2016 Second Quarter Report
Management’s Discussion and Analysis
Management’s Discussion and Analysis of Financial
Condition and Operating Results
For the three and six months ended June 30, 2016 and 2015
WestJet Airlines Ltd.
Second Quarter 2016 MD&A
July 25, 2016
Contents
About WestJet ............................................................. 2
Fleet ......................................................................... 24
Financial and operational highlights ............................... 3
Off-balance sheet arrangements and related party
transactions ............................................................... 25
Overview ..................................................................... 4
Outlook ....................................................................... 7
Discussion of operations ............................................... 8
Summary of quarterly results ...................................... 17
Guest experience ....................................................... 18
Liquidity and capital resources .................................... 18
Share capital.............................................................. 26
Accounting ................................................................ 27
Controls and procedures ............................................. 28
Forward-looking information ....................................... 29
Definition of key operating indicators ........................... 30
Non-GAAP and additional GAAP measures .................... 31
Advisories
The following Management’s Discussion and Analysis of Financial Condition and Operating Results (MD&A), dated July 25, 2016, should be
read in conjunction with the cautionary statement regarding forward-looking information below, as well as WestJet’s unaudited condensed
consolidated interim financial statements and notes thereto for the three and six months ended June 30, 2016 and 2015, and audited
consolidated financial statements and notes thereto, for the years ended December 31, 2015 and 2014. The consolidated financial statements
have been prepared in accordance with International Financial Reporting Standards (IFRS). All amounts in the following MD&A are in
Canadian dollars unless otherwise stated. References to “WestJet,” “the Corporation,” “the Company”, “we,” “us” or “our” mean WestJet
Airlines Ltd. and its consolidated subsidiaries and structured entities, unless the context otherwise requires. Additional information relating to
WestJet, including periodic quarterly and annual reports and Annual Information Forms (AIF), filed with Canadian securities regulatory
authorities, is available on SEDAR at sedar.com and our website at westjet.com.
Cautionary statement regarding forward-looking information
This MD&A contains “forward-looking information” as defined under applicable Canadian securities legislation. This forward-looking
information typically contains the words “anticipate,” “believe,” “estimate,” “intend,” “expect,” “may,” “will,” “should,” “potential,” “plan,”
“project” or other similar terms. Our actual results, performance or achievements could differ materially from those expressed in, or implied
by, this forward-looking information. We can give no assurance that any of the events anticipated will transpire or occur or, if any of them do,
what benefits or costs we will derive from them. By its nature, forward-looking information is subject to numerous risks and uncertainties
including, but not limited to, the impact of general economic conditions, changing domestic and international airline industry conditions,
volatility of fuel prices, terrorism, pandemics, currency fluctuations, interest rates, competition from other airline industry participants
(including new entrants, capacity fluctuations and changes to the pricing environment), labour matters, government regulations, stock market
volatility, the ability to access sufficient capital from internal and external sources, and additional risk factors discussed in other documents we
file from time to time with securities regulatory authorities, which are available on SEDAR at sedar.com or, upon request, without charge from
us.
The disclosure found under the heading “Outlook” in this MD&A, including the guidance summary for the three months ended September 30,
2016 and the year ended December 31, 2016 may contain forward-looking information that constitutes a financial outlook. The forwardlooking information, including any financial outlook, contained in this MD&A, is provided to assist investors in understanding our assessment
of WestJet’s future plans, operations and expected results. The forward-looking information, including without limitation, the disclosure found
under the heading “Outlook”, contained in this MD&A may not be appropriate for other purposes and is expressly qualified by this cautionary
statement. Please refer to page 29 of this MD&A for further information on our forward-looking information including assumptions and
estimates used in its development. Our assumptions and estimates relating to the forward-looking information referred to above are updated
in conjunction with filing our quarterly and annual MD&A and, except as required by law, we do not undertake to update any other forwardlooking information.
Non-GAAP and additional GAAP measures
Certain measures in this MD&A do not have any standardized meaning as prescribed by Generally Accepted Accounting Principles (GAAP) and,
therefore, are considered non-GAAP measures. These measures are provided to enhance the reader’s overall understanding of our financial
performance or current financial condition. These measures also provide investors and management with an alternative method for assessing
our operating results in a manner that is focused on the performance of our ongoing operations and provide a more consistent basis for
comparison between periods. These measures are not in accordance with, or an alternative to, GAAP and do not have standardized meanings.
Therefore, they may not be comparable to similar measures presented by other entities.
Please refer to page 32 of this MD&A for a reconciliation of non-GAAP measures, including cost per available seat mile (CASM), excluding fuel
and employee profit share; return on invested capital (ROIC); free cash flow; diluted free cash flow per share; diluted operating cash flow per
share; and earnings before income tax (EBT) margin, and for a reconciliation of additional GAAP measures, including adjusted debt-to-equity;
adjusted net debt to earnings before interest, taxes, depreciation and aircraft rent (EBITDAR); and the cash to trailing twelve months revenue
ratio.
Definitions
Various terms used throughout this MD&A are defined at page 30 under the title Definition of key operating indicators.
WestJet Second Quarter 2016 │ 1
About WestJet
WestJet is a Canadian airline based in Calgary, Alberta. Through scheduled flights across a growing network, WestJet also
operates WestJet Vacations, which provides air, hotel, car and excursion packages, and WestJet Encore, a regional airline
which operates a fleet of turboprop aircraft in a network of destinations in Canada and the United States. As of June 30, 2016,
our airline offered scheduled service to 101 destinations in North America, Central America, the Caribbean and Europe with a
fleet of 114 Boeing 737 Next Generation (Boeing 737 NG) aircraft, 30 Bombardier Q400 (Q400) aircraft and four Boeing 767
300ERW (Boeing 767) aircraft. When including our airline partners, we serve over 160 destinations. We plan to continue
adding new destinations and additional frequencies to our existing markets through the growth of our regional Bombardier
Q400 fleet, our narrow-body Boeing 737 NG fleet and our wide-body Boeing 767 aircraft.
WestJet’s mission is to enrich the lives of everyone in WestJet’s world by providing safe, friendly and affordable air travel. We
strive to be one of the top five airlines in the world. We believe that focusing on metrics such as on-time performance, safety,
profitability, guest satisfaction and employee engagement will lead us toward this goal.
Guiding us every day towards accomplishing our mission and vision are our core values:
•
commitment to safety;
•
positive and passionate in everything we do;
•
appreciative of our people and guests;
•
fun, friendly and caring;
•
aligning the interests of WestJetters with the interests of the Company; and
•
honest, open and keeping our commitments.
WestJet’s focus on our people has always been fundamental to the success of our airline. In an industry that has become
largely commoditized, we recognize that WestJetters are an essential part of our business and that their commitment to caring
for our guests supports our profitable results. Our goal remains to attract, train, motivate, develop and retain the right people.
Our commitment to our people allows us to take care of WestJetters, who in turn take care of our guests. When this occurs,
we will build on our success and take care of our business which in turn allows us to take care of our people, and so on, as
depicted in the graphic below. Our caring culture is essential to our continuous growth and is one of the key elements that
provide us with the capability to execute on our strategies.
WestJet Second Quarter 2016 │ 2
Financial and operational highlights
The financial and operational highlights for WestJet for the second quarter and first six months of 2016 are as follows:
Three months ended June 30
($ in thousands, unless
otherwise noted)
2015
Change
2015
Change
949,313
941,998
0.8%
1,980,758
2,025,495
(2.2%)
Operating expenses
887,887
841,610
5.5%
1,796,060
1,727,947
3.9%
61,426
100,388
(38.8%)
184,698
297,548
(37.9%)
6.5%
10.7%
(4.2 pts.)
9.3%
14.7%
(5.4 pts.)
51,723
88,886
(41.8%)
175,909
281,335
(37.5%)
Operating margin (per cent)
Earnings before income
taxes (EBT)
EBT margin (per cent)(i)
Net earnings
5.4%
9.4%
(4.0 pts.)
8.9%
13.9%
(5.0 pts.)
36,654
61,554
(40.5%)
124,299
202,291
(38.6%)
0.30
0.49
(38.8%)
1.02
1.60
(36.3%)
Earnings per share:
Basic
Diluted
ROIC (per cent)(i)
0.30
0.49
(38.8%)
1.02
1.58
(35.4%)
11.4%
15.3%(ii)
(3.9 pts.)
11.4%
15.3%(ii)
(3.9 pts.)
Three months ended June 30
Operational highlights
2016
Revenue
Earnings from operations
Financial highlights
2016
Six months ended June 30
2016
2015
ASMs
7,115,577,504
6,654,631,242
RPMs
5,748,772,711
5,199,326,504
Load factor
80.8%
78.1%
Yield (cents)
16.51
RASM (cents)
CASM (cents)
CASM, excluding fuel and
employee
profit
share
(cents)(i)
Fuel consumption (litres)
Fuel costs per litre (cents)
Segment guests
Average stage length (miles)
Departures
Utilization (hours)
Full-time equivalent
employees at period end
Fleet size at period end
(i)
(ii)
Six months ended June 30
Change
2016
2015
Change
6.9%
14,409,981,621
13,473,244,403
7.0%
10.6%
11,737,161,091
10,765,276,153
9.0%
2.7 pts.
81.5%
79.9%
1.6 pts.
18.12
(8.9%)
16.88
18.82
(10.3%)
13.34
14.16
(5.8%)
13.75
15.03
(8.5%)
12.48
12.65
(1.3%)
12.46
12.83
(2.9%)
9.93
9.28
7.0%
9.89
9.23
7.2%
342,458,639
310,947,207
10.1%
694,852,212
634,070,433
9.6%
53
69
(23.2%)
50
67
(25.4%)
5,301,338
4,956,488
7.0%
10,626,444
9,871,067
7.7%
906
908
(0.2%)
922
939
(1.8%)
55,666
51,702
7.7%
111,109
100,771
10.3%
10.9
11.5
(5.2%)
11.2
11.8
(5.1%)
9,556
8,967
6.6%
9,556
8,967
6.6%
148
129
14.7%
148
129
14.7%
Please refer to page 32 of this MD&A for a reconciliation of non-GAAP measures and additional GAAP measures.
These amounts represent ROIC as at December 31, 2015, based on our trailing twelve months’ earnings before tax, excluding special items,
finance costs and implied interest on our off-balance-sheet aircraft leases. Please refer to page 32 of this MD&A for a reconciliation of non-GAAP
measures and additional GAAP measures.
WestJet Second Quarter 2016 │ 3
Overview
Our 2016 second quarter financial results represent our 45th consecutive quarter of reported profitability with net earnings of
$36.7 million and diluted earnings per share of $0.30. Total revenue increased by 0.8 per cent year over year, driven primarily
by the increase in ancillary revenue. We also saw an improved load factor in the current quarter, driven by traffic growth,
however, our overall guest revenue decreased as a result of continued downward pressure on our fares as a result of the
severe economic downturn in the energy sector. During the quarter, our operating margin was 6.5 per cent.
We returned approximately $69.8 million to our shareholders through our dividend and normal course issuer bid in the second
quarter of 2016. Since these programs began in 2010, we have returned over eight hundred million dollars to our
shareholders. Our 12-month ROIC of 11.4 per cent at June 30, 2016 represents a decrease of 3.9 percentage points compared
to our 2015 full-year ROIC of 15.3 per cent but aligns with our expectations in achieving a long term ROIC within the targeted
range of 13.0 and 16.0 per cent.
Second quarter overview
•
Earned total revenue of $949.3 million, an increase of 0.8 per cent from $942.0 million in the second quarter of 2015.
•
Increased capacity, measured in available seat miles (ASMs), by 6.9 per cent over the second quarter of 2015.
•
Increased traffic, measured in revenue passenger miles (RPMs), by 10.6 per cent over the second quarter of 2015.
•
Realized yield of 16.51 cents, down 8.9 per cent over the second quarter of 2015.
•
Realized RASM of 13.34 cents, down 5.8 per cent from 14.16 cents in the second quarter of 2015.
•
Realized CASM of 12.48 cents, down 1.3 per cent from 12.65 cents in the second quarter of 2015.
•
Realized CASM, excluding fuel and employee profit share, of 9.93 cents, up 7.0 per cent from 9.28 cents in the
second quarter of 2015.
•
Recorded an operating margin of 6.5 per cent, down 4.2 percentage points from 10.7 per cent in the second quarter
of 2015.
•
Recorded an earnings before tax (EBT) margin of 5.4 per cent, down 4.0 percentage points from 9.4 per cent in the
second quarter of 2015.
