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WestJet Announces 3rd Quarter. Net Increase 43%

Fri Nov 04, 2005 1:22 am

NOV 3, 2005 - 08:30 ET

CALGARY, ALBERTA--(CCNMatthews - Nov. 3, 2005) - WestJet (TSX:WJA) today announced its 2005 third quarter results with net earnings up 43.6% to $30.3 million compared to $21.1 million achieved during the same period last year. In the first nine months of 2005, the airline achieved net earnings of $23.0 million compared to $29.1 million during the first nine months of 2004.

Operating revenue increased 30.9% this quarter to $406.1 million from $310.3 million attained in the third quarter last year. Year to date, operating revenue grew to $1.0 billion, an increase from $784.3 million during the same period in 2004.

WestJet reported diluted earnings per share of $0.23 during the third quarter of 2005, compared with $0.17 during the third quarter of 2004. Year to date, the airline reported diluted earnings per share of $0.18 compared to $0.23 during the same nine-month period in 2004. The number of common shares outstanding increased to 129,240,797 at the quarter's end compared to 125,447,836 on September 30, 2004.

WestJet's capacity, measured in available seat miles (ASMs), grew this quarter by 17.0% to 2.82 billion from last year's 2.41 billion ASMs. Year to date, ASMs increased 23.5% to 7.99 billion from 6.47 billion ASMs during the first nine months of 2004. Revenue passenger miles (RPMs) increased 20.0% to 2.22 billion RPMs this quarter, up from 1.85 billion RPMs in the same quarter last year. For the first nine months of 2005, RPMs increased 29.4% to 5.95 billion RPMs from 4.60 billion RPMs during the first three quarters of 2004.

WestJet's load factor for the quarter was 78.6% compared with 76.6% in the third quarter of 2004. The airline's year-to-date load factor was 74.5% compared with 71.0% during the first nine months of 2004.

Yield (revenue per revenue passenger mile) increased 8.9% this quarter to 18.3 cents from 16.8 cents during third quarter 2004. Year to date, yield was up 1.2% to 17.3 cents from 17.1 cents during the first nine months of 2004. WestJet's average stage length increased 4.9% from 788 miles in the third quarter of 2004 to 827 miles this quarter.

Clive Beddoe, WestJet's President and CEO, commented, "We are very pleased to report that our third quarter earnings grew 43.6% over the same period last year to $30.3 million. Pre-tax earnings grew to $48.5 million, a 36.2% increase over the $35.6 million earned in the third quarter of 2004. This is a significant achievement given the high cost of energy and the difficulty associated with predicting future prices of jet fuel.

"Although the high price of crude oil is well known, what has not generally been recognized is the disproportionately higher cost of jet fuel. This has been created by the refinery damage caused by hurricane Katrina and the resulting reduced refining capacity.

"To mitigate the volatility in the price of jet fuel, we have entered into a series of short-term hedging agreements; however, we believe this situation will ease once the affected refineries in the U.S. return to normal levels of production.

"Our initiative to replace our older, fuel-thirsty 737-200 aircraft with Next-Generation 737 aircraft remains on track. Since 2001, we have effectively been operating a fleet comprised of two distinct aircraft types -- older 737-200s and new Next-Generation 737 aircraft. By early 2006, we will have retired all of our older 737-200 models in favour of a fleet comprised entirely of more fuel-efficient Next-Generation aircraft.

"The costs associated with operating the Next-Generation 600-, 700- and 800-series 737s are relatively low as all can be operated by the same crews, and are virtually the same from a maintenance standpoint. The uniformity of our fleet going forward will offer many advantages from a cost and customer service perspective as well as benefits that will come from increased utilization and flexible scheduling.

"The implementation of our new reservation system in early 2006 will further strengthen our competitive edge and raise our levels of customer service. This system will open many opportunities for us to improve our product and we expect to see increased load factors and improved yields as a result.

"Based on our strong load factor this quarter in the face of our 17% increase in available seat miles, it is clearly apparent that the market can absorb the increased capacity we continue to add to our existing network and our new routes. However, our overall load factor was dampened by weaker performance on our transborder routes.

"Our transborder flights during the winter have generally done well as the predominant traffic flow has been southbound, but to maintain strong year-round transborder service, we still need to improve upon our distribution from within the U.S. We are nevertheless seeing constant improvement from our efforts in this area and with our first year's experience of operating transborder service now behind us, we are better equipped to adjust our schedules and capacity accordingly.

"The challenges facing airlines throughout North America and the world have received considerable media attention in recent years. Through these difficult times, however, the people of WestJet have worked diligently to improve our airline and the level of service we offer our guests. I would like to thank all WestJetters for their efforts in maintaining and improving our world-class airline, and for their work at creating these strong third quarter results. I would also like to thank our shareholders for their ongoing support as we continue to navigate through a difficult operating environment."

WestJet is Canada's leading low-fare airline offering scheduled service throughout its 35-city North American network. Named Canada's most respected corporation for customer service in 2005, WestJet pioneered low-cost high-value flying in Canada. With increased legroom and leather seats on its modern fleet of Boeing Next-Generation 737 aircraft, and live seatback television provided by Bell ExpressVu on its 737-700 fleet, WestJet strives to be the number one choice for travellers.

Third Quarter 2005 Management's Discussion and Analysis

Forward-looking Information

Certain information set forth in this document, including management's assessment of WestJet's future plans and operations, contains forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond WestJet's control, including the impact of general economic conditions, changing domestic and international industry conditions, volatility of fuel prices, terrorism, currency fluctuations, interest rates, competition from other industry participants (including new entrants, and generally as to capacity fluctuations and pricing environment), labour matters, government regulation, stock-market volatility and the ability to access sufficient capital from internal and external sources. Readers are cautioned that management's expectations, estimates, projections and assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. WestJet's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements or if any of them do so, the benefits that WestJet will derive there from.

Additional information relating to WestJet, including Annual Information Forms and financial statements, is available on SEDAR's website at www.sedar.com.

