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WestJet Investor Day provides targets for 2019-2022

WestJet Investor Day provides targets for 2019-2022

WestJet (TSX: WJA) today provided 2019 to 2022 targets at its Investor Day held in Toronto from 9:15 a.m. ET to 12:30 p.m. ET.

In 2019, WestJet expects to expand margins through a combination of improved revenue performance, a continued focus on cost control and a prudent approach to capacity management.

For the full year of 2019, RASM is expected to be in the range of up 2.0 per cent to 4.0 per cent year over year driven by solid demand and strength in the core WestJet business, the roll-out of branded fares across all WestJet operated routes, the increase in WestJet's first bag fee, Swoop ancillary per traveller increasing to $40, and the introduction of premium and business cabins on the Boeing 787 Dreamliner, offset by capacity increases in Swoop which have a dilutive effect on overall RASM performance.

For the full year of 2019, CASM, excluding fuel and employee profit share is expected to be flat to up 2.0 per cent year over year driven by continued investment in the business to support the Boeing 787 Dreamliner and the infrastructure required to deliver on WestJet's strategic plan and capacity increases in Swoop which have a dilutive effect on overall CASM performance.

In 2019, WestJet continues to expect system-wide capacity growth of between 6.5 and 8.5 per cent and domestic capacity growth of between 1.0 and 3.0 per cent. Growth in 2019 is attributed to the launch of transatlantic service on the airline's new Boeing 787 Dreamliner and the incremental capacity associated with Swoop increasing to ten aircraft.

For the full-year 2019, capital expenditures are expected to be between $1.0 billion and $1.2 billion driven by deposits and acquisition of Boeing 737 MAX and 787 Dreamliner aircraft. WestJet has signed a letter of intent to sell and lease back the first three Boeing 787 Dreamliners to be delivered in the first quarter of 2019; the proceeds from the sale will fund approximately half of 2019 capital expenditures. The full-year annual effective consolidated income tax rate for 2019 is expected to be in the range of 29 to 31 per cent.

The full-year 2019 expected CASM, excluding fuel and employee profit share and capital expenditures are based on an average forecasted foreign exchange rate of approximately 1.30 Canadian dollars to one U.S. dollar.

 

Year ended

December 31,

2019

RASM

Up 2.0% to 4.0%

Fuel cost per litre

 

CASM, excluding fuel and profit share

Flat to up 2.0%

System capacity

Up 6.5% to 8.5%

Domestic capacity

Up 1.0% to 3.0%

Effective tax rate

29% to 31%

Capital expenditures

$1.0 to $1.2 billion

Building off of a challenging base year in 2018, WestJet is expecting improved earnings per share performance with a compound annual growth rate (CAGR) of greater than 40 per cent from 2018 to 2022 along with an improving annual return on invested capital (ROIC(1)) that is expected to return to double-digits in 2020 and reach 13 per cent in 2022. WestJet expects heightened capital expenditures of approximately $1.1 billion in 2019, $980 million in 2020 and approximately $1.1 billion in 2021 as the Boeing 787 Dreamliners are inducted into the fleet. Through this period, WestJet expects to deliver cumulative free cash flow(1) of $900 million to $1.1 billion, including the proceeds from the sale lease back of the first three 787 Dreamliner aircraft. In terms of its key credit metric, WestJet estimates its adjusted net debt to EBITDAR(1) to end 2022 at 1.0.

In addition, WestJet has identified annual cost savings opportunities of $200 million through 2020. These cost savings opportunities are spread over several initiatives that include fleet reconfigurations, fuel savings, guest atonement, airport operations cost savings, optimized maintenance plans, digital self service, and sales and distribution channel efficiencies. 

In-person attendance at WestJet's Investor Day is by invitation only and the media and other interested persons are welcome to listen in via the webcast in the Media and Investor Relations section of westjet.com.

Caution regarding forward-looking information

Certain information set forth in this news release, including, without limitation, information regarding expectations around margin expansion, RASM, CASM excluding fuel and employee profit share, targeting earnings per share compound annual growth of greater than 40 per cent, an improving return on invested capital that is expected to reach double digits in 2020 and reach 13 per cent in 2020, delivering cumulative free cash flow of $900 million to $1.1 billion from 2019 to 2022, expecting capital expenditures of approximately $1.1 billion in 2019, approximately $980 million in 2020 and approximately $1.1 billion in 2021, by the end of 2022, reaching 1.0 in adjusted net debt over EBITDAR ratio, an annual cost savings opportunity of $200 million through 2020, the information underlying such targets, the achievement of stated 2019 ancillary per traveller targets and capacity increases within Swoop, the launching of Boeing Dreamliner service starting in 2019, and WestJet's ability to deliver sustainable profitable growth, 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 assumptions regarding the terms of agreements which WestJet has entered into, WestJet's current forecasts and strategy, the timing and impact of WestJet's initiatives, the expected demand environment, access to financing and to infrastructure, consummation of the sale and leaseback of the first three 787 Dreamliners, the fleet and its utilization and operational performance, aircraft deliveries and option exercises, the forward-curve for jet fuel price, the expected exchange rate of the Canadian dollar to the U.S. dollar, expected tax rates, agreements and bookings, assessment of labour and infrastructure requirements, expectations around legislation and legislative changes, assessment of collective bargaining, assessment of legal proceedings, and other information underlying the targets contained herein, 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, material adverse regulatory changes, 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.

(1) Non-GAAP measures
This news release contains disclosure respecting non-GAAP performance measures. These measures are included to enhance the overall understanding of WestJet's 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 as 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, 2018, 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.

  • Adjusted debt: The sum of long-term debt and off-balance-sheet aircraft operating leases. Our practice, consistent with common airline industry practice, is to multiply the trailing 12 months of aircraft leasing expense by 7.5 to derive a present value debt equivalent. This measure is used in the calculation of adjusted net debt to EBITDAR, as defined below.
  • Adjusted net debt: Adjusted debt less cash, cash equivalents and marketable securities. This measure is used in the calculation of adjusted net debt to EBITDAR, as defined below.
  • EBITDAR: Earnings before net finance costs, taxes, depreciation, amortization, aircraft rent and other items, such as asset impairments, gains and losses on derivatives, and foreign exchange gains or losses. Trailing 12 months EBITDAR is a measure commonly used in the airline industry to evaluate results by excluding differences in the method by which an airline finances its aircraft.
  • CASM, excluding fuel and employee profit share: CASM is a common measure used in the airline industry to measure an airline's cost structure and efficiency. We exclude the effects of aircraft fuel expense and employee profit share expense to assess the operating performance of our business. Fuel expense is excluded from our operating results because fuel prices are affected by a host of factors outside our control. Additionally, employee profit share expense is excluded as it varies based on the outcome of our net earnings. Excluding these expenses allows us to analyze our operating results to those of other airlines.
  • Return on invested capital: ROIC is a measure commonly used in the airline industry 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.
  • Free cash flow: Operating cash flow less capital expenditures. This measure is used to calculate the amount of cash available that can be used to pursue other opportunities after maintaining and expanding the asset base.

Major Annual Assumptions

 

2019

2020

2021

2022

GDP Canada

2%

2%

2%

2%

Canadian dollar per U.S dollar

1.30

1.30

1.30

1.30

Average Jet fuel price

(Canadian cents per litre)

84

85

85

85

This press release was sourced from WestJet on 04-Dec-2018.