•
Reported net earnings of $36.7 million, a decrease of 40.5 per cent from $61.6 million in the second quarter of 2015.
•
Reported diluted earnings per share of $0.30, a decrease of 38.8 per cent from $0.49 per share in the second quarter
of 2015.
Please refer to page 32 of this MD&A for a reconciliation of non-GAAP measures and additional GAAP measures.
WestJet Second Quarter 2016 │ 4
WestJetters
WestJetters are an essential part of our business. Their commitment to creating a positive, safe and caring experience for our
guests supports our profitable results. During the second quarter of 2016, WestJet flew 5.3 million guests, a second quarter
record, an increase of 7.0 per cent over the comparable period of the prior year. In May 2016, WestJetters came together to
support the residents of Fort McMurray, Alberta during the wildfire evacuations. WestJet’s ability to help evacuate the people
of Fort McMurray was a direct result of WestJetters being available to assist at a moment’s notice. These actions are a
testament of the care and commitment delivered each and every day by nearly 12,000 WestJetters.
During the second quarter of 2016, we also celebrated two operational milestones: WestJet Encore celebrated three years of
successful operations and WestJet Vacations celebrated its 10th year. Since its launch in 2013, WestJet Encore has been
embraced by more than 30 Canadian communities seeking improved connectivity, lower fares and competitive air service and
it remains committed to evolving its network offering and guest experience. In addition, WestJet Vacations has provided
guests with affordable, reliable and flexible vacation packages and as a result has experienced unprecedented growth over the
last 10 years. We look forward to the continued success of both WestJet Encore and WestJet Vacations for many years to
come and we recognize that our WestJetters have been and will continue to be a key part of that success.
Subsequent to quarter end, on July 4, 2016, Alberta Venture magazine named our President and Chief Executive Officer,
Gregg Saretsky, one of Alberta’s 50 Most Influential People for 2016. This is a well-deserved recognition for Gregg, one that
reflects the many contributions he has made to both the success of Alberta and WestJet.
Guest experience and service enhancements
We are committed to exploring and implementing initiatives that will improve both our onboard guest experience and the ease
with which our guests do business with us. In 2015, we began installing and activating WestJet Connect, our new inflight
entertainment system, on a number of our Boeing 737 and 767 aircraft. As of the date of this MD&A, we have installed and
activated WestJet Connect systems on 61 of our Boeing 737s and all of our Boeing 767s. We expect installations to be
completed on the majority of our Boeing 737 fleet by the end of 2016.
On May 24, 2016, we announced a reciprocal frequent flyer agreement with Qantas Airways. This agreement allows members
of both airlines’ respective frequent flyer programs to earn their choice of either WestJet dollars or Qantas Points when
travelling on flights of either airline. This expands on the existing code-share relationship between Qantas and WestJet
announced in 2014. We believe this is a significant improvement to our rewards program as it expands our program to global
travel which will bring opportunities and benefits to our WestJet Rewards members.
On May 26, 2016 we announced that eligible guests departing from U.S. airports will now be able to receive the TSA PreCheck
designation using web, mobile and kiosk check-in. Prior to this, only eligible guests who received their boarding passes at
WestJet counters could take advantage of the program, which offers a less-intrusive search when departing from U.S.
airports. We anticipate that this service enhancement will make the security experience much more efficient, especially for
those guests travelling for business and our WestJet Rewards members. This development is part of our overall strategy to
make it easy for our guests to do business with us and add value to our guests’ experience with WestJet.
Network expansion and fleet
During the quarter, we continued to execute on our strategy to grow our airline through new and increased service across our
scheduled network. In June 2016, we announced direct, non-stop flights on our existing routes between Edmonton, Alberta
and Hamilton, Ontario and between Winnipeg, Manitoba and Kelowna, British Columbia, to coincide with the busy summer
flying season. We also became the only Canadian airline to serve Halifax, Nova Scotia non-stop from Vancouver, British
Columbia and Winnipeg, Manitoba. These additional routes shift capacity from Alberta, which continues to experience
economic weakness, to Eastern Canada. Both of these seasonal, direct flights have been timed to connect conveniently with
WestJet’s extensive domestic network. The flexibility in our fleet plan allows us to assess our scheduled network to look for
extra flying opportunities to continually meet the needs of both our business and leisure guests by providing them with
convenience and connectivity options.
We remain focused on developing our relationships with our airline partners, as establishing strong airline partnerships
continues to be a key strategy of ours. As discussed above under the heading Guest experience and service enhancements, in
the second quarter of 2016, we expanded our existing code-share relationship with Qantas Airways to include a new reciprocal
WestJet Second Quarter 2016 │ 5
frequent flyer agreement. As of the date of this MD&A, we have a total of 46 airline partnership agreements that enable our
guests to access over 160 destinations through WestJet.
In the second quarter of 2016 we added three new Q400 aircraft and a fourth Boeing 767 series aircraft to our fleet; in
addition we returned one leased Boeing 737-700 NG series aircraft. Our fleet is comprised of 30 Q400 aircraft, 114 Boeing 737
NG aircraft and four Boeing 767 aircraft at June 30, 2016. Subsequent to quarter end, on July 15, 2016, we returned our
second leased Boeing 737-700 NG series aircraft.
As our fleet, including our future deliveries of Boeing 737 MAX aircraft, continues to expand, we expect to establish additional
profitable routes in Canada, the U.S. and internationally. Our evolving aircraft mix allows us to provide increased route
frequency, increased non-stop routes and improved scheduling times and connectivity to our guests.
Corporate commitment
In the second quarter of 2016 we continued to be proactive in our approach to managing our business to ensure our
continued profitability and we continued to focus on two broad strategies that include seeking out opportunities to increase
revenue and emphasizing our focus on cost reduction. As previously disclosed, our revenue opportunities include being flexible
with our fleet and network scheduling to match market demand, continuing to build our relationships with our airline partners
and a greatly expanded charter program which we expect to commence in the fourth quarter of 2016. We are also
undertaking a number of cost reduction initiatives including optimizing our fleet maintenance plan based on global fleet best
practices, reviewing fleet densification opportunities, renegotiating contracts with various vendors and reducing non-essential
costs, among others.
On May 2, 2016, Moody’s Investor Service assigned us our second investment-grade credit rating which provided us the
opportunity to access cost-effective financing. On June 16, 2016 we successfully completed an offering of US$400.0 million
3.50 per cent Senior Unsecured Notes resulting in WestJet becoming the first North American investment-grade airline to issue
unsecured debt in an initial public offering in the past decade.
WestJet Second Quarter 2016 │ 6
Outlook
For the third quarter of 2016, we expect system-wide capacity to be up between 9.0 and 10.0 per cent year over year,
primarily as a result of our new wide-body service to London Gatwick, and our domestic capacity to be flat to up 1.0 per cent
year over year. In terms of the full-year 2016, we continue to anticipate system-wide capacity growth between 7.0 and 9.0
per cent year over year, and domestic capacity growth between 1.5 and 2.5 per cent year over year.
For the third quarter of 2016, we anticipate revenue growth, continued strong traffic growth and year over year declines in
RASM of 1.0 to 3.0 per cent, an improvement from our second quarter year over year RASM decline.
We expect CASM, excluding fuel and employee profit share for the third quarter of 2016 to be up 1.0 to 1.5 per cent year over
year. For the full-year 2016, we now expect CASM, excluding fuel and employee profit share, to be up 2.5 to 3.5 per cent year
over year. This compares with our previous full-year 2016 guidance of up 0.5 to 2.5 per cent year over year, with the
difference primarily driven by higher guest experience costs related to London Gatwick irregular operations and timing of
wide-body maintenance expenses which have been pulled forward into the fourth quarter of 2016, partially offset by an
improved forecasted Canadian dollar to US dollar foreign exchange rate.
For the third quarter of 2016, we expect fuel costs to range between 56 and 58 cents per litre, which represents a year-overyear decrease of approximately 8 to 11 per cent. The third quarter 2016 expected fuel costs are based on current forecasted
jet fuel prices of US $56 per barrel and an average forecasted foreign exchange rate of approximately 1.30 Canadian dollars
to one US dollar.
For the full-year 2016, we forecast capital expenditures between $900 million and $920 million, with spending related
primarily to aircraft deliveries, deposits on future aircraft, overhauls on owned engines and the installation of a new inflight
entertainment system on certain aircraft. For the third quarter of 2016, we expect our capital expenditures to be between
$130 million and $140 million.
The third quarter 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 US dollar. The full-year 2016 expected CASM,
excluding fuel and employee profit share and capital expenditures are based on an average forecasted foreign exchange rate
of approximately 1.32 Canadian dollars to one US dollar.
Guidance summary
Guidance summary(i)
RASM
Fuel cost per litre
Three months ended
September 30, 2016
Down 1.0% to 3.0%
Year ended
December 31, 2016
56 to 58 cents
CASM, excluding fuel and profit share
Up 1.0% to 1.5%
Up 2.5% to 3.5%
System capacity
Up 9.0% to 10.0%
Up 7.0% to 9.0%
Flat to up 1.0%
Up 1.5% to 2.5%
Domestic capacity
Effective tax rate
Capital expenditures
28% to 30%
$130 to $140 million
$900 to $920 million
(i) The percentage changes noted are based on a year over year comparison
WestJet Second Quarter 2016 │ 7
Discussion of operations
Capacity
For the three and six months ended June 30, 2016, our overall capacity increased by 6.9 per cent and 7.0 per cent,
respectively, over the same periods in 2015. This increase was primarily from the addition of four Boeing 767s to our fleet
(please refer to the Fleet section of this MD&A on page 24).
The following tables depict our capacity allocation between our domestic, transborder and international markets for the
three and six months ended June 30, 2016:
2016
ASMs
Domestic
Transborder and international
Total
Domestic
Transborder and international
Total
3,805,699,112
3,309,878,392
7,115,577,504
Three months ended June 30
2015
% of total
ASMs
% of total
53.5%
46.5%
100.0%
3,874,562,185
2,780,069,057
6,654,631,242
58.2%
41.8%
100.0%
Six months ended June 30
2016
2015
ASMs
% of total
ASMs
% of total
6,809,962,175
47.3%
6,637,374,731
49.3%
7,600,019,446
14,409,981,621
52.7%
100.0%
6,835,869,672
13,473,244,403
50.7%
100.0%
Change
ASMs
(1.8%)
19.1%
6.9%
Change
ASMs
2.6%
11.2%
7.0%
For the three and six months ended June 30, 2016, our domestic to transborder and international capacity mix shifted as
we experienced a capacity increase in our transborder and international markets and a decrease in domestic capacity
compared to the same period of 2015. The majority of the transborder and international capacity growth in the second
quarter of 2016, was driven by our new London Gatwick routes, which began in May 2016, serviced by our Boeing 767
aircraft. Our domestic capacity decreased as a result of redeployed Q400 aircraft in Eastern Canadian markets which were
previously serviced by Boeing 737 aircraft, this allowed for a more robust schedule and the removal of unnecessary
capacity from off-peak flight times. During the six months ended June 30, 2016, both our domestic and transborder and
international capacity increased compared to the same period of 2015, driven by increased frequencies and new
destinations serviced by our growing WestJet Encore fleet and an increase in service to transborder and international
markets serviced by the new and redeployed Boeing 737s and Boeing 767s.
In the second quarter of 2016, our domestic traffic, measured in RPMs, increased by 2.7 per cent year over year as
compared to the 1.8 per cent decrease in domestic capacity. For the six months ended June 30, 2016, domestic traffic,
measured in RPMs, increased 4.9 per cent year over year compared to the 2.6 per cent increase in domestic capacity. The
increase in RPMs was higher than the increase in capacity as a result of the redeployment of capacity from Western to
Eastern Canada in response to the economic downturn in the energy sector, thereby improving our load factors. In
addition, there was an increase in connecting traffic, both domestically and to transborder and international markets,
including London Gatwick, all of which contributed to the increase in RPMs compared to capacity growth in the three and
six months ended June 30, 2016.
With regard to our transborder and international markets, RPMs increased by 20.8 per cent over the second quarter of
2015 while capacity increased 19.1 per cent. For the six months ended June 30, 2016, RPMs increased 12.8 per cent
compared to an 11.2 per cent increase in capacity. The increase of transborder and international RPMs in the second
quarter of 2016 is primarily driven by the new international service to London Gatwick which commenced in May 2016.