To supplement its consolidated financial statements presented in accordance with Canadian generally accepted accounting principles ("GAAP"), the Company uses various non-GAAP performance measures, including cost per available seat mile ("CASM"), revenue per available seat mile ("RASM") and revenue per revenue passenger mile ("yield"). These measures are provided to enhance the user's overall understanding of WestJet's current financial performance and are included to provide investors and management with an alternative method for assessing the Company's operating results in a manner that is focused on the performance of the Company's ongoing operations and to provide a more consistent basis for comparison between quarters. These measures are not in accordance with or an alternative for GAAP and may be different from measures used by other companies.

Quarterly unaudited financial information
(In millions except per share data)
--------------------------------------------- --------------------------------------------- 9/30/2005 6/30/2005 3/31/2005 12/31/2004 --------------------------------------------- ---------------------------------------------Total revenues $ 406 $ 326 $ 295 $ 274Net earnings (loss) $ 30 $ 2 $ (10) $ (46)Basic earnings (loss) per share $ 0.24 $ 0.02 $ (0.08) $ (0.37)Diluted earnings (loss) per share $ 0.23 $ 0.02 $ (0.08) $ (0.37)
--------------------------------------------- --------------------------------------------- 9/30/2004 6/30/2004 3/31/2004 12/31/2003 --------------------------------------------- ---------------------------------------------
Total revenues $ 310 $ 257 $ 217 $ 230Net earnings $ 21 $ 7 $ 1 $ 13Basic earnings per share $ 0.17 $ 0.06 $ - $ 0.10Diluted earnings per share $ 0.17 $ 0.06 $ - $ 0.10


The third quarter of 2005 was another exciting time for our airline in terms of the expansion of our route network and our return to stronger profitability. In addition to adding flights to our existing network, we commenced scheduled service to Las Vegas, Nevada, extended our service to Charlottetown, Prince Edward Island, and announced service to Honolulu and Maui, Hawaii beginning in December of this year. The addition of these destinations to our network strengthens our current routes while the added frequencies and increased connectivity between existing destinations improves the attractiveness of our product to the travelling public.

The evolution of our route network into more markets and the continued expansion of our fleet has coincided with a period of relentlessly high fuel prices. The high-fuel-cost environment was a catalyst for our decision to retire our remaining 737-200 aircraft. The last of these aircraft will be removed from scheduled service in January 2006 and depart our fleet in March 2006.

With the agreement to retire our last less-efficient 737-200 signed in July, we were especially pleased to accept delivery of our first new Next-Generation 737-600 aircraft in August. Beginning in January 2006, we will operate a fleet comprised exclusively of state-of-the-art Boeing Next-Generation 737 aircraft equipped with more legroom and leather seats. Furthermore, our 600-, 700- and 800-series aircraft will all eventually be furnished with live seatback television provided by Bell ExpressVu.

This will bring to fruition our long awaited goal of operating a fleet comprised entirely of Next-Generation aircraft, from which we will realize improved efficiencies and savings as they relate to training, crewing and maintenance. Furthermore, by operating three different sizes of one aircraft type, we will ensure we are operating the best-suited aircraft for the varied and changing demands of each route.

Improving efficiencies and stimulating demand with expanded low-cost service are fundamental elements of our business philosophy; however, of all the business decisions we made this quarter, many WestJetters are most proud of our role in airlifting evacuees away from the path of hurricane Rita in September.

We were first contacted by American relief officials at approximately noon MDT on September 22. We had an aircraft crewed with pilots, flight attendants and maintenance personnel in the air and on its way to Houston four hours later. It was a great pleasure and honour for our people to participate in easing the fear and discomfort of the many Texans we helped during that important rescue and evacuation operation. We would like to thank all WestJet shareholders, as owners of our company, for their support of this operation.


As anticipated, in the third quarter we experienced the benefits of a more rational competitive environment, which allowed us to price our product more in line with our costs. The third quarter saw our guest revenue increase by 29.7% to $368.3 million versus $283.9 million for the same period a year ago. Our load factor increased to 78.6% this quarter from 76.6% during the third quarter of 2004, and our yield increased from 16.8 cents per revenue passenger mile to 18.3 cents over the same time period. The ability for our airline to increase capacity by 17%, while also increasing both our load factor and yield, is a clear indication of the market's acceptance of our product and the improving competitive environment in Canada.

As has been the case throughout the year, our charter revenue continued to increase on a year-over-year basis with gross revenue from charter and other income climbing $10.9 million to $36.0 million, representing an increase of 43.4%. Charter flying, as a component of our business, continues to increase in importance as it allows us to increase the utilization of our aircraft during times of weaker demand, which improves our return on these assets.


Our cost per available seat mile ("CASM") this quarter increased by 11.7% over the same quarter last year, from 11.1 cents to 12.4 cents. As has been the case throughout the year, the largest single contributor to this increase has been fuel, which represented 52% of the increase in total CASM. This pressure is expected to continue throughout the remainder of the year as damage caused by hurricanes Rita and Katrina have strained refining capacity in the U.S., driving up the cost of jet fuel as a refined product and in relation to crude oil. In this environment of continually increasing fuel costs, the completion of our transition to a fleet comprised entirely of more fuel-efficient Next-Generation aircraft in March 2006 becomes all the more important.

Our average stage length for the quarter was 827 miles, an increase of 39 miles over the same quarter in the prior year when our stage length was 788 miles. The impact of this increase lowered our costs by approximately 2.6% on an ASM basis, as our fixed costs are spread out over longer flight lengths. Ignoring the impact of stage length, we estimate that our CASM would have increased by 14.3% rather than the 11.7% we actually achieved.

Increasing airport costs and navigational charges, both of which are largely uncontrollable by WestJet, were also significant drivers of our CASM increase this quarter. Airport costs were up due to an increase in our average cost per departure of 8.9%. This increase is the result of increased rates and fees charged by Canadian airports, as well as by a 20% increase in capacity into Toronto, one of the most expensive airports in our network. Navigational charges have increased in the quarter due to a 7.9% rate increase by NAV Canada in September 2004. Our continued transition to Next-Generation aircraft, which are heavier than our 737-200 fleet, has also increased this cost as navigational charges are based on weight.

