WestJet reports record 1Q net profit of C$91.1 million, will sell 10 Boeing 737-700s

WestJet (Calgary) today announced its first quarter results for 2013. The airline reported record net earnings of $91.1 million, or $0.68 per diluted share, up from the net earnings of $68.3 million, or $0.49 per diluted share reported in the first quarter of 2012. These results mark WestJet’s 32^nd consecutive quarter of profitability. Based on the trailing twelve months, the airline achieved a return on invested capital of 14.3 per cent, up from the 13.7 per cent reported in the previous quarter.

“We are very pleased to report our best ever quarterly earnings and for the third consecutive quarter we exceeded our 12 per cent ROIC target by achieving 14.3 per cent,” said WestJet President and CEO Gregg Saretsky. “The excitement is building as we move closer to the launch of WestJet Encore. I want to thank WestJetters for their dedication and tremendous efforts in providing our guests a caring and friendly experience each and every day.”

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

WestJet announced in February the first two new communities WestJet Encore will be servicing. Beginning on June 24, 2013, WestJet Encore will begin daily service from Calgary and Vancouver to Fort St. John, British Columbia, and from Calgary to Nanaimo, British Columbia.

In January 2013, WestJet launched a three-year company-wide business transformation initiative with a goal to reduce annual costs by $100 million by the end of 2015 and to undertake a longer term initiative to ensure WestJet’s unit costs are competitive with low cost North American airlines. This initiative will focus on aircraft and asset utilization, distribution, productivity, and all non-operational expenses.

For the second quarter of 2013, WestJet expects strong traffic growth and earnings among its best ever for a second quarter, notwithstanding an expected moderate decline in its second quarter RASM which will be impacted by the timing of Easter and Passover, the elimination of Thomas Cook capacity purchase commitments, the loss of the one-time benefit from Air Canada’s labour uncertainty in the second quarter of 2012, and accelerating capacity growth fueled by higher utilization and the launch of WestJet Encore.

For the second quarter of 2013, WestJet expects CASM, excluding fuel and employee profit share, to be flat to up one per cent year-over-year. The airline expects fuel costs to range between $0.84 and $0.86 cents per litre for the second quarter of 2013, representing a year-over-year decrease of six to nine per cent.

For the full year 2013, the airline now expects CASM, excluding fuel and employee profit share, to be flat to up one per cent year-over-year primarily as a result of cost reductions achieved and anticipated through its business transformation initiative, but excluding any benefit from the exemption it received yesterday from Transport Canada, to the requirement for one flight attendant for every forty passengers on board.

WestJet announced today it has entered into an agreement with a third party under which WestJet will sell 10 of its oldest Boeing Next-Generation 737-700 aircraft to that party in 2014 and 2015, and concurrently entered an agreement with Boeing to purchase 10 Boeing Next-Generation 737-800 aircraft in 2014 and 2015, effectively reducing the average age of WestJet’s fleet by approximately one year. WestJet has deferred the delivery of five Boeing Next-Generation 737-700 aircraft from 2014 and 2015 to 2016 and 2017. “These agreements are part of our strategy to optimize and modernize our fleet mix, which will improve CASM, while maintaining fleet flexibility going forward,” added Gregg Saretsky.

Dividend declaration

On May 6, 2013, WestJet’s Board of Directors declared a cash dividend of $0.10 per common voting share and variable voting share for the second quarter of 2013, to be paid on June 28, 2013, to shareholders of record on June 12, 2013. 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.

In other news, WestJet confirmed it has received an exemption from Transport Canada to the requirement for one flight attendant for every 40 passengers on board. The exemption, which is effective immediately, allows for one flight attendant for every 50 seats on board the aircraft.

“We are pleased that Transport Canada has granted this exemption,” said Gregg Saretsky, WestJet President and CEO. “One flight attendant for every 50 seats is the accepted international practice and has been in place for decades around the world. “This exemption will place us on a level regulatory playing field with U.S. and international carriers who fly in and out of Canada every day under these rules. Safety is a core value at WestJet and we commend the government for recognizing that there is a consistent level of safety operating under this ratio.”

“WestJet has committed that it will not lay off any flight attendants under this new exemption,” commented Antonio Faiola, WestJet Flight Attendant and Chair of PACT, WestJet’s employee association. “Our history speaks for itself: WestJet has always worked with its employees when our business changes and this is another example of its commitment to its people.”

“We anticipate cost savings once this exemption has been operationalized across our network,” continued Gregg Saretsky. “These savings will allow us to grow our network and continue to provide low fares for the Canadian traveller. We will now work with our operations teams to determine when we can implement these changes which will in turn determine when these savings will be realized.”

On the intent to order 10 new Boeing 737-800s, Boeing issued this statement:

“Boeing is delighted that WestJet has committed to order 10 Next-Generation 737-800s. The commitment, with a current list-price value of $891 million, is a key component of the Calgary-based carrier’s strategy to optimize and modernize its fleet. Boeing looks forward to working with WestJet to finalize the order in the coming days.”

Copyright Photo: Michael B. Ing. Boeing 737-7CT WL C-FWBL (msn 32750) approaches Los Angeles International Airport for landing.

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