These flights generated significant capacity as well as operated at higher than average load factors. As such, we saw
transborder and international RPM growth outpace the capacity growth for both the three and six months ended June 30,
2016.
WestJet Second Quarter 2016 │ 8
Revenue
($ in thousands)
Guest
Other
Total revenue
Load factor
Yield (cents)
RASM (cents)
Three months ended June 30
2016
2015
Change
814,402
828,909
(1.8%)
134,911
113,089
19.3%
949,313
941,998
0.8%
80.8%
78.1%
2.7 pts.
16.51
18.12
(8.9%)
13.34
14.16
(5.8%)
Six months ended June 30
2016
2015
Change
1,700,622
1,785,855
(4.8%)
280,136
239,640
16.9%
1,980,758 2,025,495
(2.2%)
81.5%
79.9%
1.6 pts.
16.88
18.82
(10.3%)
13.75
15.03
(8.5%)
During the second quarter of 2016, total revenue increased by 0.8 per cent to $949.3 million compared to $942.0 million in
the same quarter of 2015. On a per ASM basis, for the three months ended June 30, 2016 revenue decreased by 5.8 per cent
to 13.34 cents from 14.16 cents in the same quarter of 2015. The overall increase in total revenue was driven by an increase
in ancillary revenue included in other revenue, partially offset by lower guest revenue resulting from a decrease in yield. The
downward pressure on our fares continues to be a result of the economic downturn in the energy sector, however we saw an
improved load factor from traffic growth across our network compared to the same period of 2015.
For the six months ended June 30, 2016 total revenue decreased by 2.2 per cent to $1,980.8 million compared to $2,025.5
million in the same period of 2015. Revenue on a per ASM basis decreased by 8.5 per cent to 13.75 from 15.03 cents in the
same period of the prior year. These decreases are due to a decline in yield offset by an increase in ancillary revenue.
Other revenue
Included in other revenue are amounts related to ancillary revenue, WestJet Vacations’ non-air revenue and our cargo and
charter operations. During the three and six months ended June 30, 2016, other revenue increased by 19.3 and 16.9 per cent
to $134.9 million and $280.1 million from $113.1 million and $239.6 million in the same periods of the prior year. This
increase was driven mainly by an increase in ancillary revenue.
Ancillary revenue, which includes product and service fees, our WestJet RBC® MasterCard± program revenue and onboard
sales, provides an opportunity to maximize our profits through the sale of higher-margin goods and services while enhancing
our overall guest experience by providing guests with additional products and services to meet their needs. The following
table presents ancillary revenue and ancillary revenue per guest for the three and six months ended June 30, 2016:
Ancillary revenue ($ in thousands)
Ancillary revenue per guest
Three months ended June 30
2016
2015
Change
95,220
82,899
14.9%
18.18
16.74
8.6%
Six months ended June 30
2016
2015
Change
190,630
165,894
14.9%
18.11
16.83
7.6%
For the three and six months ended June 30, 2016, ancillary revenue was $95.2 million and $190.6 million, an increase of
14.9 per cent each from $82.9 million and $165.9 million, respectively, in the same periods of the prior year. On a per guest
basis, ancillary fees for the quarter and year to date increased by 8.6 and 7.6 per cent to $18.18 and $18.11 per guest, from
$16.74 and $16.83 per guest, respectively, for 2015. These increases are mainly attributable to the increase in our first bag
fee which was driven by higher guest bookings and the addition of a first bag fee on our international flights in the first
quarter of 2016. In addition, the increases in the upgrade fee for our enhanced Plus product (first launched in the second half
of 2015) and the continued interest in and success of our WestJet RBC® MasterCard± program, also had a favourable impact
on our ancillary revenue.
WestJet Vacations continues to generate revenue which supports WestJet’s overall network. The land component, which
includes hotels, attractions and car rentals, is reported on the condensed consolidated statement of earnings at the net
amount received. In the first half of 2016, WestJet Vacations’ non-air revenue component increased due to increased demand
for our vacation packages which had a positive impact on our margins. Partially offsetting this increase to our margins was the
weaker Canadian dollar experienced throughout the first half of 2016 compared to the same period in the prior year. The
majority of the land components are paid in US dollars, which is netted against the gross revenue collected in Canadian
dollars.
WestJet Second Quarter 2016 │ 9
Expenses
Aircraft fuel
Salaries and benefits
Rates and fees
Depreciation and amortization
Sales and marketing
Maintenance
Aircraft leasing
Other
Employee profit share
Total operating expenses
Total, excluding fuel and profit share
Expense ($ in thousands)
Three months ended June 30
2016
2015
Change
182,583
214,948
(15.1%)
218,250
202,513
7.8%
152,470
138,516
10.1%
86,821
62,766
38.3%
84,118
50,345
44,973
69,519
(1,192)
887,887
706,496
74,376
37,009
43,981
58,142
9,359
841,610
617,303
13.1%
36.0%
2.3%
19.6%
(112.7%)
5.5%
14.4%
CASM (cents)
Three months ended June 30
2016
2015
Change
2.57
3.23
(20.4%)
3.07
3.04
1.0%
2.14
2.08
2.9%
1.22
0.94
29.8%
1.18
0.71
0.63
0.98
(0.02)
12.48
9.93
1.12
0.56
0.66
0.87
0.14
12.65
9.28
5.4%
26.8%
(4.5%)
12.6%
(114.3%)
(1.3%)
7.0%
During the three months ended June 30, 2016, operating expenses increased by 5.5 per cent to $887.9 million as compared
to $841.6 million in the same period in 2015. This increase was primarily driven by depreciation and amortization expense,
maintenance expense and other expenses, partially offset by decreases in aircraft fuel expense and employee profit share
expense.
On an ASM basis, operating expenses decreased by 1.3 per cent to 12.48 cents from 12.65 cents in the same period in 2015
driven by our ASM growth of 6.9 per cent.
Aircraft fuel
Salaries and benefits
Rates and fees
Depreciation and amortization
Sales and marketing
Maintenance
Aircraft leasing
Other
Employee profit share
Total operating expenses
Total, excluding fuel and profit share
Expense ($ in thousands)
Six months ended June 30
2016
2015
Change
348,998
425,393
(18.0%)
440,573
405,594
8.6%
306,214
272,706
12.3%
168,590
119,945
40.6%
173,195
103,283
91,280
142,617
21,310
1,796,060
1,425,752
157,099
72,486
91,636
123,966
59,122
1,727,947
1,243,432
10.2%
42.5%
(0.4%)
15.0%
(64.0%)
3.9%
14.7%
CASM (cents)
Six months ended June 30
2016
2015
Change
2.42
3.16
(23.4%)
3.06
3.01
1.7%
2.13
2.02
5.4%
1.17
0.89
31.5%
1.20
0.72
0.63
0.99
0.15
12.46
9.89
1.17
0.54
0.68
0.92
0.44
12.83
9.23
2.6%
33.3%
(7.4%)
7.6%
(65.9%)
(2.9%)
7.2%
During the six months ended June 30, 2016, operating expenses increased by 3.9 per cent to $1,796.1 million as compared to
$1,727.9 million in the same period in 2015, primarily driven by the year-over-year increase in rates and fees expense,
depreciation and amortization expense and maintenance expense, partially offset by a decrease in aircraft fuel expense and
employee profit share expense.
On an ASM basis, operating expenses for the six months ended June 30, 2016 decreased by 2.9 per cent to 12.46 cents from
12.83 cents in the same period in 2015 driven by our ASM growth of 7.0 per cent.
WestJet Second Quarter 2016 │ 10
Aircraft fuel
Three months ended June 30
2016
2015
Change
Aircraft fuel expense ($ in
thousands)
Aircraft fuel expense as a percent of
operating expenses
Fuel consumption (litres)
Fuel cost per litre (cents)
Average market price for jet fuel in
US dollars (per barrel)
Average market price for jet fuel in
Canadian dollars (per barrel)
Six months ended June 30
2016
2015
Change
182,583
214,948
(15.1%)
348,998
425,393
(18.0%)
21%
26%
(5.0 pts.)
19%
25%
(6.0 pts.)
342,458,639
53
310,947,207
69
10.1%
(23.2%)
694,852,212
50
634,070,433
67
9.6%
(25.4%)
57
76
(25.0%)
49
74
(33.8%)
73
94
(22.3%)
65
91
(28.6%)
Fuel remains a significant cost representing 21 per cent and 19 per cent of total operating expenses for the three and six
months ended June 30, 2016 (three and six months ended June 30, 2015 – 26 and 25 per cent, respectively). For the three
and six months ended June 30, 2016, aircraft fuel expense decreased by 15.1 per cent and 18.0 per cent to $182.6 million
and $349.0 million from $214.9 million and $425.4 million, respectively, primarily due to the 23.2 per cent and 25.4 per cent
year-over-year decrease in our fuel cost per litre.
Fuel costs per ASM for the three and six months ended June 30, 2016, were 2.57 cents and 2.42 cents, compared to 3.23
cents and 3.16 cents in the same periods of 2015, a decrease of 20.4 per cent and 23.4 per cent year over year. This
decrease was driven by the overall decrease in the Canadian market price of jet fuel.
Our fuel costs per litre for the three and six months ended June 30, 2016 decreased by 23.2 per cent and 25.4 per cent to 53
cents and 50 cents per litre. On average, the market price for jet fuel was US $57 per barrel in the second quarter of 2016
versus US $76 per barrel in the second quarter of 2015, a decrease of approximately 25.0 per cent. The benefit from the
lower market price of US-dollar jet fuel on a year-over-year basis was partially offset by the weaker Canadian dollar as the
average market price for jet fuel in Canadian dollars decreased by only 22.3 per cent to $73 per barrel from $94 per barrel in
the second quarter of 2015.
Similarly, on average, the market price for jet fuel was US $49 per barrel for the six months ended June 30, 2016 versus US
$74 per barrel in the same period of the prior year, a decrease of approximately 33.8 per cent while jet fuel in Canadian
dollars decreased by only 28.6 per cent to $65 per barrel from $91 per barrel in the second quarter of 2015.
For 2016, we estimate our sensitivity of fuel costs to changes in crude oil to be approximately USD $8.8 million annually for
every one US-dollar change per barrel of West Texas Intermediate (WTI) crude oil. Additionally, we estimate our sensitivity to
changes in fuel pricing to be approximately $14.0 million for every one-cent change per litre of fuel. We estimate that every
one-cent change in the value of the Canadian dollar versus the US dollar will have an approximate impact of $5.2 million on
fuel costs.
As at June 30, 2016, we have no fuel derivative contracts outstanding. We will continue to monitor and adjust to movements
in fuel prices and may re-visit our hedging strategy as changing markets and competitive conditions warrant.
WestJet Second Quarter 2016 │ 11
Salaries and benefits
Our compensation philosophy is designed to align corporate and personal success. We have created a compensation program
whereby a portion of our expenses are variable and are tied to our financial results. Our compensation strategy encourages
employees to become owners in WestJet, which creates a personal vested interest in our financial results and operational
accomplishments.
($ in thousands)
Salaries and benefits plans
Employee share purchase plan
Share-based payment plans
Total salaries and benefits
Full-time equivalent employees (FTE)
Three months ended June 30
2016
2015
Change
Six months ended June 30
2016
2015
Change
188,062
23,230
6,958
218,250
9,556
383,567
45,636
11,370
440,573
9,556
175,735
21,528
5,250
202,513
8,967
7.0%
7.9%
32.5%
7.8%
6.6%
354,670
42,173
8,751
405,594
8,967
8.1%
8.2%
29.9%
8.6%
6.6%
Salaries and benefits plans
Salaries and benefits are determined via a framework of job levels based on internal assessments and external market data.
During the three and six months ended June 30, 2016, salaries and benefits increased by 7.0 per cent and 8.1 per cent,
respectively to $188.1 million and $383.6 million, from $175.7 million and $354.7 million in the same periods of 2015. These
increases were primarily due to the 6.6 per cent increase in our total number of full-time equivalent employees to 9,556
employees at June 30, 2016 (June 30, 2015 – 8,967 employees) and the impact of our market and merit increases.