The launch of a new advertising campaign during the quarter was the largest contributor to the increase in Sales and Marketing costs, which increased on a CASM basis by 41.9% over the same period last year. This advertising campaign targeted newspaper, radio and television audiences to increase awareness of the WestJet brand and the extraordinary customer service WestJet people provide. The campaign, called "Owners," focuses on WestJetters going above and beyond every day because they have a vested interest in creating an exceptional travel experience. At quarter's end, 86% percent of eligible employees contributed to WestJet's employee share purchase plan at an average rate of 12% of base pay.

Aircraft leasing costs, on a CASM basis, increased 60.5% compared to the third quarter of 2004 as eight aircraft delivered in the first and second quarter of 2005 were financed through operating leases. Five of these leases were for 737-800 aircraft leased over 10-year terms, with the remaining three leases for 737-700 aircraft leased over eight-year terms.

Maintenance costs continue to benefit from our fleet renewal program, which has resulted in the retirement of eight 737-200 aircraft between January and September 2005. Replacing our older 200-series aircraft with new Next-Generation aircraft has resulted in maintenance costs declining 19.5% in the quarter on a CASM basis as compared to the third quarter of 2004. These retirements have been offset by the addition of five 737-800 aircraft, five 737-700 aircraft and one 737-600 aircraft over that same time period.


The financial strength and flexibility of our balance sheet continues to be a fundamental component of our long-term success. Our cash balance at the end of this quarter stood at $257 million, up from $149 million at the beginning of the year despite having taken delivery of 11 new aircraft over that same time period. We ended the quarter with a working capital ratio of 0.86 to 1 as compared to 0.92 to 1 for the same quarter of the previous year. Our debt-to-equity ratio, which includes $495 million of off-balance sheet financing in the form of operating leases at present value, was 2.39 to 1 at the end of the quarter.

The third quarter was an important period for securing the future financial strength and flexibility of our balance sheet. During the quarter, we received Final Commitment from the Export-Import Bank of the United States (Ex-Im) to support the financing of 13 aircraft, consisting of five Boeing 737-700s and eight Boeing 737-600s, which are scheduled to be delivered between July 2005 and June 2006. With the support of the Ex-Im guarantee, we have completed financing arrangements for US $386 million for delivery of all 13 aircraft covered by the Ex-Im loan guarantees. This facility will be drawn in Canadian dollars in separate instalments with 12-year terms for each new aircraft. During the quarter, we took delivery of the first three aircraft under this facility, consisting of two Boeing 737-700s and one Boeing 737-600 and have to date drawn a total of CAD $112 million at an average fixed rate of 4.69%.

The Ex-Im guaranteed loan facility provides the ability to enter into forward-starting interest-rate agreements to fix the interest rate on the remaining 10 aircraft to be delivered under the facility. In order to take advantage of the current low-interest-rate environment, we have entered into forward-starting interest-rate agreements at rates between 4.78% and 4.99% on all 10 remaining aircraft deliveries. In addition to the ability to forward fix the interest rates on the future aircraft deliveries, we also have the ability to reduce our foreign exchange exposure on these same deliveries by locking in the exchange rate in advance of delivery. As at September 30, 2005, we have entered into foreign exchange contracts in the amount of US $28 million at a rate of 1.22, effective until November 30, 2005 for the delivery of one aircraft under this facility. The estimated fair value of the contract as at September 30, 2005 is a loss of CAD $1,690,000.

In addition to the Final Commitment described above, the corporation also received a Preliminary Commitment in the amount of US $324 million to cover an additional six aircraft to be delivered between July 2006 and January 2007, as well as an additional four aircraft currently under option.


Fuel price volatility not only continued in the third quarter of 2005, but intensified due to the impact that hurricanes Katrina and Rita had on jet-fuel refineries in the U.S. In response to the continued unpredictability in the price of jet fuel, we implemented a fuel-hedging strategy to help mitigate the effects of volatile fuel prices. The challenge WestJet faces with respect to fuel costs relates to the length of time between a guest booking a flight and the date at which the guest actually travels. As airline travellers typically purchase seats for travel weeks or months in advance of their planned travel date, the price paid for those seats may not reflect the actual cost to fly that passenger as fuel prices may have increased over that time period.

To reduce our exposure to this uncertainty, we have locked in a portion of our exposure to fluctuations in the price of jet fuel over a term and quantity that relates to our advanced ticket sales. For the months of October, November, December and January we locked in approximately 50%, 50%, 25% and 12.5% respectively of our anticipated exposure to fluctuations in the price of jet fuel. The estimated fair market value of these contracts as at September 30, 2005 was a gain of $1,722,000.


On August 30, 2005, WestJet shareholders voted in favour of the creation of two new classes of shares to replace our common shares in order to address non-Canadian ownership limits. Under Canadian law, non-Canadian ownership (as defined by the Canada Transportation Act) of airline voting shares is limited to 25% of outstanding shares. The amended capital structure ensures our continued compliance with the 25% maximum on the number of voting rights attached to shares held by non-Canadians by having all shares held by non-Canadians automatically converted to variable voting shares. Variable voting shares, held by non-Canadians, carry one vote per share unless non-Canadians collectively hold in excess of 25% of all outstanding voting shares or if the total number of votes cast by or on behalf of non-Canadians at any meeting upon which a vote is to be taken exceeds 25% of the total number of votes that may be cast at such meeting. In these circumstances, the voting rights of the non-Canadians is reduced on a pro-rata basis such that the variable voting shares would never collectively carry more than 25% of the vote at any shareholder meeting. The common voting shares are owned and controlled by Canadians and always carry one vote per share. As at October 27, 2005, the Corporation had a total of 129,399,673 shares outstanding, which was made up of 118,387,496 common voting shares and 11,012,177 variable voting shares.


