WestJet reports record third quarter net earnings

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WestJet

Nov 03, 2015, 06:30 ET

Airline achieves record return on invested capital and its sixth quarter of consecutive record net earnings reporting $101.8 million, up 19.2 per cent year over year

CALGARY, Nov. 3, 2015 /PRNewswire/ - 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
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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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