Em ployee share purchase plan (ESPP)
The ESPP encourages employees to become owners of WestJet shares and provides employees with the opportunity to
significantly enhance their earnings. Under the terms of the ESPP, WestJetters may, dependent on their employment
agreement, contribute up to a maximum of between 10 per cent and 20 per cent of their gross salary to acquire voting shares
of WestJet at the current fair market value. The contributions are matched by WestJet and are required to be held within the
ESPP for a period of one year. At June 30, 2016, approximately 83.9 per cent (June 30, 2015 - 85.0 per cent) of our eligible
active employees participated in the ESPP, contributing an average of 13.8 per cent (June 30, 2015 - 14.2 per cent) of their
gross salaries. Under the terms of the ESPP, we acquire voting shares on behalf of employees through open market
purchases. For the three and six months ended June 30, 2016, our matching expense was $23.2 million and $45.6 million, a
7.9 per cent and 8.2 per cent increase, respectively, from $21.5 million and $42.2 million in the same periods of 2015, driven
largely by the increased number of eligible employees compared to the prior year as well as the overall increase in salaries, as
discussed above under the heading Salaries and benefits plans.
Share-based paym ent plans
We have three equity-settled share-based payment plans whereby either stock options, restricted share units (RSUs) or
performance share units (PSUs) may be awarded to pilots, senior executives and certain non-executive employees. Our
equity-settled share-based payments are measured at the fair value of the instrument granted and recognized as
compensation expense with a corresponding increase in equity reserves on a straight-line basis over the related service period
based on the number of awards expected to vest. For the three months ended June 30, 2016, share-based payment expense
totaled $7.0 million, representing an increase of 32.5 per cent over the $5.3 million recognized in the same period in the prior
year. This primarily relates to an increase in the number of eligible executives receiving share-based rewards in the second
quarter of 2016 as compared to the second quarter of 2015 as a result of vacancies in 2015 along with an overall general
increase in eligible management and pilot participants.
For the six months ended June 30, 2016, share-based payment expense was $11.4 million, representing an increase of 29.9
per cent from $8.8 million recognized in the same period in the prior year. This increase relates to an increased number of
eligible executives receiving grants in the first half of 2016 versus the first half of 2015.
WestJet Second Quarter 2016 │ 12
Rates and fees
Rates and fees expense consists primarily of airport landing and terminal fees, ground handling fees and navigational charges.
Rate and fees expense ($ in thousands)
Departures
Three months ended June 30
2016
2015
Change
152,470
138,516
10.1%
55,666
51,702
7.7%
Rate and fees expense ($ in thousands)
Departures
Six months ended June 30
2016
2015
Change
306,214
272,706
12.3%
111,109
100,771
10.3%
For the three and six months ended June 30, 2016, our rates and fees expense was $152.5 million and $306.2 million, a $14.0
million and $33.5 million or 10.1 and 12.3 per cent increase, respectively, from $138.5 million and $272.7 million in the
comparable periods in 2015. Rates and fees expense per ASM is 2.14 cents and 2.13 cents for the three and six months ended
June 30, 2016, an increase of 2.9 and 5.4 per cent from 2.08 cents and 2.02 cents in the same periods of 2015. Compared to
the first half of 2015, we experienced increased airport related costs including terminal and landing fees and ground handling
fees as a result of increased departures out of many of our airport bases, due to the overall expansion of our network and in
particular the growth of WestJet Encore. This increase is also driven by the impact of the devaluation of the Canadian dollar as
certain airport rates and fees are denominated in US dollars.
Depreciation and am ortization
Depreciation and amortization expense for the three and six months ended June 30, 2016 was $86.8 million and $168.6
million, a $24.1 million and $48.6 million or 38.3 and 40.6 per cent increase, respectively, from $62.8 million and $119.9
million in the comparable periods of 2015. Depreciation and amortization expense per ASM was 1.22 cents in the second
quarter of 2016 and 1.17 cents in the first half of 2016, representing an increase of 29.8 and 31.5 per cent, respectively, from
0.94 and 0.89 cents in the same periods of the prior year. These year-over-year increases were mainly driven by the overall
growth in our fleet, the changing fleet mix and the impact of the devaluation of the Canadian dollar as certain aircraft
purchases are denominated in US dollars.
WestJet Second Quarter 2016 │ 13
M aintenance
Maintenance expense is comprised of technical maintenance which represents costs incurred for maintenance on our aircraft
fleet, and a maintenance provision which represents our estimate of future obligations to meet the lease return conditions
specified in our lease agreements.
Expense ($ in thousands)
CASM (cents)
Three months ended June 30
2016
2015
Change
2016
2015
Change
Technical maintenance
Maintenance provision
Total maintenance
Technical maintenance
Maintenance provision
Total maintenance
31,062
19,283
50,345
23,035
13,974
37,009
34.8%
38.0%
36.0%
0.44
0.27
0.71
0.35
0.21
0.56
25.7%
28.6%
26.8%
Expense ($ in thousands)
CASM (cents)
Six months ended June 30
2016
2015
Change
2016
2015
Change
62,391
42,894
45.5%
0.44
0.32
37.5%
40,892
29,592
38.2%
0.28
0.22
27.3%
103,283
72,486
42.5%
0.72
0.54
33.3%
For the three and six months ended June 30, 2016, our maintenance expense was $50.3 million and $103.3 million, a $13.3
million and $30.8 million or 36.0 and 42.5 per cent increase, respectively, from $37.0 million and $72.5 million for the same
periods in 2015. Maintenance expense per ASM was 0.71 cents and 0.72 cents for the three and six months ended June 30,
2016, an increase of 26.8 per cent and 33.3 per cent, respectively, from 0.56 cents and 0.54 cents in the same periods of
2015.
Technical maintenance expense for the three and six months ended June 30, 2016 was $31.1 million and $62.4 million, which
represents an $8.0 million and $19.5 million or 34.8 and 45.5 per cent increase, respectively, from $23.0 million and $42.9
million in the same periods of 2015. Our technical maintenance cost per ASM was 0.44 cents for both the three and six
months ended 2016, representing an increase of 25.7 and 37.5 per cent from 0.35 cents and 0.32 cents, respectively, in the
same periods of the prior year. These year-over-year increases were mainly attributable to our diversified, aging and growing
fleet where we have performed more maintenance events compared to the prior year, the impact of the devaluation of the
Canadian dollar compared to the same period in the prior year as most of our maintenance costs are denominated in US
dollars and a lower comparable period which included a reserve write-up of $2.3 million due to lease extensions in the second
quarter of 2015.
Maintenance provision expense for the three and six months ended June 30, 2016 was $19.3 million and $40.9 million, which
represents a $5.3 million and $11.3 million or 38.0 and 38.2 per cent increase, respectively, from $14.0 million and $29.6
million in the same periods of 2015. Our maintenance provision cost per ASM was 0.27 cents and 0.28 cents for the three and
six months ended 2016, representing an increase of 28.6 and 27.3 per cent from 0.21 cents and 0.22 cents, respectively, in
the same periods of the prior year. The increase was primarily driven by changes in the estimated timing and scope of
maintenance activities for our leased aircraft and a change in the discount rate. Our provision is calculated based on the best
information available to us and includes estimates of the cost and timing of future maintenance activities on leased aircraft, as
well as discount rates.
WestJet Second Quarter 2016 │ 14
Other operating expenses
The following table provides a breakdown of the more significant items included in other operating expenses:
Expense ($ in thousands)
Travel and training
Technical support
General and administrative
Remaining other operating expenses
Total other operating expenses
2016
24,947
10,168
22,357
12,047
69,519
Expense ($ in thousands)
Travel and training
Technical support
General and administrative
Remaining other operating expenses
Total other operating expenses
2016
50,142
21,783
42,725
27,967
142,617
CASM (cents)
Three months ended June 30
2015
Change
2016
2015
23,270
7.2%
0.35
0.35
10,380
(2.0%)
0.14
0.16
17,395
28.5%
0.31
0.26
7,097
69.7%
0.18
0.10
58,142
19.6%
0.98
0.87
Change
0.0%
(12.5%)
19.2%
80.0%
12.6%
CASM (cents)
Six months ended June 30
2015
Change
2016
45,816
9.4%
0.35
21,334
2.1%
0.15
32,964
29.6%
0.30
23,852
17.3%
0.19
123,966
15.0%
0.99
2015
0.34
0.16
0.24
0.18
0.92
Change
2.9%
(6.3%)
25.0%
5.6%
7.6%
For the second quarter of 2016, our other operating expense was $69.5 million, an $11.4 million or 19.6 per cent increase
from $58.1 million for the same period in 2015. Other operating expense per ASM was 0.98 cents for the three months ended
June 30, 2016, an increase of 12.6 per cent from 0.87 cents in the same period of 2015. For the six months ended June 30,
2016, our other operating expense was $142.6 million or 15.0 per cent increase from $124.0 million. On a per ASM basis,
other operating expenses increased by 7.6 per cent to 0.99 cents from 0.92 cents in the first half of 2015.These increases
were driven by increases in general and administrative expense and the remaining other expenses.
For the second quarter of 2016, our general and administrative expense was $22.4 million, a $5.0 million or 28.5 per cent
increase from $17.4 million for the same period in 2015. General and administrative expense per ASM was 0.31 cents for the
three months ended June 30, 2016, an increase of 19.2 per cent from 0.26 cents in the same period of 2015. These increases
were primarily driven by higher consulting costs relating to certain ongoing operational initiatives as well as consulting costs
incurred in relation to third party professional services.
For the second quarter of 2016, the remaining other operating expenses were $12.0 million, a $4.9M million or 69.7 per cent
increase from $7.1 million for the same period in 2015. The remaining other operating expenses per ASM were 0.17 cents for
the three months ended June 30, 2016, an increase of 70.0 per cent from 0.10 cents in the same period of 2015. These
increases were primarily driven by irregular Boeing 767 operations mainly attributable to flight delays and estimated regulated
guest compensation on our London Gatwick routes.
Em ployee profit share
All employees are eligible to participate in the employee profit sharing plan. As the profit share system is a variable cost,
employees receive larger awards when we are more profitable. Conversely, the amount distributed to employees is reduced in
less profitable periods. Our profit share expense for the three months ended June 30, 2016, resulted in a credit of $1.2
million, representing a decrease of over one hundred per cent from $9.4 million in the same period of the prior year. Profit
share is estimated based on a year to date eligible earnings margin of not less than 10 per cent therefore due to the lower
year to date eligible earnings margin ended June 30, 2016 compared to the higher year-to-date eligible earnings margin in the
first quarter, the second quarter expense resulted in a credit.
Our profit share expense for the six months ended June 30, 2016, was $21.3 million, representing a decrease of 64.0 per cent
from $59.1 million in the same period of the prior year. This year-over-year decrease is directly attributable to lower earnings
eligible for profit share in the first half of 2016 versus the prior year.
WestJet Second Quarter 2016 │ 15
Foreign exchange
The gain or loss on foreign exchange included in our condensed consolidated statement of earnings is mainly attributable to
the effect of the changes in the value of our US-dollar-denominated net monetary assets and liabilities. Monetary assets
consist mainly of US-dollar cash and cash equivalents, security deposits on various leased aircraft, and maintenance reserves
paid to lessors, offset by monetary liabilities of US-dollar accounts payable and accrued liabilities and maintenance provisions.
As part of our Foreign Currency Risk Management Policy we hold US-dollar-denominated cash and short-term investments and
enter into US-dollar foreign exchange forward contracts to protect our balance sheet, operating margins and cash flows.
At June 30, 2016, US-dollar-denominated net monetary assets totaled approximately US $26.5 million compared to net
monetary liabilities of US $24.0 million at December 31, 2015. The increase in US-dollar-denominated net monetary assets
compared to 2015 year end is largely due to an increase in US-dollar cash during the second quarter. We reported a foreign
exchange gain of $1.6 million and $6.3 million for the three and six months ended June 30, 2016 on the revaluation of our
US-dollar-denominated monetary assets and liabilities.
We periodically use financial derivatives to manage our exposure to foreign exchange risk. At June 30, 2016, to fix the
exchange rate on a portion of our US-dollar-denominated hotel costs and aircraft lease payments, we have foreign exchange
forward contracts for an average of US $11.5 million per month for the period of July 2016 to June 2017, for a total of US
$137.9 million, at a weighted average contract price of 1.3247 Canadian dollars to one US dollar. Additionally, we entered into
a fixed US dollar to fixed Canadian dollar uncollateralized cross currency swap agreement to mitigate our exposure to
fluctuations in the Canadian US-dollar exchange rate on interest payments on the US-Dollar Notes, which are denominated in
USD (please refer to the section called Financing found on page 21 of this MD&A). We have designated certain contracts
under our foreign exchange hedging program for cash flow hedge accounting, while other contracts do not qualify for hedge
accounting. Under cash flow hedge accounting, the effective portion of the change in the fair value of the hedging instrument
is recognized in hedge reserves, while any ineffective portion is recorded directly to net earnings as a non-operating gain or
loss. Upon maturity of the derivative instrument, the effective gains and losses previously recognized in hedge reserves are
recorded in net earnings as a component of the expenditure to which they relate. Those contracts not designated under cash
flow hedge accounting have the change in fair value recorded directly in net earnings as a non-operating gain or loss. At June
30, 2016, no portion of the forward contracts designated under cash flow hedge accounting was considered ineffective.