With more destinations, new aircraft and a disciplined approach to operating our business, we are extremely well positioned in the Canadian marketplace to continue our growth strategy. As well, the distinct competitive advantage afforded by our dedicated team of people, superb product offering and solid financial footing places WestJet in a unique and enviable place among other airlines.

We are committed to being the lowest-cost provider of safe air transportation to, from and within Canada by:

- Constantly enriching our strong corporate culture, which is dedicated and committed to providing the best customer service in the industry

- Progressively developing new markets in both Canada and beyond which can be serviced by the Boeing 737 in its various forms

- Continually increasing the frequency of our routes to provide a variety of scheduling options to the travelling public

- Continuously building our service model of providing low-fare air transportation to both leisure and business travellers

With the continued support of our shareholders, people and guests, we will leverage the advantages of our business to the best of our ability to ensure we optimize our returns, offer an unbeatable low-fare experience and continue to be a great place to work.

Cost per Available Seat Mile (Cents):-------------------------------------
Three months ended Nine months ended September 30, September 30,------------------------------------------------------------------------ % Change % Change 2005 2004 over 2004 2005 2004 over 2004------------------------------------------------------------------------
Aircraft fuel 3.41 2.72 (25.4%) 3.20 2.56 (25.0%)Airport operations 1.92 1.88 (2.1%) 2.04 1.91 (6.8%)Flight operations and navigational charges 1.76 1.63 (8.0%) 1.70 1.66 (2.4%)Sales and marketing 1.22 0.86 (41.9%) 1.09 0.98 (11.2%)Amortization 0.96 0.82 (17.1%) 0.99 0.88 (12.5%)Maintenance 0.66 0.82 19.5% 0.73 0.89 18.0%General and administration 0.57 0.70 18.6% 0.63 0.67 6.0%Aircraft leasing 0.69 0.43 (60.5%) 0.58 0.49 (18.4%)Interest expense 0.49 0.48 (2.1%) 0.51 0.48 (6.3%)Inflight 0.48 0.48 0.0% 0.49 0.49 0.0%Customer Service 0.26 0.27 3.7% 0.25 0.26 3.8% ------ ------- ----------- ------ ------- ------------ ------ ------- ----------- ------ ------- ------------ 12.42 11.09 (12.0%) 12.21 11.27 (8.3%)
WestJet Airlines Ltd.Consolidated Financial StatementsSeptember 30, 2005(Unaudited)
WestJet Airlines Ltd.Consolidated Balance SheetsSeptember 30, 2005, December 31, 2004 and September 30, 2004(Stated in Thousands of Dollars)------------------------------------------------------------------------------------------------------------------------------------------------ September 30 December 31 September 30 2005 2004 2004 (unaudited) (unaudited)------------------------------------------------------------------------AssetsCurrent assets: Cash and cash equivalents $ 256,961 $ 148,532 $ 227,887 Accounts receivable 18,692 12,814 12,935 Income taxes recoverable 6,698 2,854 3,423 Prepaid expenses and deposits 33,034 25,493 24,612 Inventory 3,570 5,382 5,369------------------------------------------------------------------------ 318,955 195,075 274,226
Property and equipment (note 1) 1,675,187 1,601,546 1,573,785
Other assets 86,489 80,733 79,398------------------------------------------------------------------------
$ 2,080,631 $ 1,877,354 $ 1,927,409------------------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' EquityCurrent liabilities: Accounts payable and accrued liabilities $ 93,775 $ 91,885 $ 82,434 Advance ticket sales 140,353 81,991 95,724 Non-refundable guest credits 27,754 26,704 23,386 Current portion of long-term debt (note 2) 104,308 97,305 92,190 Current portion of obligations under capital lease (note 6) 2,769 6,564 5,211------------------------------------------------------------------------ 368,959 304,449 298,945
Long-term debt (note 2) 938,865 905,631 892,780
Obligations under capital lease (note 6) 878 - 5,894
Long-term liabilities (note 3) 16,092 10,000 10,000
Future income tax 94,768 67,382 87,068------------------------------------------------------------------------ 1,419,562 1,287,462 1,294,687Shareholders' equity: Share capital (note 5) 426,172 390,469 390,465 Contributed surplus (note 5(f)) 34,487 21,977 18,542 Retained earnings 200,410 177,446 223,715------------------------------------------------------------------------ 661,069 589,892 632,722------------------------------------------------------------------------
Commitments and contingencies (note 6)------------------------------------------------------------------------ $ 2,080,631 $ 1,877,354 $ 1,927,409------------------------------------------------------------------------------------------------------------------------------------------------
WestJet Airlines Ltd.Consolidated Statements of Earnings and Retained EarningsFor the periods ended September 30, 2005 and 2004(Unaudited)(Stated in Thousands of Dollars, Except Per Share Data)------------------------------------------------------------------------
------------------------------------------------------------------------ Three Months Ended Nine Months Ended September 30 September 30 2005 2004 2005 2004------------------------------------------------------------------------Revenues: Guest revenues $ 368,349 $ 283,949 $ 879,650 $ 693,054 Charter and other 35,963 25,059 143,391 87,074 Interest income 1,823 1,265 4,114 4,128------------------------------------------------------------------------ 406,135 310,273 1,027,155 784,256
Expenses: Aircraft fuel 96,117 65,601 255,144 165,532 Airport operations 54,155 45,413 162,573 123,658 Flight operations and navigational charges 49,661 39,370 136,010 107,546 Sales and marketing 34,492 20,832 87,083 63,208 Amortization 27,109 19,890 78,985 56,762 Maintenance 18,621 19,668 58,253 57,528 General and administration 16,185 16,934 50,222 43,349 Aircraft leasing 19,412 10,487 46,426 31,538 Interest expense 13,866 11,682 40,679 31,036 Inflight 13,469 11,559 39,180 31,590 Customer service 7,256 6,432 19,863 16,630------------------------------------------------------------------------ 350,343 267,868 974,418 728,377
------------------------------------------------------------------------Earnings from operations 55,792 42,405 52,737 55,879
Non-operating income (expense): Loss on foreign exchange (2,378) (2,668) (2,483) (637) Gain (loss) on disposal of property and equipment 392 32 475 (23)------------------------------------------------------------------------ (1,986) (2,636) (2,008) (660)
Employee profit share (note 7) 5,276 4,135 5,276 5,839
------------------------------------------------------------------------Earnings before income taxes 48,530 35,634 45,453 49,380
