336) | ||
| (146,300) | (11,424) | (202,544) | (63,944) | |||
| Financing activities: | ||||||
| Increase in long-term debt | 37,692 | − | 72,995 | − | ||
| Repayment of long-term debt | (40,451) | (49,763) | (80,082) | (91,046) | ||
| Decrease in obligations under finance leases | (18) | (18) | (37) | (72) | ||
| Shares repurchased | (49,928) | (29,535) | (68,749) | (57,831) | ||
| Issuance of shares | 110 | − | 110 | − | ||
| Dividends paid | (8,047) | (6,969) | (16,273) | (21,174) | ||
| Cash interest paid | (10,860) | (12,980) | (22,131) | (27,004) | ||
| Change in non-cash working capital | (1,398) | (1,662) | (2,863) | 2,316 | ||
| (72,900) | (100,927) | (117,030) | (194,811) | |||
| Cash flow from operating, investing and financing activities | (139,239) | (22,315) | 18,553 | 35,366 | ||
| Effect of foreign exchange on cash and cash equivalents | 2,645 | (2,528) | 2,060 | (4,438) | ||
| Net change in cash and cash equivalents | (136,594) | (24,843) | 20,613 | 30,928 | ||
| Cash and cash equivalents, beginning of period | 1,400,812 | 1,215,087 | 1,243,605 | 1,159,316 | ||
| Cash and cash equivalents, end of period | 1,264,218 | 1,190,244 | 1,264,218 | 1,190,244 | ||
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 | |||||||
| 2012 | 2011 | Change | 2012 | 2011 | Change | |||
| CASM, excluding fuel and employee profit share | ||||||||
| Operating expenses | 738,817 | 690,948 | 47,869 | 1,524,109 | 1,383,530 | 140,579 | ||
| Aircraft fuel expense | (242,662) | (230,577) | (12,085) | (504,734) | (449,540) | (55,194) | ||
| Employee profit share expense | (4,651) | (4,577) | (74) | (18,785) | (12,169) | (6,616) | ||
| Operating expenses, adjusted | 491,504 | 455,794 | 35,710 | 1,000,590 | 921,821 | 78,768 | ||
| ASMs | 5,388,935,462 | 5,237,968,810 | 2.9% | 11,078,587,427 | 10,468,245,560 | 5.8% | ||
| CASM, excluding above items (cents) | 9.12 | 8.70 | 4.8% | 9.03 | 8.81 | 2.5% | ||
Return on invested capital (ROIC)
(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, 2012 |
December 31, 2011 |
Change | |
| Return on invested capital(i) | |||
| Earnings before income taxes | 259,043 | 208,006 | 51,037 |
| Add: | |||
| Finance costs | 54,123 | 60,911 | (6,788) |
| Implicit interest in operating leases(ii) | 90,341 | 86,925 | 3,416 |
| 403,507 | 355,842 | 47,665 | |
| Invested capital: | |||
| Average long-term debt(iii) | 878,324 | 927,757 | (49,433) |
| Average obligations under finance leases(iv) | 3,250 | 3,303 | (54) |
| Average shareholders' equity | 1,356,611 | 1,337,225 | 19,386 |
| Off-balance-sheet aircraft leases(v) | 1,290,593 | 1,241,783 | 48,810 |
| 3,528,778 | 3,510,068 | 18,710 | |
| Return on invested capital | 11.4% | 10.1% | 1.3 pts. |
(i) The trailing 12 months are used in the calculation of ROIC.
(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) Average capital lease obligations include the current portion and long-term portion.
(v) Off-balance-sheet aircraft leases are calculated by multiplying the trailing 12 months of aircraft leasing expense by 7.5. At June 30, 2012, the trailing 12 months of aircraft leasing costs totalled $172,079 (December 31, 2011 - $165,571).
SOURCE WestJet
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