The following table presents the financial impact and statement presentation of our foreign exchange derivatives on the
condensed consolidated statement of financial position at June 30, 2016 and December 31, 2015 and on the condensed
consolidated statement of earnings for the three and six months ended June 30, 2016 and 2015.
($ in thousands)
Statement presentation
Statement of Financial Position:
Fair value
Fair value
Unrealized gain (loss)
Prepaid expenses, deposits and other
Accounts payable and accrued liabilities
Hedge reserves (before tax)
($ in thousands)
Statement of Earnings:
Realized gain
Realized gain (loss)
Realized gain (loss)
Statement presentation
Aircraft leasing
Other revenue
Gain on derivatives
June 30
2016
December 31
2015
180
(4,708)
(4,528)
17,409
(51)
15,770
Three months ended June 30
2016
2015
502
(961)
(612)
4,942
-
WestJet Second Quarter 2016 │ 16
($ in thousands)
Statement of Earnings:
Realized gain
Realized gain (loss)
Realized gain
Six months ended June 30
2016
2015
Statement presentation
Aircraft leasing
Other revenue
Gain on derivatives
4,457
(500)
106
9,665
-
The fair value of the foreign exchange forward contracts presented on the condensed consolidated statement of financial
position is measured based on the difference between the contracted rate and the current forward price obtained from the
counterparty, which can be observed and corroborated in the marketplace.
For 2016, we estimate that every one-cent change in the value of the Canadian dollar versus the US dollar will have an
approximate impact of $8.6 million on our annual unhedged operating costs (approximately $5.2 million for fuel and $3.4
million related to other US-dollar-denominated operating expenses).
We also have a significant amount of our future purchase obligations, including certain aircraft, exposed to foreign exchange
risk. At June 30, 2016, we estimate every one-cent change in the value of the Canadian dollar versus the US dollar would
have an approximate impact of $34.0 million on our future US-dollar-denominated purchase obligations.
Income taxes
Our effective consolidated income tax rate for both the three and six months ended June 30, 2016 was 29 per cent, as
compared to 31 per cent and 28 per cent respectively, for the comparative periods in 2015. These year-over-year variances
are due to the general corporate income tax rate increase in Alberta for 2015, which occurred in July 2015, requiring a
prospective application starting in the second quarter of 2015. For 2016, we anticipate that our annual effective consolidated
income tax rate will remain in the range of 28 to 30 per cent.
Summary of quarterly results
($ in thousands, except per share data)
Total revenue
Net earnings
Basic earnings per share
Diluted earnings per share
($ in thousands, except per share data)
Total revenue
Net earnings
Basic earnings per share
Diluted earnings per share
Jun. 30
2016
949,313
36,654
0.30
0.30
Jun. 30
2015
941,998
61,554
0.49
0.49
Three months ended
Mar. 31
Dec. 31
2016
2015
1,031,444
958,715
87,644
63,436
0.71
0.51
0.71
Sept. 30
2015
1,045,055
101,803
0.82
0.51
0.82
Three months ended
Mar. 31
Dec. 31
2015
2014
1,083,497
994,394
Sept. 30
2014
1,009,728
140,737
1.11
1.09
90,713
0.71
0.70
52,191
0.41
0.40
Our business is seasonal in nature with varying levels of activity throughout the year. We experience increased domestic travel
in the summer months (second and third quarters) and more demand for sun destinations over the winter period (fourth and
first quarters). With our transborder and international destinations, we have been able to partially alleviate the effects of
seasonality on our net earnings.
Compared to our strong results in the first nine months of 2015, we experienced a notable decrease to total revenue, net
earnings and earnings per share in the most recent three quarters. These results were impacted by the economic weakness in
Alberta and the Prairie Provinces which resulted in much softer demand in Western Canada and downward pressure on fares.
WestJet Second Quarter 2016 │ 17
Guest experience
At WestJet, we are focused on meeting the needs of our guests while maintaining the highest safety standards. We are
committed to delivering a positive guest experience at every stage of our service, from the time the flight is booked to its
completion.
Key performance indicators
On-time performance, indicating the percentage of flights that arrive within 15 minutes of their scheduled time, is a key factor
in measuring our guest experience. The completion rate indicator represents the percentage of flights completed of the flights
originally scheduled. Our bag ratio represents the number of delayed, lost, damaged or pilfered baggage claims made per
1,000 guests.
On-time performance
Completion rate(i)
Bag ratio
(i)
Three months ended June 30
2016
2015
Change
88.1%
91.3%
(3.2 pts.)
99.0%
99.2%
(0.2 pts.)
3.53
3.24
(9.0%)
Six months ended June 30
2016
2015
Change
85.6%
98.6%
3.76
84.8%
98.5%
3.85
0.8 pts.
0.1 pts.
2.3%
Our completion rate for the three and six months ended June 30, 2016 excludes the impact related to the wild fires that occurred in Fort McMurray, Alberta
in the second quarter of 2016. This situation led to the closure of the Fort McMurray airport to scheduled flights from early May 2016 to early June 2016,
during which time we did not operate our scheduled flights out of Fort McMurray. Had we included those scheduled flights our completion rate would have
been 97.8% and 98.0%, respectively, for the three months and six months ended June 30, 2016.
During the three months ended June 30, 2016, our on-time performance decreased by 3.2 percentage points, compared to
the same period of 2015. This decrease is primarily from an increase in general departure delay occurrences due to more
weather-related events as compared to the same period in the prior year. Our on-time performance for the six months ended
June 30, 2016, was relatively flat year over year and our overall on-time performance placed us as the number one
performing North American airline for June 2016.
Our completion rate for the three and six months ended June 30, 2016 was flat compared to the same period in 2015, which
is a testament to our ability to complete our originally scheduled flights and ensure guests reach their final destination. Our
baggage ratio deterioration in the second quarter of 2016 was impacted by the situation in Fort McMurray. Specifically, we
saw an increase in the number of bags moving throughout our network as we made the decision to significantly relax baggage
limits and fees at this location.
Overall our results across all three performance indicators for the first half of 2016 compared to the same period in 2015, are
driven by our continued internal focus on improving our on-time performance. We strive to consistently and safely perform on
time.
Liquidity and capital resources
Liquidity
The airline industry is highly sensitive to unpredictable circumstances and, as such, maintaining a strong financial position is
imperative to an airline’s success. Our consistent and strong financial results enable us to maintain a healthy balance sheet.
We completed the second quarter of 2016 with a cash and cash equivalents balance of $1,698.2 million, compared to
$1,183.8 million at December 31, 2015. The increase in our cash position was a result of funds received from our nonrevolving credit facility in January 2016 and our US-dollar bond issuance in June 2016 (please refer to the section called
Financing found on page 21 of this MD&A). These cash inflows were partially offset by capital expenditures for aircraft
acquisitions and other equipment, the cost of shares repurchased pursuant to our normal course issuer bid as well as our
quarterly dividend payment and debt repayments.
Part of our cash and cash equivalents balance relates to cash collected with respect to advance ticket sales, for which the
balance at June 30, 2016, was $695.8 million, an increase of 12.2 per cent from $620.2 million at December 31, 2015. We
have cash and cash equivalents on hand to have sufficient liquidity to meet our liabilities, when due, under both normal and
WestJet Second Quarter 2016 │ 18
stressed conditions. At June 30, 2016, we had cash on hand of 2.44 (December 31, 2015 – 1.91) times our advance ticket
sales balance.
We monitor capital and liquidity using a number of measures, including the following ratios:
Cash to trailing 12 months revenue (TTM)(i)(ii)
Adjusted debt-to-equity ratio(i)
Adjusted net debt to EBITDAR(i)
(i)
(ii)
June 30
2016
42.6%
1.67
1.72
December 31
2015
29.4%
1.27
1.29
Change
13.2 pts.
31.5%
33.3%
Please refer to page 32 of this MD&A for a reconciliation of non-GAAP and additional GAAP measures.
In addition to our cash and cash equivalents, as of June 30, 2016, we have available our entire $300.0 million revolving credit facility that expires in June
2019 (please refer to the section Financing found on page 21 of this MD&A). Available funds from the credit facility have not been included in this ratio.
As of June 30, 2016, our cash to TTM revenue ratio increased by 13.2 percentage points to 42.6 per cent from 29.4 per cent
at December 31, 2015. This exceeds our internal guideline of approximately 30% and is the result of an increase in cash and
cash equivalents due to additional borrowings from the non-revolving, unsecured credit facility in January 2016 and the USdollar bond issuance in June 2016. In addition to our cash and cash equivalents, as of June 30, 2016, we have available
$300.0 million as the undrawn portion of our revolving credit facility (please refer to the section called Financing found on
page 21 of this MD&A). Our adjusted debt-to-equity ratio of 1.67, and our adjusted net debt to EBITDAR ratio of 1.72 at June
30, 2016, increased from 1.27 and 1.29, respectively, at December 31, 2015. These ratios are well below our internal
guideline of no more than 2.5 with the increases due to increased debt levels associated the additional borrowings as noted
above.
Our current ratio, defined as current assets over current liabilities, was 1.30 at June 30, 2016 as compared to 0.97 at
December 31, 2015, an increase of 34 per cent due mostly to an increase in our cash and cash equivalents as well as
decreases in our accounts payable and accrued liabilities.
Select cash flow inform ation
($ in thousands)
Cash provided by operating activities
Less:
Cash used by investing activities
Cash provided (used) by financing activities
Cash flow from operating, investing and financing activities
Effect of foreign exchange on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
($ in thousands)
Cash provided by operating activities
Less:
Cash used by investing activities
Cash provided (used) by financing activities
Cash flow from operating, investing and financing activities
Effect of foreign exchange on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Three months ended June 30
2016
2015
Change
144,674
130,134
14,540
(300,355)
443,297
287,616
3,722
(166,725)
(41,711)
(78,302)
2,515
(133,630)
485,008
365,918
1,207
291,338
1,406,910
1,698,248
(75,787)
1,405,339
1,329,552
367,125
1,571
368,696
Six months ended June 30
2016
2015
Change
366,770
387,937
(21,167)
(534,060)
693,805
526,515
(12,064)
514,451
(339,277)
(98,559)
(49,899)
21,380
(28,519)
(194,783)
792,364
576,414
(33,444)
542,970
1,183,797
1,698,248
1,358,071
1,329,552
(174,274)
368,696
WestJet Second Quarter 2016 │ 19
Operating cash flow s
For the quarter ended June 30, 2016, our cash flow from operations increased 11.2 per cent to $144.7 million compared to
$130.1 million in the same quarter of the prior year. Similarly, on a per share basis (diluted), for the quarter ended June 30,
2016, our cash flow from operations increased 15.5 per cent to $1.19 per share compared to $1.03 per share in the same
period of the prior year (please refer to page 32 of this MD&A for a reconciliation of non-GAAP and additional GAAP
measures). This year-over-year increase was mainly a result of higher contributions from working capital.
For the six months ended June 30, 2016, cash from operations decreased 5.5 per cent to $366.8 million compared to $387.9
million in the same period of 2015. This year-over-year decrease is predominantly due to lower earnings and contributions
from working capital. On a per share basis, for the six months ended June 30, 2016, our cash from operations decreased 1.32
per cent to $3.00 per share compared to $3.04 per share in the same period of the prior year. This year-over-year decrease is
predominantly due to lower earnings.
At June 30, 2016, restricted cash consisted of $30.5 million (December 31, 2015 – $53.6 million) for cash held in trust by
WestJet Vacations; $13.6 million (December 31, 2015 – $13.4 million) for security on letters of guarantee; and, in accordance
with U.S. regulatory requirements, $1.4 million (December 31, 2015 – $1.6 million) for cash not yet remitted for passenger
facility charges.
