WestJet Results

WestJet Reports Second Quarter Net Earnings of $48 Million, Up 32 Per Cent

WestJet

  • Reports diluted EPS of $0.41 cents, up 36.7 per cent
  • Achieves second best second quarter EPS in its 21 year history
  • Attains its 49th consecutive profitable quarter
  • Delivers a record second quarter load factor 
  • Flies a record 5.9 million guests in the second quarter 
  • Announces a normal course issuer bid

WestJet (TSX: WJA) today announced its second quarter results for 2017, with net earnings of $48.4 million, or $0.41 per fully diluted share, as compared with the net earnings of $36.7 million, or $0.30per fully diluted share reported in the second quarter of 2016, up 32.0 per cent and 36.7 per cent, respectively. WestJet achieved its 49th consecutive quarter of profitability and flew a record 5.9 million guests. Based on the trailing twelve months, the airline achieved a return on invested capital of 9.8 per cent, compared with the 10.0 per cent reported in the previous quarter. 

"I am very pleased with the positive momentum we are seeing in our business as we reported second quarter earnings growth, margin expansion, double digit revenue growth, and for the second consecutive quarter positive year over year RASM growth. Clearly our business fundamentals are strong and we are confident that the strategic initiatives we are pursuing position us for continued profitable growth," said WestJet President and CEO Gregg Saretsky. "These results are a great start to our November profit share, thanks to the commitment and passion of our more than 12,000 WestJetters who continue to deliver our brand of friendly caring service."

Operating highlights (stated in Canadian dollars)

Q2 2017

Q2 2016

Change

Year-to-

date 2017

Year-to-

date 2016

Change

Net earnings (millions)

$48.4

$36.7

32.0%

$96.7

$124.3

(22.2%)

Diluted earnings per share 

$0.41

$0.30

36.7%

$0.82

$1.02

(19.6%)

Total revenue (millions)

$1,055.0

$949.3

11.1%

$2,169.3

$1,980.8

9.5%

Operating margin

7.4%

6.5%

0.9 pts

7.3%

9.3%

(2.0 pts)

ASMs (available seat miles) (billions)

7.564

7.116

6.3%

15.263

14.410

5.9%

RPMs (revenue passenger miles) (billions)

6.260

5.749

8.9%

12.653

11.737

7.8%

Load factor

82.8%

80.8%

2.0 pts

82.9%

81.5%

1.4 pts

Segment guests

5,908,876

5,301,338

11.5%

11,596,535

10,626,444

9.1%

Yield (revenue per revenue passenger mile) (cents)

16.85

16.51

2.1%

17.14

16.88

1.5%

RASM (revenue per available seat mile) (cents)

13.95

13.34

4.6%

14.21

13.75

3.3%

CASM (cost per available seat mile) (cents)

12.91

12.48

3.4%

13.18

12.46

5.8%

Fuel costs per litre (cents)

62

53

17.0%

63

50

26.0%

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

9.84

9.93

(0.9%)

10.06

9.89

1.7%

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

Normal course issuer bid

Today, WestJet also announced that the Toronto Stock Exchange has accepted the airline's notice to make a normal course issuer bid for five per cent of the currently issued and outstanding shares.

Dividend declaration

On July 31, 2017, WestJet's Board of Directors declared a cash dividend of $0.14 per common voting share and variable voting share for the third quarter of 2017, to be paid on September 29, 2017, to shareholders of record on September 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.

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

2017

2016

2017

2016

Revenue:

Guest 

897,863

814,402

1,832,635

1,700,622

Other 

157,163

134,911

336,664

280,136

1,055,026

949,313

2,169,299

1,980,758

Operating expenses:

Aircraft fuel

224,935

182,583

460,451

348,998

Salaries and benefits

228,710

218,250

459,725

440,573

Rates and fees

163,863

152,470

326,126

306,214

Depreciation and amortization

99,342

86,821

196,965

168,590

Sales and marketing

88,776

84,118

189,114

173,195

Maintenance

46,553

50,345

113,501

103,283

Aircraft leasing

40,565

44,973

84,907

91,280

Other

76,486

69,519

164,660

142,617

Employee profit share

7,755

(1,192)

14,782

21,310

976,985

887,887

2,010,231

1,796,060

Earnings from operations

78,041

61,426

159,068

184,698

Non-operating income (expense):

Finance income

4,448

3,547

8,647

7,294

Finance cost

(13,154)

(12,793)

(28,855)

(17,955)

Gain (loss) on foreign exchange

(4,230)

1,574

(4,513)

6,295

Gain (loss) on disposal of property and equipment

2,549

(1,782)

3,917

(2,862)

Gain (loss) on derivatives

353

(249)

(1,964)

(1,561)

(10,034)

(9,703)

(22,768)

(8,789)

Earnings before income tax

68,007

51,723

136,300

175,909

Income tax expense (recovery):

Current

9,311

14,945

20,052

54,430

Deferred 

10,329

124

19,571

(2,820)

19,640

15,069

39,623

51,610

Net earnings

48,367

36,654

96,677

124,299

Earnings per share: 

Basic 

0.41

0.30

0.83

1.02

Diluted

0.41

0.30

0.82

1.02

Condensed Consolidated Statement of Financial Position

(Stated in thousands of Canadian dollars)

(Unaudited)

 

June 30

2017

December 31

2016

Assets

Current assets:

Cash and cash equivalents

1,265,610

1,520,822

Marketable securities

147,251

-

Total cash, cash equivalents and marketable securities

1,412,861

1,520,822

Restricted cash 

72,650

102,649

Accounts receivable

130,439

127,785

Prepaid expenses, deposits and other

155,630

181,070

Inventory 

33,355

33,535

1,804,935

1,965,861

Non-current assets:

Property and equipment

4,354,157

4,036,880

Intangible assets

63,647

66,187

Other assets

82,503

95,368

Total assets

6,305,242

6,164,296

Liabilities and shareholders' equity

Current liabilities:

Accounts payable and accrued liabilities 

427,261

547,490

Advance ticket sales

747,434

626,635

Deferred Rewards program

183,402

155,567

Non-refundable guest credits

35,903

42,942

Current portion of maintenance provisions 

99,461

103,571

Current portion of long-term debt

155,066

145,128

1,648,527

1,621,333

Non-current liabilities:

Maintenance provisions

267,761

262,663

Long-term debt

1,923,020

1,901,530

Other liabilities

7,827

8,374

Deferred income tax 

329,835

309,694

Total liabilities

4,176,970

4,103,594

Shareholders' equity:

Share capital

557,122

555,716

Equity reserves

97,145

93,039

Hedge reserves

(9,488)

(11,003)

Retained earnings

1,483,493

1,422,950

Total shareholders' equity

2,128,272

2,060,702

Total liabilities and shareholders' equity

6,305,242

6,164,296

Condensed Consolidated Statement of Cash Flows

(Stated in thousands of Canadian dollars)

(Unaudited)

 

Three months ended 

June 30

Six months ended

June 30

2017

2016

2017

2016

Operating activities:

Net earnings

48,367

36,654

96,677

124,299

Items not involving cash:

Depreciation and amortization

99,342

86,821

196,965

168,590

Change in maintenance provisions

8,658

19,760

43,970

42,085

Amortization of transaction costs

1,128

929

2,554

2,162

Amortization of hedge settlements

-

247

-

567

(Gain) loss on derivatives

(372)

249

4,156

1,561

(Gain) loss on disposal of property and equipment 

(2,549)

1,782

(3,917)

2,862

Share-based payment expense

5,704

6,958

9,849

11,370

Deferred income tax expense (recovery)

10,329

124

19,571

(2,820)

Unrealized foreign exchange (gain) loss

2,968

(5,276)

576

(6,183)

Change in non-cash working capital

19,776

9,302

77,276

23,409

Change in restricted cash

18,950

17,215

30,000

23,066

Change in other assets

(3,716)

(321)

(696)

6,799

Change in other liabilities

(72)

(258)

895

(977)

Purchase of shares pursuant to compensation plans

(3,338)

(6,237)

(3,517)

(6,383)

Maintenance provision settlements

(23,287)

(23,275)

(31,227)

(23,637)

181,888

144,674

443,132

366,770

Investing activities:

Aircraft additions

(336,874)

(256,701)

(491,996)

(468,247)

Aircraft disposals

5,656

(130)

7,841

73

Other property and equipment and intangible additions

(14,313)

(19,260)

(23,631)

(36,659)

Purchase of marketable securities

(50,271)

-

(150,018)

-

Change in non-cash working capital

11,833

(24,264)

(6,631)

(29,227)

(383,969)

(300,355)

(664,435)

(534,060)

Financing activities:

Increase in long-term debt

84,245

562,096

125,953

914,791

Repayment of long-term debt

(39,375)

(43,492)

(77,882)

(85,104)

Shares repurchased

(4,214)

(52,968)

(4,214)

(66,933)

Dividends paid

(16,387)

(16,782)

(32,795)

(33,914)

Cash interest paid

(16,889)

(8,361)

(31,367)

(24,715)

Change in non-cash working capital

(4,827)

2,804

(6,393)

(10,320)

2,553

443,297

(26,698)

693,805

Cash flow from operating, investing and financing activities

(199,528)

287,616

(248,001)

526,515

Effect of foreign exchange on cash and cash equivalents

(6,490)

3,722

(7,211)

(12,064)

Net change in cash and cash equivalents

(206,018)

291,338

(255,212)

514,451

Cash and cash equivalents, beginning of period

1,471,628

1,406,910

1,520,822

1,183,797

Cash and cash equivalents, end of period

1,265,610

1,698,248

1,265,610

1,698,248

Supplemental disclosure of operating cash flows

Cash interest received

4,239

3,520

8,314

7,099

Cash taxes paid, net

(31,571)

(29,533)

(76,553)

(74,472)

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)

2017

2016

Change

2017

2016

Change

Operating expenses

976,985

887,887

89,098

2,010,231

1,796,060

214,171

Aircraft fuel expense

(224,935)

(182,583)

(42,352)

(460,451)

(348,998)

(111,453)

Employee profit share expense

(7,755)

1,192

(8,947)

(14,782)

(21,310)

6,528

Operating expenses, adjusted

744,295

706,496

37,799

1,534,998

1,425,752

109,246

ASMs

7,563,808,125

7,115,577,504

6.3%

15,262,870,816

14,409,981,621

5.9%

CASM, excluding above items (cents)

9.84

9.93

(0.9%)

10.06

9.89

1.7%

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

2017

June 30 

2016

Change

Earnings before income taxes

376,624

414,831

(38,207)

Add:

Finance costs

59,975

44,221

15,754

Implicit interest in operating leases(i)

90,337

91,210

(873)

Return

526,936

550,262

(23,326)

Invested capital:

Average long-term debt(ii)

2,044,618

1,617,149

427,469

Average shareholders' equity

2,049,543

1,919,542

130,001

Off-balance-sheet aircraft leases(iii)

1,290,533

1,302,998

(12,465)

 Invested capital

5,384,694

4,839,689

545,005

Return on invested capital

9.8%

11.4%

(1.6 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 June 30, 2017, the trailing 12 months of aircraft leasing costs totaled $172,071 (June 30, 2016 – $173,733).



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