Income tax expense (recovery): Current (1,206) 1,479 (4,958) (5,366) Future 19,476 13,032 27,447 25,645------------------------------------------------------------------------ 18,270 14,511 22,489 20,279
Net earnings 30,260 21,123 22,964 29,101
Retained earnings, beginning of period 170,150 202,592 177,446 204,731
Change in accounting policy (note 5(e)) - - - (10,117)
------------------------------------------------------------------------Retained earnings, end of period $ 200,410 $ 223,715 $ 200,410 $ 223,715------------------------------------------------------------------------------------------------------------------------------------------------
Earnings per share (note 5(d)): Basic $ 0.24 $ 0.17 $ 0.18 $ 0.23 Diluted $ 0.23 $ 0.17 $ 0.18 $ 0.23
------------------------------------------------------------------------Operating highlights:
Available seat miles 2,821,051,988 2,411,184,997 7,985,225,263 6,474,433,930Revenue passenger miles 2,217,846,200 1,847,831,718 5,950,820,464 4,597,575,973Load factor 78.6% 76.6% 74.5% 71.0%Revenue per passenger mile (cents) 18.3 16.8 17.3 17.1Revenue per available seat mile (cents) 14.4 12.9 12.9 12.1Cost per passenger mile (cents) 15.8 14.5 16.4 15.8Cost per available seat mile (cents) 12.4 11.1 12.2 11.3Fuel consumption (litres) 144,380,341 131,666,890 418,470,602 356,121,880Fuel cost/litre (cents) 66.6 49.8 61.0 46.5Segment guests 2,522,782 2,174,582 6,974,081 5,742,767Average stage length 827 788 805 750Number of full time equivalent employees at quarter end 4,208 3,923 4,208 3,923Fleet size at quarter end 57 53 57 53------------------------------------------------------------------------------------------------------------------------------------------------
WestJet Airlines Ltd.Consolidated Statements of Cash FlowsFor the periods ended September 30, 2005 and 2004(Unaudited)(Stated in Thousands of Dollars)------------------------------------------------------------------------------------------------------------------------------------------------ Three Months Ended Nine Months Ended September 30 September 30 2005 2004 2005 2004------------------------------------------------------------------------Cash flows from (used in):
Operations: Net earnings $ 30,260 $ 21,123 $ 22,964 $ 29,101 Items not involving cash: Amortization 27,109 19,890 78,985 56,762 Amortization of long- term liabilities (217) - (387) - (Gain) loss on disposal of property and equipment (392) (32) (475) 23 Stock-based compensation expense 4,875 3,411 12,960 8,869 Issued from treasury stock 5,780 - 15,993 - Future income tax expense 19,476 13,032 27,447 25,645------------------------------------------------------------------------ 86,891 57,424 157,487 120,400
(Increase) Decrease in non-cash working capital (28,062) (30,439) 50,475 18,103------------------------------------------------------------------------ 58,829 26,985 207,962 138,503------------------------------------------------------------------------
Financing: Repayment of long-term debt (23,950) (20,395) (71,779) (52,830) Increase in long-term debt 112,016 121,376 112,016 388,935 Decrease in obligations under capital lease (2,429) (1,590) (5,317) (4,826) Increase (decrease) in long-term liabilities (50) - 8,480 10,000 Share issuance costs (150) - (183) (10) Increase in other assets (5,392) (5,122) (12,898) (21,562) Issuance of common shares 5,886 142 19,382 13,950------------------------------------------------------------------------ 85,931 94,411 49,701 333,657 Increase in non-cash working capital (264) - (837) ------------------------------------------------------------------------- 85,667 94,411 48,864 333,657Investing: Aircraft additions (123,016) (149,689) (514,134) (455,275) Aircraft disposals 4,523 401,201 - Other property and equipment additions (10,355) (7,956) (35,968) (33,224) Other property and equipment disposals 433 237 504 2,842------------------------------------------------------------------------ (128,415) (157,408) (148,397) (485,657)------------------------------------------------------------------------
Net change in cash 16,081 (36,012) 108,429 (13,497)
Cash, beginning of period 240,880 263,899 148,532 241,384------------------------------------------------------------------------Cash, end of period $ 256,961 $ 227,887 $ 256,961 $ 227,887------------------------------------------------------------------------------------------------------------------------------------------------
Cash is defined as cash and cash equivelants
Cash interest and taxes paid during the nine months ended September 30,2005 were $40,416,000 (September 30,2004 - $21,321,000) and $5,005,000(September 30, 2004 -$7,878,000) respectively.
As at September 30, 2005 cash and cash equivalents include US $2,665,654(September 30,2004 - $8,237,991) of restricted cash and CAD $1,500,000of restricted cash (September 30,2004 -CAD $nil).
WestJet Airlines Ltd.Notes to Consolidated Financial Statements,For the periods ended September 30, 2005 and 2004 (Unaudited)(Tabular Dollar Amounts are Stated in Thousands, Except Per Share Data)------------------------------------------------------------------------------------------------------------------------------------------------
The interim consolidated financial statements of WestJet Airlines Ltd.("WestJet" or "the Corporation") have been prepared by management inaccordance with accounting principles generally accepted in Canada. Theinterim consolidated financial statements have been prepared followingthe same accounting policies and methods of computation as theconsolidated financial statements for the fiscal year ended December 31,2004. The disclosures provided below are incremental to those includedwith the annual consolidated financial statements. The interimconsolidated financial statements should be read in conjunction with theconsolidated financial statements and the notes thereto in theCorporation's annual report for the year ended December 31, 2004.
The Corporation's business is seasonal in nature, with the highestactivity in the summer (third quarter) and the lowest activity in thewinter (first quarter) due to the high number of leisure travelers andtheir preference to travel during the summer months.
1. Property and equipment:
------------------------------------------------------------------------ AccumulatedSeptember 30, 2005 Cost Depreciation Net book value------------------------------------------------------------------------