I nvesting cash flow s
For the three and six months ended June 30, 2016, cash flow used for investing activities totaled $300.4 million and $534.1
million, respectively as compared to $166.7 million and $339.3 million in the same period of the prior year. The year-over-year
increase in cash outflows is the result of increased capital spending in the current period, lower contributions from working
capital, as well as the impact of cash proceeds received on the delivery of the final two aircraft sold to Southwest in the prior
year comparative period. The majority of our investing activities during the second quarter of 2016 related to the delivery of
three Q400 aircraft, one Boeing 767, additional deposits for future Boeing MAXs, Boeing 737 NGs and Q400 aircraft, overhauls
of owned engines, as well as installation of our new inflight entertainment system and slim-line seats with power.
Financing cash flow s
For the quarter ended June 30, 2016, our financing cash inflows totaled $443.3 million as compared to cash outflows of $41.7
million in the same period of the prior year. Our financing activities in the second quarter of 2016 consisted mainly of cash
inflows of $562.1 million related to the proceeds from the June 2016 US-dollar bond issuance and financing of three Q400
aircraft (please refer to the Financing section below for further information), offset by cash outflows related to long-term debt
repayments of $43.5 million, dividends paid of $16.8 million, cash interest paid of $8.4 million and shares repurchased
pursuant to our normal course issuer bid of $53.0 million.
For the six months ended June 30, 2016, financing inflows totaled $693.8 million compared to outflows of $98.6 million in the
same period of 2015. For the six months ended June 30, 2016, our financing inflows were the result of $914.8 of borrowings
from the non-revolving, unsecured credit facility and the June 2016 US-dollar bond issuance offset by $85.1 million in
repayments of long term debt, dividends paid of $33.9 million, $66.9 million for shares repurchased under our normal course
issuer bids, and cash interest paid of $24.7 million.
Free cash flow
Free cash flow is a non-GAAP measure that represents the cash that a company is able to generate after meeting its
requirements to maintain or expand its asset base. It is a calculation of operating cash flow, less the amount of cash used in
investing activities related to property and equipment. Our free cash flow for the three and six months ended June 30, 2016,
was a negative $155.7 million and negative $167.3 million, respectively, compared to a negative $63.6 million and positive
$50.1 million in the same periods of the prior year. On a per share basis (diluted), this equated to negative $1.28 per share
and negative $1.37 per share for the three and six months ended June 30, 2016, compared to negative $0.56 per share and
positive $0.39 per share in the same period of the prior year. The decline for the three months ended June 30, 2016
compared to the same period of the prior year was due to an increase in our capital expenditures for aircraft additions and
other equipment, while the decline in the six months ended June 30, 2016 was due to increased capital expenditures
compounded by a decrease in earnings compared to the same period of the prior year.
Please refer to page 32 of this MD&A for a reconciliation of non-GAAP and additional GAAP measures.
WestJet Second Quarter 2016 │ 20
Financing
We have grown through acquisitions of Boeing 737 NG, Boeing 767 and Bombardier Q400 aircraft. During the second quarter
of 2016, three Q400 aircraft deliveries were financed by individual secured term loans with Export Development Canada (EDC)
for approximately 80 per cent of the purchase price of the aircraft. We also took delivery of one Boeing 767 aircraft in the
second quarter of 2016, funded with cash. At June 30, 2016, we had secured loans financing 37 Boeing 737 NG aircraft and
30 Q400 aircraft with a remaining debt balance of $802.1 million, net of transaction costs. This debt is financed in Canadian
dollars and has no financial covenants associated with it. Including our Senior Unsecured Notes, our new US-Dollar Notes
(described below) and our unsecured, non-revolving credit facility, described below, our total outstanding debt balance at
June 30, 2016 is $2,011.1 million, net of transaction costs.
We currently have an $820 million guaranteed loan agreement with EDC pursuant to which EDC will make available to WestJet
Encore financing support for the purchase of Bombardier Q400s. We are charged a non-refundable commitment fee of 0.2 per
cent per annum on the undisbursed portion of the commitment. Under the terms of the agreement, availability of any
undrawn amount will expire at the end of 2018. The expected amount available for each aircraft is up to 80 per cent of the
net price with a term to maturity of up to 12 years, payable in quarterly installments. At June 30, 2016, we have $318.3
million undrawn under the loan agreement.
At June 30, 2016, we have not drawn on our revolving credit facility and therefore the undisbursed portion of the credit facility
was $300 million. We pay a standby fee for the undisbursed portion of the credit facility. Our revolving credit facility contains
two financial covenants: (i) minimum pooled asset coverage ratio of 1.5 to 1, and (ii) minimum fixed charge coverage ratio of
1.25 to 1. At June 30, 2016, the Corporation was in compliance with both ratios.
On January 5, 2016, we entered into an unsecured, non-revolving $300 million 4-year term credit facility with a syndicate of
banks. The credit facility is available for general corporate purposes, including the funding of future aircraft acquisitions. On
January 7, 2016, we drew the full $300 million available under the credit facility for aircraft purchases and general corporate
purposes using Canadian dollar bankers’ acceptances, which remained outstanding as at June 30, 2016. Interest is calculated
by reference to the applicable base rate plus an applicable pricing margin based on our corporate debt credit ratings. The
credit facility contains two financial covenants: (i) minimum pooled asset coverage ratio of 1.5 to 1, and (ii) minimum fixed
charge coverage ratio of 1.25 to 1. At June 30, 2016, the Corporation was in compliance with both ratios.
On June 16, 2016, we successfully completed a private placement of US$400.0 million 3.50 per cent Senior Unsecured Notes
(the US-Dollar Notes). The US-Dollar Notes bear interest of 3.50 per cent per year with semi-annual interest payments on
June 16 and December 16 of each year commencing on December 16, 2016 and will mature on June 16, 2021. These USDollar Notes rank senior in right of payment to all future subordinated debt, rank equally in right of payment with all our other
existing and future unsecured unsubordinated debt, but are effectively subordinate to all of our existing and future secured
debt to the extent of the value of the assets securing such debt. There are no financial covenant requirements associated with
the US-Dollar Notes. The net proceeds from the sale of these US-Dollar Notes will be used for general corporate purposes,
including the funding of future aircraft purchases.
Concurrently with the issuance of the US-Dollar Notes, the Corporation entered into fixed US dollar to fixed Canadian dollar
uncollateralized cross currency swap agreements (the cross-currency swaps) to mitigate our exposure to future cash flow
fluctuations in the Canadian US dollar exchange rate attributable to the notional and interest portions of the US-Dollar Notes.
The US$400.0 million notional at 3.50 per cent interest per annum was exchanged for $511 million Canadian dollars at a 3.56
per cent weighted average interest per annum through the cross-currency swaps. The cross-currency swap terms are from
June 16, 2016 to June 16, 2021, which matches the 5-year maturity of the US-Dollar Notes. We designated the cross-currency
swap contracts as effective cash flow hedges for accounting purposes. At June 30, 2016, no portion of the cross-currency
swap agreements designated as cash flow hedges were considered ineffective.
WestJet Second Quarter 2016 │ 21
The following table presents the financial impact and statement presentation of the cross-currency swap agreement on the
condensed consolidated statement of financial position at June 30, 2016 and December 31, 2015. There was no impact to the
condensed consolidated statement of earnings for the three and six months ended June 30, 2016 and 2015.
($ in thousands)
Statement presentation
Statement of Financial Position:
Fair value
Prepaid expenses, deposits and other
Fair value
Fair value
Fair value
Unrealized loss
Other Assets
Accounts payable and accrued liabilities
Other liabilities
Hedge reserves (before tax impact)
June 30
2016
December 31
2015
-
23
4,274
(80)
(343)
(1,225)
At June 30, 2016, we have not made any commitments for future aircraft financing, except our loan agreement with EDC
described above. Our credit ratings, discussed below, are an important factor that is expected to provide WestJet with a range
of public and private debt financing options in the future. We continue to evaluate the optimum balance and sources of
financing available to us based on our internal requirements and capital structure as well as the external environment for
aircraft financing.
I nterest
During the three and six months ended June 30, 2016, we incurred $14.7 million and $28.9 million in interest (three and six
months ended June 30, 2015 - $13.1 million and $26.4 million) on our long-term debt. During the first six months of 2016
$12.1 million of interest was capitalized (June 30, 2015 – $nil) as it related to deposits paid for Boeing and Bombardier
aircraft. Of this amount, $8.2 million relates to prior periods. In the second quarter of 2016, $2.4 million of interest was
capitalized (June 30, 2015 - $nil).
To mitigate the earnings impact of changing interest rates on our variable rate loans, we have entered into interest rate swap
agreements to fix the interest rates over the term of these loans. Upon proper qualification, we designated the interest rate
swap contracts as effective cash flow hedges for accounting purposes. At June 30, 2016, no portion of the interest rate swap
agreements designated as cash flow hedges was considered ineffective. The following table presents the financial impact and
statement presentation of the interest rate swap agreements on the condensed consolidated statement of financial position at
June 30, 2016 and December 31, 2015 and on the condensed consolidated statement of earnings for the three and six
months ended June 30, 2016 and 2015.
($ in thousands)
Statement presentation
Statement of Financial Position:
Fair value
Fair value
Unrealized loss
Accounts payable and accrued liabilities
Other liabilities
Hedge reserves (before tax impact)
June 30
2016
December 31
2015
3,900
12,101
16,001
4,475
8,489
12,964
Three months ended June 30
($ in thousands)
Statement of Earnings:
Realized (loss) gain
Statement presentation
($ in thousands)
Statement of Earnings:
Realized (loss) gain
Statement presentation
Finance costs
Finance costs
2016
2015
(988)
(746)
Six months ended June 30
2016
2015
(2,034)
(1,503)
WestJet Second Quarter 2016 │ 22
The fair value of the interest rate swap agreements is measured based on the difference between the fixed swap rate and the
forward curve for the applicable floating interest rates obtained from the counterparty, which can be observed and
corroborated in the marketplace.
Credit ratings
Both our ‘BBB-‘ long-term corporate credit rating with a stable outlook from Standard & Poor’s Rating Services, originally
received in the first quarter of 2014, and our ‘Baa2’ senior unsecured notes rating with a stable outlook from Moody’s Investor
Service, received on May 2, 2016, remain in good standing. Credit ratings are intended to provide investors with an external
measure of our overall creditworthiness. Credit ratings are not recommendations to buy, sell or hold our securities and do not
address the market price or suitability of a specific security for a particular investor. Both of our corporate credit ratings are
considered investment grade. There is no assurance that our ratings will remain in effect for any given period of time or that
our ratings will not be revised or withdrawn entirely by the credit rating agencies in the future if, in their judgment,
circumstances so warrant.
Contractual obligations and commitments
At June 30, 2016, our contractual obligations and commitments are indicated in the following table. In the table, all US-dollar
amounts have been converted at the period-end foreign exchange rate and presented in Canadian dollars.
($ in thousands)
Long-term debt repayments(i)
Leases and commitments(ii)
Purchase obligations(iii)
Total contractual
obligations
(i)
(ii)
(iii)
2,303,271
850,084
4,603,117
Within 1
year
209,431
242,706
583,565
7,756,472
1,035,702
Total
1 - 3 years
3 - 5 years
Over 5 years
382,077
339,457
1,409,314
1,353,786
186,653
718,015
357,977
81,268
1,892,223
2,130,848
2,258,454
2,331,468
Includes contractual principal and interest payments on long-term debt.
Relates to leases and commitments for aircraft, land, buildings, equipment, computer hardware, software licenses and inflight entertainment.
Relates to obligations for our confirmed purchased aircraft deliveries for Boeing 737 NGs, Boeing 737 MAXs, Bombardier Q400s and spare engines.
Our future US-dollar-denominated purchase commitments, including certain aircraft, are exposed to foreign exchange risk
(please refer to the heading called Foreign exchange found on page 16 of this MD&A). We plan to meet our contractual
obligations and commitments through our current cash and cash equivalents balance combined with cash flows from
operations and future sources of financing. We continuously monitor the capital markets and assess financing alternatives
available to us for our future aircraft deliveries. At this time, we are not aware of, nor do we reasonably expect, adverse
changes to our future ability to access similar or other generally available sources of liquidity.
Contingencies
We are party to legal proceedings and claims that arise during the ordinary course of business. It is the opinion of
management that the ultimate outcome of these and any outstanding matters will not have a material effect upon our
financial position, results of operations or cash flows.
WestJet Second Quarter 2016 │ 23
Fleet
During the second quarter of 2016, we took delivery of three Q400 aircraft and one Boeing 767 aircraft, and returned one
leased Boeing 737-700 NG series aircraft to end the quarter with a registered fleet of 148 aircraft with an average age of 7.1
years. Subsequent to June 30, 2016, on July 15, 2016, we returned our second leased Boeing 737-700 NG series aircraft.
