WestJet reports record third quarter net earnings of $138.4 million, up 19 per cent

News provided by

WestJet

Oct 31, 2017, 06:30 ET

  • Diluted EPS of $1.18, up 22 per cent
  • Highest quarterly EPS in its 21-year history
  • 50th consecutive profitable quarter
  • ROIC improves to 10.2 per cent, up 40 basis points from the previous quarter
  • Highest ever quarterly load factor of 85.7 per cent
  • All-time quarterly record of 6.5 million guests in the third quarter

CALGARY, Oct. 31, 2017 /PRNewswire/ - WestJet (TSX: WJA) today announced its third quarter results for 2017, with record net earnings of $138.4 million, or $1.18 per fully diluted share, as compared with the net earnings of $116.0 million, or $0.97 per fully diluted share reported in the third quarter of 2016, up 19.4 per cent and 21.6 per cent, respectively. WestJet achieved its 50th consecutive quarter of profitability and flew an all-time quarterly record of 6.5 million guests. Based on the trailing twelve months, the airline achieved a return on invested capital of 10.2 per cent, up compared to the 9.8 per cent reported in the previous quarter.

"Today we reported our 50th consecutive profitable quarter, which included record earnings, margin expansion, positive year over year RASM growth, and improved return on invested capital, as we achieved the highest ever quarterly load factor in our 21-year history and flew an all-time quarterly record number of guests. Our business fundamentals continue to strengthen, which combined with new strategic initiatives, including the launching of Swoop in the summer of 2018 and Boeing Dreamliner service starting in 2019, gives us great confidence in our ability to deliver sustainable profitable growth and earnings expansion," said WestJet President and CEO Gregg Saretsky. "I want to thank our more than 13,000 WestJetters for their dedication and energy in delivering our award-winning brand of friendly caring service, and I especially look forward to celebrating our success at the November profit share event."

Operating highlights (stated in Canadian dollars)

Q3 2017

Q3 2016

Change

Year-to-date 2017

Year-to-date 2016

Change

Net earnings (millions)

$138.4

$116.0

19.4%

$235.1

$240.3

(2.1%)

Diluted earnings per share

$1.18

$0.97

21.6%

$2.00

$1.98

1.0%

Total revenue (millions)

$1,215.6

$1,124.3

8.1%

$3,384.9

$3,105.1

9.0%

Operating margin

16.6%

15.1%

1.5 pts

10.7%

11.4%

(0.7 pts)

ASMs (available seat miles) (billions)

8.077

7.635

5.8%

23.339

22.045

5.9%

RPMs (revenue passenger miles) (billions)

6.922

6.414

7.9%

19.575

18.152

7.8%

Load factor

85.7%

84.0%

1.7 pts

83.9%

82.3%

1.6 pts

Segment guests

6,530,873

5,900,967

10.7%

18,127,408

16,527,411

9.7%

Yield (revenue per revenue passenger mile) (cents)

17.56

17.53

0.2%

17.29

17.11

1.1%

RASM (revenue per available seat mile) (cents)

15.05

14.73

2.2%

14.50

14.09

2.9%

CASM (cost per available seat mile) (cents)

12.55

12.50

0.4%

12.96

12.48

3.8%

Fuel costs per litre (cents)

62

57

8.8%

63

53

18.9%

CASM, excluding fuel and employee profit share (cents)*

9.26

9.38

(1.3%)

9.78

9.72

0.6%

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

Dividend declaration
On October 30, 2017, 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 2017, to be paid on December 29, 2017, to shareholders of record on December 13, 2017. 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 the launching of Swoop in the summer of 2018, the launching of Boeing Dreamliner service starting in 2019, WestJet's ability to deliver sustainable profitable growth and earnings expansion, and payment of future dividends, 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 and nine months ended September 30, 2017, 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 and nine months ended September 30, 2017, 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, October 31, 2017, at 8 a.m. MT (10 a.m. ET). President and CEO Gregg Saretsky and Executive Vice-President of Finance and CFO Harry Taylor will discuss WestJet's third 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
WestJet is proud to be named Best Airline in Canada and one of the best Low Cost Airlines in North America, based on authentic reviews from the travelling public on Trip Advisor, the world's largest travel site. We are one of very few airlines globally that does not commercially overbook. Together with our 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 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:
2017 Five-Star Airline in the Low-Cost Category (The Airline Passenger Experience Association)
2017/2016 Canada's Most Trusted Airline (Gustavson School of Business at the University of Victoria)
2017 Best Airline in Canada and Travellers' Choice Winner Mid-Sized and Low Cost Airlines – North America (TripAdvisor Travelers' Choice awards for Airlines)
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)
2015/2011/2010/2008/2007/2006/2005 Canada's Most Admired Corporate Culture (Waterstone Human Capital)
2015 Best Employers in Canada (Aon Hewitt)