Aircraft - 700 series $ 1,405,035 $ 84,941 $ 1,320,094Ground property and equipment 133,372 48,144 85,228Spare engines and parts - Next Generation 65,797 7,226 58,571Aircraft - 200 series 62,776 58,664 4,112Aircraft - 600 series 43,760 120 43,640Buildings 39,636 3,579 36,057Aircraft under capital lease 31,755 30,848 907Spare engines and parts - 200 series 15,375 12,577 2,798Leasehold improvements 6,451 3,825 2,626------------------------------------------------------------------------ 1,803,957 249,924 1,554,033Deposits on aircraft 96,829 - 96,829Assets under construction 24,325 - 24,325------------------------------------------------------------------------ $ 1,925,111 $ 249,924 $ 1,675,187------------------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------ AccumulatedDecember 31, 2004 Cost Depreciation Net book value------------------------------------------------------------------------
Aircraft - 700 series $ 1,282,308 $ 46,180 $ 1,236,128Ground property and equipment 109,334 34,586 74,748Spare engines and parts - Next Generation 52,641 4,777 47,864Aircraft - 200 series 142,657 121,182 21,475Buildings 39,636 2,840 36,796Aircraft under capital lease 31,304 26,781 4,523Spare engines and parts - 200 series 24,397 16,523 7,874Leasehold improvements 5,655 3,104 2,551------------------------------------------------------------------------ 1,687,932 255,973 1,431,959Deposits on aircraft 156,943 - 156,943Assets under construction 12,644 - 12,644------------------------------------------------------------------------ $ 1,857,519 $ 255,973 $ 1,601,546------------------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------ AccumulatedSeptember 30, 2004 Cost Depreciation Net book value------------------------------------------------------------------------
Aircraft - 700 series $ 1,210,274 $ 37,263 $ 1,173,011Ground property and equipment 105,766 32,419 73,347Spare engines and parts - Next Generation series 52,556 4,167 48,389Aircraft - 200 series 144,424 76,627 67,797Buildings 39,401 2,593 36,808Aircraft under capital lease 29,442 18,046 11,396Spare engines and parts - 200 series 25,370 13,833 11,537Leasehold improvements 5,422 2,949 2,473------------------------------------------------------------------------ 1,612,655 187,897 1,424,758Deposits on aircraft 140,882 - 140,882Assets under construction 8,145 - 8,145------------------------------------------------------------------------ $ 1,761,682 $ 187,897 $ 1,573,785------------------------------------------------------------------------------------------------------------------------------------------------
During the nine months ended September 30, 2005 property and equipmentwas acquired at an aggregate cost of $1,117,000 ( 2004- $nil) by meansof capital leases.
2. Long-term debt:------------------------------------------------------------------------------------------------------------------------------------------------ September 30 December 31 September 30 2005 2004 2004------------------------------------------------------------------------
$1,162,929,000 in 29 individualterm loans, amortized on astraight-line basis over a12-year term, repayable inquarterly principal instalmentsranging from $732,000 to$955,000, guaranteed by theEx-Im Bank and secured by 28700-series aircraft and 1600-series aircraft, and maturingbetween 2014 and 2017. 28 ofthese facilities include fixedrate weighted average interest at5.43%. The remaining facility,totalling $37,068,000, includesweighted average floating interestat the Canadian LIBOR rate plus0.08% (effective interest rate of2.88% as at September 30, 2005)until after the first scheduledrepayment date in November 2005,after such time the interest ratewill be fixed at a rate of 4.73%for the remaining period the loanis outstanding. $ 998,226 $ 954,674 $ 935,410
$26,000,000 in two individual termloans, repayable in monthlyinstalments of $106,000 and $156,000including floating interest at thebank's prime plus 0.88% with aneffective interest rate of 5.38% asat September 30, 2005, maturing inJuly 2008 and July 2013, secured bytwo Next-Generation flight simulatorsand cross-collateralized by one200-series aircraft, and cash of$1,500,000. 20,125 21,684 22,188
$12,000,000 term loan repayable inmonthly instalments of $108,000including interest at 9.03%, maturingApril 2011, secured by the Calgaryhangar facility. 10,830 11,075 11,147
$22,073,000 in six individual termloans, repayable in monthlyinstalments ranging from $25,000 to$87,000 including fixed rate weightedaverage interest at 8.43% all maturingin October 2005, secured by three200-series aircraft 2,527 5,301 6,188
$4,550,000 term loan repayable inmonthly instalments of $50,000,including floating interest at thebank's prime plus 0.50%, with aneffective interest rate of 5.00% asat September 30, 2005, maturing April2013, secured by the Calgary hangarfacility. 3,585 3,899 4,000
$9,556,000 in 14 individual termloans, amortized on a straight-linebasis over a five year term, repayablein quarterly principal instalmentsranging from $29,000 to $47,000including floating interest at theCanadian LIBOR rate plus 0.08%, witha weighted average effective interestrate of 2.89%, as at September 30, 2005maturing in 2009 and 2010, guaranteedby the Ex-Im Bank and secured bycertain 700-series and 600-seriesaircraft. 7,880 6,303 6,037------------------------------------------------------------------------ 1,043,173 1,002,936 984,970Less current portion 104,308 97,305 92,190------------------------------------------------------------------------ $ 938,865 $ 905,631 $ 892,780------------------------------------------------------------------------------------------------------------------------------------------------
Future scheduled repayments of long-term debt are as follows:
----------------------------------------------2005 $ 27,9522006 101,8232007 101,9932008 107,2872009 100,6912010 and thereafter 603,427---------------------------------------------- $ 1,043,173--------------------------------------------------------------------------------------------
During the quarter, the Corporation converted US $402 million ofpreliminary commitments with the Export-Import Bank of the United States("Ex-Im Bank") into a final commitment to support the acquisition of 5Boeing Next Generation 737-700 aircraft and 8 Boeing Next Generation737-600 aircraft and their related Live TV systems to be delivered in2005 and 2006. In addition, Ex-Im bank has provided a preliminarycommitment of US $324 million to cover an additional 6 aircraft to bedelivered between July 2006 and January 2007 and for the purchase of 4additional aircraft currently under option.
The Corporation will be charged a commitment fee of 0.125% per annum onthe unutilized and uncancelled balance of the Ex-Im bank facility,payable at specified dates and upon delivery of an aircraft, and ischarged a 3% exposure fee on the financed portion of the aircraft price,payable upon delivery of an aircraft.