On June 1, 2016, we converted the last nine of our original 25 purchase options for Q400 aircraft. These aircraft are
scheduled for delivery between April 2017 and June 2018. The conversion of these options aligns with our strategy to have
measured and profitable growth of our regional airline.
As we continue to increase the proportion of Q400s in our fleet, our combined average stage length, calculated using a
departures based methodology in line with industry standards, will be disproportionately impacted until such time that the
aircraft mix in our fleet is stable. Our Q400s are used for short-haul flying which results in an increase in the number of
departures compared to our Boeing 737 NG aircraft. For the three and six months ended June 30, 2016, our combined
average stage length of 906 and 922 miles decreased by 0.2 per cent and 1.8 per cent, respectively, compared to the
combined average stage length of 908 miles and 939 miles for the same periods in 2015. On a fleet basis, for the three and
six months ended June 30, 2016, our Bombardier Q400 average stage length decreased by 0.6 per cent and increased by 1.3
per cent, respectively, and our Boeing NG 737 stage length increased by 5.7 per cent and 3.5 per cent, respectively.
The combination of our firm commitments and our lease renewal options help us to optimize the size and age of our fleet.
This provides us with the flexibility within our firm commitments to end 2027 with a fleet size between 190 and 233 aircraft,
depending on future decisions to renew leases.
The following table illustrates our Boeing 737, Boeing 767 and Bombardier Q400 fleet as at June 30, 2016 and December 31,
2015 as well as our firm commitments through to 2027.
Total
Dec.
Jun.
31,
30,
2015
2016
Narrow body aircraft
Boeing 737-600 NG
Boeing 737-700 NG(i)
Boeing 737-800 NG(ii)
Boeing 737 MAX 7(iii)(iv)
Boeing 737 MAX 8(iii)(iv)
Wide body aircraft
Boeing 767-300 ERW
Regional aircraft
Bombardier Q400
NextGen
Fleet before lease
expiries
Lease expiries
Fleet after lease
expiries
(i)
(ii)
(iii)
(iv)
(v)
Future Deliveries
Total
Q3-Q4
2016
2017
2018
201920
202123
202427
Total
2027
13
13
―
―
―
―
―
―
―
13
59
42
―
―
58
43
―
―
―
3
―
―
―
2
―
4
―
―
―
7
―
―
6
12
―
―
4
11
―
―
15
6
―
5
25
40
58
48
25
40
2
4
―
―
―
―
―
―
―
4
24
30
4
7
4
―
―
―
15
45
140
148
7
13
11
18
15
21
85
233
(6)
(8)
(13)
(14)
―
(43)
(43)
7
3
5
1
21
42
190
―
―
140
148
(2)
(v)
5
At June 30, 2016, of the 58 Boeing 737-700NG series aircraft in our fleet, 29 are leased (Dec. 31, 2015 – 30) and 29 are owned (Dec. 31, 2015 – 29).
At June 30, 2016, of the 43 Boeing 737-800NG series aircraft in our fleet, 14 are leased (Dec. 31, 2015 – 14) and 29 are owned (Dec. 31, 2015 – 28).
We have options to purchase an additional 10 Boeing 737 MAX aircraft between the years 2020 and 2021.
WestJet’s Boeing 737 MAX 7 and MAX 8 aircraft orders can each be substituted for the other model of aircraft, or for Boeing 737 MAX 9 aircraft.
Subsequent to quarter end, on July 15, 2016 we returned one additional leased Boeing 737-700 NG series aircraft, not reflected in this table.
WestJet Second Quarter 2016 │ 24
Off balance sheet arrangements and related-party transactions
Aircraft operating leases
We currently have 43 Boeing 737 aircraft under operating leases. Future cash flow commitments in connection with these
aircraft totaled US $397.3 million at June 30, 2016 (December 31, 2015 – US $466.6 million) which we expect to fund through
cash from operations. Although the current obligations related to our aircraft operating lease agreements are not recognized
on our condensed consolidated statement of financial position, we include an amount equal to 7.5 times our annual aircraft
leasing expense in assessing our overall leverage through our adjusted debt-to-equity and adjusted net debt to EBITDAR
ratios discussed previously.
Fuel and de-icing facility corporations
We are a contracted party to 15 fuel facility arrangements and two de-icing facility arrangement whereby we participate under
contract in fuel facility corporations and de-icing facility corporations, along with other airlines, to obtain fuel services and deicing services at major Canadian and U.S. airports. The fuel facility and de-icing facility corporations operate on a costrecovery basis. The purpose of these corporations is to own and finance the systems that distribute fuel and de-icing fluid,
respectively, to the contracting airlines, including the leasing of land rights, while providing the contracting airlines with
preferential service and pricing over non-participating entities. The operating costs, including the debt service requirements, of
the fuel and de-icing facility corporations are shared pro rata among the contracting airlines. The 15 fuel facility corporations
and the two de-icing facilities are not consolidated within our accounts. In the remote event that all other contracting airlines
withdraw from the arrangements and we remained as sole member, we would be responsible for the costs of the fuel facility
corporations and de-icing facility corporations, including debt service requirements. At May 31, 2016, the fuel facility
corporations and the de-icing facility corporations have combined total assets of approximately $672.7 million and liabilities of
approximately $645.6 million.
Related-party transactions
At June 30, 2016, we had no transactions with related parties as defined in International Accounting Standard (IAS) 24 –
Related Party Disclosures, except those pertaining to transactions with key management personnel in the ordinary course of
their employment or directorship agreements.
WestJet Second Quarter 2016 │ 25
Share capital
Outstanding share data
Our issued and outstanding voting shares, along with voting shares potentially issuable, are as follows:
Common voting shares
Variable voting shares
Total voting shares issued and outstanding
Stock options
RSUs – Key employee and pilot plan
RSUs – Executive share unit plan
PSUs – Executive share unit plan
Total voting shares potentially issuable
Total outstanding and potentially issuable voting shares
June 30, 2016
97,355,676
22,515,749
119,871,425
9,017,291
246,030
263,456
439,395
9,966,172
129,837,597
Quarterly dividend
Our dividend is reviewed on a quarterly basis in light of our financial position, financing policies, cash flow requirements and
other factors deemed relevant. On July 25, 2016, the Board of Directors declared our 2016 third quarter dividend of $0.14 per
common voting share and variable voting share payable on September 30, 2016 to shareholders of record on September 14,
2016. This remains consistent with the $0.14 per share declared and paid during our second quarter of 2016. We believe this
demonstrates our confidence in delivering continued profitable results and is consistent with our objective of creating and
returning value to our shareholders.
Normal course issuer bid
On May 12, 2016, our 2015 normal course issuer bid (2015 bid) expired, under which the Corporation purchased and
cancelled 5,348,121 common voting shares and variable voting shares (the Shares) of the 6,000,000 Shares it was authorized
to repurchase. During the three and six months ended June 30, 2016, under the 2015 bid we repurchased and cancelled
1,348,121 and 2,148,121 Shares respectively, equal to 22.5 and 35.8 per cent of the maximum number of shares we are
authorized to repurchase, for total consideration of $28.1 million and $42.1 million, respectively. These Shares were
purchased on the open market through the facilities of the Toronto Stock Exchange (TSX) at the prevailing market price at the
time of the transaction.
At the same time as the expiry of the 2015 bid, the Corporation filed a notice with the TSX to make a normal course issuer bid
to purchase outstanding Shares on the open market. As approved by the TSX on May 16, 2016, the Corporation is authorized
to purchase up to 4,000,000 Shares (representing approximately 3.3 per cent of the Corporation’s issued and outstanding
Shares as of April 30, 2016) during the period from May 18, 2016 to May 17, 2017, or until such time as the bid is completed
or terminated at the Corporation’s option (2016 bid). Any shares purchased under the 2016 bid will be purchased on the open
market through the facilities of the TSX at the prevailing market price at the time of the transaction. Shares acquired under
this bid will be cancelled.
During the second quarter of 2016, under the 2016 bid we repurchased and cancelled 1,110,440 Shares equal to 27.8 per
cent of the maximum number of Shares we are authorized to repurchase, for total consideration of $24.9 million. These
Shares were purchased on the open market through the facilities of the TSX at the prevailing market price at the time of the
transaction. As of the date of this MD&A, there are 2,889,560 Shares remaining for purchase under the 2016 bid.
A shareholder of WestJet may obtain a copy of the notice filed with the TSX in relation to the 2016 bid, free of charge, by
contacting the Corporate Secretary of WestJet at 22 Aerial Place N.E., Calgary, Alberta T2E 3J1 (telephone: (403) 444-2600)
or by emailing [email protected].
WestJet Second Quarter 2016 │ 26
Accounting
Critical accounting judgments and estimates
Critical accounting judgments and estimates used in preparing our unaudited condensed consolidated interim financial
statements are described in WestJet’s 2015 annual MD&A and annual consolidated financial statements for the year ended
December 31, 2015. The preparation of consolidated financial statements in conformity with GAAP requires management to
make both judgments and estimates that could materially affect the amounts recognized in the financial statements. By their
nature, judgments and estimates may change in light of new facts and circumstances in the internal and external
environment. There have been no material changes to our critical accounting estimates and judgments during the three and
six months ended June 30, 2016.
Future accounting pronouncements
The International Accounting Standards Board (IASB) and International Financial Reporting Interpretations Committee (IFRIC)
have issued the following standards that have not been applied in preparing our condensed consolidated interim financial
statements and notes thereto, for the three and six months ended June 30, 2016 as their effective dates fall within annual
periods beginning subsequent to the current reporting period.
Proposed
standard
Description
Previous standard
Effective date
IFRS 15 –
Revenue from
Contracts with
Customers
A new standard on revenue recognition
that contains a single model that applies
to contracts with customers and two
approaches to recognizing revenue; at a
point in time or over time.
IAS 11 - Construction
contracts; IAS 18 – Revenue;
IFRIC 13 - Customer Loyalty
Programmes; IFRIC 15 Agreements for the
Construction of Real Estate;
IFRIC 18 - Transfers of Assets
from Customers; SIC-31 Revenue - Barter Transactions
Involving Advertising Services
Effective for annual periods
beginning on or after January
1, 2018. Early adoption is
permitted.
IFRS 9 –
Financial
Instruments
A single financial instrument accounting
standard addressing: classification and
measurement (Phase 1), impairment
(Phase II) and hedge accounting (Phase
III).
IAS 39; IAS 32; IFRS 7 –
Financial Instruments:
Recognition and Measurement;
Presentation; Disclosures
Effective for annual periods
beginning on or after January
1, 2018. Early adoption is
permitted.
IFRS 16 Leases
A new standard on lease accounting
addressing the principles to apply to
report useful information about the
amount, timing and uncertainty of cash
flows arising from a lease. All lease
commitments will be recognized as a
liability.
IAS 17 - Leases
Effective for annual periods
beginning on or after January
1, 2019. Early adoption is
permitted.
Management is currently in the process of formalizing our transition plan regarding these new accounting standards including
our approach to defining the impact, if any, on reporting processes, information systems, business processes and external
disclosures. We anticipate completing our scoping in the fourth quarter of 2016. We do not anticipate early adoption of these
standards.
WestJet Second Quarter 2016 │ 27
Controls and procedures
Disclosure controls and procedures (DC&P)
DC&P are designed to provide reasonable assurance that all relevant information is gathered and reported to management,
including the chief executive officer (CEO) and the chief financial officer (CFO), on a timely basis so that appropriate decisions
can be made regarding public disclosure.
An evaluation of our DC&P was conducted, as at June 30, 2016, by management under the supervision of the CEO and the
CFO. Based on this evaluation, the CEO and the CFO have concluded that, as at June 30, 2016, our DC&P, as defined in
National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), was effective.
Internal control over financial reporting (ICFR)
ICFR is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements in accordance with GAAP. Management is responsible for establishing and maintaining adequate ICFR.
Our ICFR includes policies and procedures that pertain to the maintenance of records that provide reasonable assurance that
transactions are recorded as necessary to permit preparation of the financial statements in accordance with GAAP, and that
receipts and expenditures are being made only in accordance with authorizations of management and directors; pertain to the
maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets;
and are designed to provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on our condensed consolidated interim financial statements.
Because of its inherent limitations, ICFR can provide only reasonable assurance and may not prevent or detect misstatements.