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

2017

2016

2017

2016





Revenue:




Guest

1,047,808

988,329

2,880,443

2,688,952

Other

167,778

136,013

504,441

416,148

1,215,586

1,124,342

3,384,884

3,105,100

Operating expenses:




Aircraft fuel

237,973

206,381

698,424

555,378

Salaries and benefits

231,097

208,804

690,822

649,376

Rates and fees

162,423

160,586

488,549

466,802

Depreciation and amortization

100,519

88,171

297,484

256,761

Sales and marketing

95,217

92,030

284,331

265,225

Maintenance

47,286

50,958

160,787

154,241

Aircraft leasing

40,070

45,178

124,976

136,458

Other

71,543

70,522

236,203

213,139

Employee profit share

27,610

31,579

42,392

52,889

1,013,738

954,209

3,023,968

2,750,269

Earnings from operations

201,848

170,133

360,916

354,831





Non-operating income (expense):




Finance income

4,853

4,579

13,500

11,873

Finance cost

(11,768)

(15,739)

(40,623)

(33,694)

Gain (loss) on foreign exchange

(204)

1,327

(4,717)

7,621

Gain (loss) on disposal of property and equipment

69

45

3,986

(2,817)

Gain (loss) on derivatives

(441)

2,218

(2,405)

658

(7,491)

(7,570)

(30,259)

(16,359)

Earnings before income tax

194,357

162,563

330,657

338,472





Income tax expense (recovery):




Current

24,449

46,049

44,501

100,479

Deferred

31,481

543

51,052

(2,276)

55,930

46,592

95,553

98,203

Net earnings

138,427

115,971

235,104

240,269





Earnings per share:






Basic

1.19

0.97

2.01

1.98

Diluted

1.18

0.97

2.00

1.98

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


September 30

2017

December 31

2016

Assets

Current assets:


Cash and cash equivalents

1,289,356

1,520,822

Marketable securities

174,704

-


Total cash, cash equivalents and marketable securities

1,464,060

1,520,822

Restricted cash

89,883

102,649

Accounts receivable

157,170

127,785

Prepaid expenses, deposits and other

119,101

181,070

Inventory

37,355

33,535

1,867,569

1,965,861

Non-current assets:


Property and equipment

4,470,269

4,036,880

Intangible assets

61,135

66,187

Other assets

78,452

95,368

Total assets

6,477,425

6,164,296



Liabilities and shareholders' equity

Current liabilities:


Accounts payable and accrued liabilities

517,642

547,490

Advance ticket sales

739,094

626,635

Deferred Rewards program

194,519

155,567

Non-refundable guest credits

37,237

42,942

Current portion of maintenance provisions

49,043

103,571

Current portion of long-term debt

157,259

145,128

1,694,794

1,621,333

Non-current liabilities:


Maintenance provisions

292,284

262,663

Long-term debt

1,905,383

1,901,530

Other liabilities

16,757

8,374

Deferred income tax

362,599

309,694

Total liabilities

4,271,817

4,103,594



Shareholders' equity:


Share capital

553,068

555,716

Equity reserves

96,361

93,039

Hedge reserves

(5,957)

(11,003)

Retained earnings

1,562,136

1,422,950

Total shareholders' equity

2,205,608

2,060,702

Total liabilities and shareholders' equity

6,477,425

6,164,296

Condensed Consolidated Statement of Cash Flows
(Stated in thousands of Canadian dollars)
(Unaudited)


Three months ended

September 30

Nine months ended

September 30

2017

2016

2017

2016





Operating activities:



Net earnings

138,427

115,971

235,104

240,269

Items not involving cash:




Depreciation and amortization

100,519

88,171

297,484

256,761

Change in maintenance provisions

12,684

18,293

56,654

60,378

Amortization of transaction costs

1,128

1,913

3,682

4,075

Amortization of hedge settlements

-

187

-

754

(Gain) loss on derivatives

171

(2,005)

4,327

(444)

(Gain) loss on disposal of property and equipment

(69)

(45)

(3,986)

2,817

Share-based payment expense

5,058

2,878

14,907

14,248

Deferred income tax expense (recovery)

31,481

544

51,052

(2,276)

Unrealized foreign exchange (gain) loss

4,778

3,491

5,354

(2,692)

Change in non-cash working capital

118,723

94,484

195,999

117,893

Change in restricted cash

(17,233)

(35,979)

12,767

(12,913)

Change in other assets

(803)

197

(1,499)

6,996

Change in other liabilities

21

(65)

916

(1,042)

Purchase of shares pursuant to compensation plans

(47)

(182)

(3,564)

(6,565)

Maintenance provision settlements

(25,105)

(10,816)

(56,332)

(34,452)

369,733

277,037

812,865

643,807





Investing activities:



Aircraft additions

(204,990)

(140,568)

(696,986)

(608,815)

Aircraft disposals

280

3,992

8,121

4,065

Other property and equipment and intangible additions and disposals

(9,339)

(18,817)

(32,970)

(55,476)

Purchase of marketable securities

(30,986)

-

(181,004)

-

Change in non-cash working capital

(4,197)

4,808

(10,828)

(24,419)

(249,232)

(150,585)

(913,667)

(684,645)





Financing activities:



Increase in long-term debt

40,536

41,207

166,489

955,998

Repayment of long-term debt

(37,049)

(37,385)

(114,931)

(122,489)

Shares repurchased

(53,509)

(23,318)

(57,723)

(90,251)

Dividends paid

(16,125)

(16,645)

(48,920)

(50,559)

Cash interest paid

(14,703)

(14,779)

(46,070)

(39,494)

Change in non-cash working capital

(3,370)

(818)

(9,763)

(11,138)

(84,220)

(51,738)

(110,918)

642,067





Cash flow from/(used in) operating, investing and financing activities

36,281

74,714

(211,720)

601,229

Effect of foreign exchange on cash and cash equivalents

(12,535)

288

(19,746)

(11,776)

Net change in cash and cash equivalents

23,746

75,002

(231,466)

589,453





Cash and cash equivalents, beginning of period

1,265,610

1,698,248

1,520,822

1,183,797





Cash and cash equivalents, end of period

1,289,356

1,773,250

1,289,356

1,773,250

Supplemental disclosure of operating cash flows


Cash interest received

4,208

4,590

12,522

11,689

Cash taxes paid, net

(20,751)

(26,876)

(97,304)

(101,348)

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)

2017

2016

Change

2017

2016

Change

Operating expenses

1,013,738

954,209

59,529

3,023,968

2,750,269

273,699

Aircraft fuel expense

(237,973)

(206,381)

(31,592)

(698,424)

(555,378)

(143,046)

Employee profit share expense

(27,610)

(31,579)

3,969

(42,392)

(52,889)

10,497

Operating expenses, adjusted

748,155

716,249

31,906

2,283,152

2,142,002

141,150

ASMs

8,076,620,199

7,635,077,139

5.8%

23,339,491,015

22,045,058,760

5.9%

CASM, excluding above items (cents)

9.26

9.38

(1.3%)

9.78

9.72

0.6%

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
2017

September 30
2016

Change

Earnings before income taxes

408,418

431,099

(22,681)

Add:



Finance costs

56,004

46,646

9,358

Implicit interest in operating leases(i)

87,656

93,628

(5,972)

Return

552,078

571,373

(19,295)

Invested capital:



Average long-term debt(ii)

2,044,020

1,611,679

432,341

Average shareholders' equity

2,128,012

1,980,508

147,504

Off-balance-sheet aircraft leases(iii)

1,252,223

1,337,543

(85,320)

Invested capital

5,424,255

4,929,730

494,525

Return on invested capital

10.2%

11.6%

(1.4 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 interest 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 September 30, 2017, the trailing 12 months of aircraft leasing costs totaled $166,963 (September 30, 2016 – $178,339).

SOURCE WestJet

Related Links

http://www.westjet.com

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