During the quarter, the Corporation completed financing arrangements forUS $386 million (the "Facility") supported by loan guarantees from theEx-Im Bank on 13 aircraft to be delivered in 2005 and 2006. Thisfacility will be drawn in Canadian dollars in separate installments with12-year terms for each new aircraft. Each loan will be amortized on astraight-line basis over the 12-year term in quarterly principalinstallments, with interest calculated on the outstanding balance. As atSeptember 30, 2005 the Corporation has taken delivery of the first threeaircraft under this facility and has drawn a total of $112.0 million (US$91.6 million). Three special-purpose entities are used as the financialintermediaries to facilitate the financing of the Ex-Im Bank supportedaircraft. The accounts of these financial intermediaries areconsolidated in the financial statements.
The Corporation has the ability to enter into forward starting interestrate agreements to fix the interest rate on the next 10 aircraft to bedelivered in 2005 and 2006. The Corporation has entered into forwardstarting interest rate agreements at rates between 4.78% and 4.99% onall 10 aircraft future aircraft deliveries, effective for the periodNovember 2005 to July 2006.
3. Long-term liabilities
The Corporation has $8,000,000 (December 31, 2004 - $10,000,000,September 30, 2004 - $10,000,000) of unearned revenue related to the BMOMosaik® AIR MILES® Mastercard® credit card for future net retailsales and for newly activated credit cards. Commencing in May 2005, thesecond year of the agreement, the Corporation began to recognize thisrevenue, with $2,000,000 to be recognized in each of contract years twoand three, and $3,000,000 in years four and five. During the three andnine month periods ended September 30, 2005 the Corporation hasrecognized $264,000 and $2,000,000 respectively.
Included in long-term liabilities at September 30, 2005 are net deferredgains totalling $8,092,022, net of amortization. These net gains on thesale and leaseback of aircraft will be deferred and amortized over thelease term with the amortization included in aircraft leasing. Duringthe three and nine months ended September 30, 2005 the Corporationrecognized amortization of $217,430 (2004 - $nil) and $386,946 (2004 -$nil), respectively.
4. Financial instruments:
At September 30, 2005, the Corporation had U.S. dollar cash and cashequivalents totaling US $34,022,330 (December 31, 2004 - US $28,440,000,September 30, 2004-US $38,065,000).
The Corporation has entered into a contract to fix the foreign exchangerate on a future debt facility in the amount of US $28 million at a rateof 1.22, for the purchase of an aircraft scheduled for delivery inOctober 2005. The estimated fair market value of the contract as atSeptember 30, 2005 is a loss of CAD $1,690,000.
The Corporation has entered into a contract to purchase US $2.5 millionper month at a forward rate of 1.22 for the payment period from March2005 to February 2006 to hedge a portion of the Corporation's committedUS dollar lease payments during the same period. The estimated fairmarket value of the contract as at September 30, 2005 is a loss of CAD$781,000. (September 30, 2004- $nil.)
The Corporation has entered into contracts to fix the price on a portionof the Corporations fuel purchases for the periods October, November andDecember of 2005 and January of 2006. As at September 30, 2005 theCorporation has locked in approximately 50% of October and Novemberanticipated fuel purchases, 25% of December and 12.5% of January atrates of $0.696, $0.661, $0.663 and $0.630 CAD / litre respectively. Thetotal estimated fair market value of the contracts as at September 30,2005, is a gain of CAD $1,722,154.
5. Share capital:
(a) Authorized:
Unlimited number of Variable Voting Shares Unlimited number of Common Voting Shares Unlimited number of Non-voting shares Unlimited number of Non-voting first, second and third preferred shares
Variable Voting Shares
An unlimited number of Variable Voting Shares which may be owned andcontrolled only by persons who are not Canadians and are entitled to onevote per Variable Voting Share unless (i) the number of issued andoutstanding Variable Voting Shares exceed 25% of the total number of allissued and outstanding Variable Voting Shares and Common Voting Shares(or any greater percentage the Governor in Council may specify pursuantto the Canada Transportation Act ), or (ii) the total number of votescast by or on behalf of the holders of Variable Voting Shares at anymeeting on any matter on which a vote is to be taken exceeds 25% (or anygreater percentage the Governor in Council may specify pursuant to theCanada Transportation Act ) of the total number of votes that may becast at such meeting.
If either of the above-noted thresholds are surpassed at any time, thevote attached to each Variable Voting Share will decrease automaticallywithout further act of formality. Under the circumstances described inparagraph (i) above, the Variable Voting Shares as a class cannot carrymore than 25% (or any greater percentage the Governor in Council mayspecify pursuant to the Canada Transportation Act ) of the total votingrights attached to the aggregate number of issued and outstandingVariable Voting Shares and Common Voting Shares of WestJet. Under thecircumstances described in paragraph (ii) above, the Variable VotingShares as a class cannot, for a given shareholders' meeting, carry morethan 25% (or any greater percentage the Governor in Council may specifypursuant to the Canada Transportation Act ) of the total number of votesthat may be cast at the meeting.
Each issued and outstanding Variable Voting Share shall be automaticallyconverted into one Common Voting Share without any further interventionon the part of the Corporation or of the holder if (i) the VariableVoting Share is or becomes owned and controlled by a Canadian; or if(ii) the provisions contained in the Canada Transportation Act relatingto foreign ownership restrictions are repealed and not replaced withother similar provisions in applicable legislation.
Common Voting Shares
An unlimited number of Common Voting Shares which may be owned andcontrolled by Canadians only and shall confer the right to one vote perCommon Voting Share at all meetings of shareholders of the Corporation.
Each issued and outstanding Common Voting Share shall be converted intoone Variable Voting Share automatically and without any further act ofWestJet or the holder, if such Common Voting Share becomes owned orcontrolled by a person who is not a Canadian.
(b) Issued and Outstanding:
On August 30, 2005, the Corporation's Common Shares were restructuredinto two classes of shares: Variable Voting Shares and Common VotingShares. Each issued and outstanding Common Share which was not owned andcontrolled by a Canadian within the meaning of the Canada TransportationAct was converted into one Variable Voting Share and the Common Sharewas cancelled. Each issued and outstanding Common Share which was ownedand controlled by a Canadian within the meaning of the CanadaTransportation Act was converted into one Common Voting Share and theCommon Share was cancelled. The changes affecting the common votingshares and the variable voting shares were as follows:
------------------------------------------------------------------------------------------------------------------------------------------------ Three Months Ended Nine Months Ended September 30,2005 September 30,2005------------------------------------------------------------------------ Number Amount Number Amount------------------------------------------------------------------------
Common and variable voting shares:
Balance, beginning of period 128,255,922 $ 414,542 125,497,407 $ 390,469 Exercise of options 16,552 105 1,332,682 3,389 Stock-based compensation expense - 64 - 450 Issued from treasury 968,323 11,561 2,410,708 31,986 Issued on rounding of stock split - - - - Share issuance costs - (150) - (183) Tax benefit of issue costs - 50 - 61
------------------------------------------------------------------------Balance, end of period 129,240,797 $ 426,172 129,240,797 $ 426,172------------------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------------------ Year Ended December 31,2004------------------------------------------------------------------------ Number Amount------------------------------------------------------------------------
Common and variable voting shares:
Balance, beginning of period 123,882,490 $ 376,081 Exercise of options 1,611,721 13,949 Stock-based compensation expense - 445 Issued from treasury - - Issued on rounding of stock split 3,196 - Share issuance costs - (10) Tax benefit of issue costs - 4
------------------------------------------------------------------------Balance, end of period 125,497,407 $ 390,469------------------------------------------------------------------------------------------------------------------------------------------------
As at September 30, 2005, the number of common voting shares andvariable voting shares amounted to 117,157,756 and 12,083,041respectively.
------------------------------------------------------------------------------------------------------------------------------------------------ Three Months Ended Nine Months Ended September 30, 2004 September 30, 2004------------------------------------------------------------------------ Number Amount Number Amount------------------------------------------------------------------------
Common shares:
Balance, beginning of period 125,409,291 $ 390,206 123,882,489 $ 376,081 Exercise of options 38,545 142 1,562,151 13,949 Stock-based compensation expense - 117 - 445 Issued on rounding of stock split - - 3,196 - Share issuance costs - - - (10)
------------------------------------------------------------------------Balance, end of period 125,447,836 $ 390,465 125,447,836 $ 390,465------------------------------------------------------------------------------------------------------------------------------------------------
The Corporation has an Employee Share Purchase Plan ("ESPP") whereby theCorporation matches every dollar contributed by each employee. Under theterms of the ESPP the Corporation has the option to acquire commonshares on behalf of employees through open market purchases or to issuenew shares from treasury at the current market price. During the periodended September 30, 2005, shares under the ESPP were issued fromtreasury at the current market price. For the three and nine monthsended September 30, 2005 $5,780,606 and $15,993,063 of common shareswere issued from treasury, respectively (three months ended September30, 2004 - $nil, nine months ended September 30, 2004- $nil)representing the Corporation's matching contribution from treasury foremployee contributions, for which no cash was exchanged. Current marketprice for common shares issued from treasury is determined based on theweighted average trading price of the common shares on the Toronto StockExchange for the five trading days preceding the issuance.
(c) Stock option plan:
Changes in the number of options, with their weighted average exerciseprices, are summarized below:
------------------------------------------------------------------------ Three Months Ended Nine Months Ended Year Ended September 30, 2005 September 30, 2005 December 31, 2004------------------------------------------------------------------------ Weighted Weighted Weighted Number average Number average Number average of exercise of exercise of exercise Options price Options price Options price------------------------------------------------------------------------
Stock options outstanding, beginning of period 11,588,470 $ 13.92 10,682,082 $ 12.37 9,809,753 $ 10.78Issued 38,344 $ 11.97 4,470,078 $ 14.46 2,927,875 $ 15.73Exercised (30,986) $ 9.44 (3,498,890) $ 9.82 (1,959,002) $ 9.42Cancelled (63,091) $ 14.52 (120,533) $ 14.67 (96,544) $ 12.83
Stock options outstanding, end of period 11,532,737 $ 13.93 11,532,737 $ 13.93 10,682,082 $ 12.37------------------------------------------------------------------------------------------------------------------------------------------------
Exercisable, end of period 3,933,056 $ 12.23 3,933,056 $ 12.23 4,694,357 $ 10.88------------------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------------------ Three Months Ended Nine Months Ended September 30, 2004 September 30, 2004------------------------------------------------------------------------ Weighted Weighted Number average Number average of exercise of exercise Options price Options price------------------------------------------------------------------------
Stock options outstanding, beginning of period 11,053,974 $ 12.29 9,809,753 $ 10.78Issued 13,637 $ 12.96 2,904,677 $ 15.77Exercised (114,378) $ 10.12 (1,707,320) $ 9.36Cancelled (34,344) $ 13.78 (88,221) $ 12.53
Posts: 322
Joined: Thu Jun 23, 2005 6:56 am

RE: WestJet Announces 3rd Quarter. Net Increase 43%

Fri Nov 04, 2005 7:41 am

Forgive me for not reading all of it, but it seems to me that WJ is doing the right thing. Good to hear another airline is making a significant profit in today's economy.

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