Furthermore, projections of an evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may
deteriorate.
Management, under the supervision of the CEO and the CFO, has evaluated our ICFR using the framework and criteria
established in the 2013 Internal Controls – Integrated Framework, issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Based on this evaluation, the CEO and the CFO have concluded that as at June 30, 2016,
ICFR (as defined in NI 52-109) were effective. There were no changes in our ICFR during the interim period ended June 30,
2016 that have materially affected, or are reasonably likely to materially affect, our ICFR.
WestJet Second Quarter 2016 │ 28
Forward-looking information
This MD&A offers our assessment of WestJet’s future plans, operations and outlook and contains “forward-looking
information” as defined under applicable Canadian securities legislation, including without limitation:
Forward looking statement
Key assumptions
Heading
Our plan to continue adding new markets and
additional frequencies to our existing markets
through the growth of our fleet.
We expect to complete the installation of the new
inflight entertainment system on the majority of
our Boeing 737 fleet by the end of 2016.
We believe that the reciprocal frequent flyer
agreement with Qantas Airways will significantly
improve our rewards program and will bring
opportunities and benefits to our WestJet Reward
members.
Our expectation that the TSA PreCheck service
enhancement will make the security experience
more efficient for our business and frequent flyer
guests.
The flexibility in our fleet plan will allow us to
adjust our schedules to better meet the needs of
our guests.
Our expectation that as our fleet continues to
expand we will establish additional profitable routes
in Canada, the U.S. and internationally.
Boeing and Bombardier will meet our
aircraft delivery schedules and there will
be availability at certain airports.
Our current installation schedule will not
be impacted by unexpected aircraft
scheduling, or supplier delays.
Our agreement with Qantas Airways
remains in good standing.
About WestJet
2
Guest experience
and service
enhancements
Guest experience
and service
enhancements
5
The program being successfully carried
out.
Guest experience
and service
enhancements
5
There will be availability at certain
airports and we have the ability to
accommodate the shifting operations.
Boeing and Bombardier will be able to
meet our aircraft delivery commitments.
Our ability and systems to assess route
profitability will continue.
Boeing and Bombardier will be able to
meet our aircraft delivery commitments.
Forecasted jet fuel prices of US $56 per
barrel for the third quarter of 2016.
Average foreign exchange rate of
approximately 1.30 Canadian dollars to
one US dollar for the third quarter of
2016 and approximately 1.32 for the
full-year 2016.
No significant changes to current tax
legislation.
Boeing and Bombardier will meet our
aircraft delivery schedules.
Based on our current network planning
and schedules.
Based on our current risk management
policies.
Guest experience
and service
enhancements
Network expansion
and fleet
5
Fleet
24
Outlook
7
Income taxes
17
Aircraft fuel
11
Forecasted jet fuel prices of US $56 per
barrel for the third quarter of 2016.
Average foreign exchange rate of
approximately 1.30 Canadian dollars to
one US dollar.
Aircraft fuel
11
We expect our aircraft to be delivered as per our
fleet delivery schedule.
Our anticipated outlook and guidance for the third
quarter of 2016 and full year 2016, where
provided, for traffic, system-wide and domestic
capacity, year over year change in RASM, year over
year change in CASM, excluding fuel and profit
share, fuel costs, capital expenditures and our
expected effective tax rate.
We will continue to monitor and adjust to
movements in fuel prices and may re-visit our
hedging strategy as changing markets and
competitive conditions warrant.
Our estimate of our sensitivity of fuel costs to
changes in crude oil and jet fuel and sensitivity to
fuel costs to the change in the value of the
Canadian dollar versus of the US dollar.
Page
5
5
WestJet Second Quarter 2016 │ 29
Our estimate of our sensitivity in our annual
unhedged operating costs and our future USdenominated purchase obligations to the change in
the value of the Canadian dollar versus the US
dollar.
We expect to receive financing from EDC for up to
80 per cent of the net price for each Bombardier
Q400 aircraft
Our expectation that our credit rating will provide
us with a range of public and private debt financing
options in the future.
Our plan to meet contractual obligations and
commitments through our current cash and cash
equivalents balance combined with future cash
flows from operations sources of aircraft financing
and our expectation that there will not be adverse
changes to our future ability to access liquidity.
We expect that the future outcome of our current
legal proceedings and claims will not have a
material effect upon our financial position, results
of operations or cash flows.
We do not anticipate early adoption of the new
financial instrument standards, referred to under
the heading.
Average foreign exchange rate of
approximately 1.30 Canadian dollars to
one US dollar.
Foreign exchange
16
Our current EDC agreement will remain
in good standing.
Financing
21
We will maintain our investment grade
corporate debt credit ratings.
Financing
21
We will maintain our investment grade
corporate debt credit ratings.
Contractual
obligations and
commitments
23
Off balance sheet
arrangements
25
Based on our current legal counsel
assessment.
Contingencies
23
Based on preliminary review of the
standards.
Future accounting
pronouncements
27
Definition of key operating indicators
Our key operating indicators are airline industry metrics, which are useful in assessing the operating performance of an airline.
Available seat miles (ASM): A measure of total guest capacity, calculated by multiplying the number of seats available for
guest use in an aircraft by stage length.
Average stage length: The average distance of a non-stop flight leg between take-off and landing as defined by
International Air Transport Association (IATA) guidelines.
Cost per available seat mile (CASM): Operating expenses divided by available seat miles.
Departures: One flight, counted by the aircraft leaving the ground and landing.
Load factor: A measure of total capacity utilization, calculated by dividing revenue passenger miles by total available seat
miles.
Revenue passenger miles (RPM): A measure of guest traffic, calculated by multiplying the number of segment guests by
stage length.
Revenue per available seat mile (RASM): Total revenue divided by available seat miles.
Segment guest: Any person who has been booked to occupy a seat on a flight leg and is not a member of the crew
assigned to the flight.
Utilization: Operating hours per day per operating aircraft.
Yield (revenue per revenue passenger mile): A measure of unit revenue, calculated as the gross revenue generated per
revenue passenger mile.
WestJet Second Quarter 2016 │ 30
Non-GAAP and additional GAAP measures
The following non-GAAP and additional GAAP measures are used to monitor our financial performance:
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 debt-to-equity and adjusted net debt to EBITDAR,
as defined below.
Adjusted equity: The sum of share capital, equity reserves and retained earnings, excluding hedge reserves. This measure
is used in the calculation of adjusted debt-to-equity.
Adjusted net debt: Adjusted debt less cash and cash equivalents. 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.
Cash to trailing 12 months of revenue: Cash as a percentage of the trailing twelve months’ revenue is a measure
commonly used in the airline industry to compare liquidity positions.
CASM, excluding fuel and employee profit share: 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, such as significant weather events, geopolitical
tensions, refinery capacity, and global demand and supply. Excluding this expense allows us to analyze our operating results
on a comparable basis. Employee profit share expense is excluded from our operating results because of its variable nature
dependent on earnings and excluding this expense allows for greater comparability.
Return on invested capital: 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 trailing twelve months’ 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.
Diluted free cash flow per share: Free cash flow divided by the diluted weighted average number of shares outstanding.
Diluted operating cash flow per share: Cash flow from operations divided by diluted weighted average shares
outstanding.
WestJet Second Quarter 2016 │ 31
Reconciliation of non-GAAP and additional GAAP measures
The following provides a reconciliation of non-GAAP and additional GAAP measures to the nearest measure under GAAP for
items presented throughout this MD&A.
CASM , excluding fuel and em ployee profit share
($ in thousands)
Operating expenses
Aircraft fuel expense
Employee profit share
expense
Operating expenses,
excluding fuel and
employee profit share
ASMs
CASM, excluding fuel and
profit share (cents)
Six months ended June 30
Three months ended June 30
2016
2015
Change
887,887
841,610
46,277
(182,583)
(214,948)
32,365
2016
1,796,060
(348,998)
2015
1,727,947
(425,393)
Change
68,113
76,395
1,192
(9,359)
10,550
(21,310)
(59,122)
37,812
706,496
617,303
89,192
1,425,752
1,243,432
182,320
7,115,577,504
6,654,631,242
6.9%
14,409,981,621
13,473,244,403
7.0%
9.93
9.28
7.0%
9.89
9.23
7.2%
Adjusted debt-to-equity
($ in thousands)
Long-term debt(i)
Off-balance-sheet aircraft leases(ii)
Adjusted debt
Total shareholders’ equity
Add: Hedge reserves
Adjusted equity
Adjusted debt-to-equity
June 30
2016
2,011,149
1,302,998
3,314,147
1,970,813
15,757
1,986,570
1.67
December 31
2015
1,174,833
1,305,668
2,480,501
1,959,993
(1,903)
1,958,090
1.27
Change
836,316
(2,670)
833,646
10,820
17,660
28,480
31.5%
(i) At June 30, 2016, long-term debt includes the current portion of long-term debt of $140,558 (December 31, 2015 – $141,572) and long-term debt of
$1,870,591 (December 31, 2015 – $1,033,261).
(ii) Off-balance-sheet aircraft leases are calculated by multiplying the trailing 12 months of aircraft leasing expense by 7.5. At June 30, 2016, the trailing 12
months of aircraft leasing expenses totaled $173,733 (December 31, 2015 – $174,089).
Adjusted net debt to EBI TDAR
($ in thousands)
Adjusted debt
Less: Cash and cash equivalents
Adjusted net debt
Net earnings
Add:
Net finance costs(i)
Taxes
Depreciation and amortization
Aircraft leasing
Other(ii)
EBITDAR
Adjusted net debt to EBITDAR(iii)
June 30
2016
3,314,147
(1,698,248)
1,615,899
289,537
December 31
2015
2,480,501
(1,183,797)
1,296,704
367,530
29,869
125,294
313,566
173,733
38,136
152,728
264,921
174,089
(8,267)
(27,434)
48,645
(356)
5,078
937,077
1.72
9,499
1,006,903
1.29
(4,421)
(69,826)
33.3%
Change
833,646
(514,451)
319,195
(77,993)
(i) At June 30, 2016, net finance costs includes the trailing 12 months of finance income of $14,352 (December 31, 2015 – $15,529) and the trailing 12 months
of finance cost of $44,221 (December 31, 2015 – $53,665).
(ii) At June 30, 2016, other includes the trailing 12 months foreign exchange loss of $4,344 (December 31, 2015 – loss of $10,326).
(iii) At June 30, 2016 and December 31, 2015, the Corporation met its internal guideline of an adjusted net debt to EBITDAR and an adjusted net debt to
adjusted EBITDAR measure of less than 2.50.
WestJet Second Quarter 2016 │ 32
Free cash flow
($ in thousands, except per share data)
Cash flow from operating activities
Aircraft additions
Other property and equipment and intangible additions
Free cash flow
Weighted average number of shares outstanding - diluted
Diluted free cash flow per share
($ in thousands, except per share data)
Cash flow from operating activities
Adjusted for:
Aircraft additions
Other property and equipment and intangible additions
Free cash flow
Weighted average number of shares outstanding - diluted
Diluted free cash flow per share
2016
Three months ended June 30
2015
Change
144,674
130,134
14,540
(281,474)
(18,882)
(155,682)
121,545,896
(1.28)
(156,861)
(9,865)
(63,592)
126,787,833
(0.50)
(124,613)
(9,017)
(119,090)
(5,241,937)
(156.0%)
Six months ended June 30
2015
Change
366,770
387,937
(21,167)
2016
(492,007)
(42,053)
(167,290)
122,236,795
(1.37)
(312,444)
(25,393)
50,100
127,689,059
0.39
(179,563)
(16,660)
(217,390)
(5,452,264)
(251.3%)
Operating cash flow per share
Three months ended June 30
($ in thousands, except per share data)
Cash flow from operating activities
Weighted average number of shares outstanding - diluted
Diluted operating cash flow per share
2016
144,674
121,545,896
1.19
($ in thousands, except per share data)
Cash flow from operating activities
Weighted average number of shares outstanding - diluted
Diluted operating cash flow per share
Six months ended June 30
2016
2015
Change
366,770
387,937
(21,167)
122,236,795
127,689,059
(5,452,264)
3.00
3.04
(1.32%)
Cash to trailing 12 m onths revenue
($ in thousands)
Cash and cash equivalents
Trailing 12 months revenue
Cash to trailing 12 months revenue (i)
June 30
2016
1,698,248
3,984,527
42.6%
2015
130,134
126,787,833
1.03
December 31
2015
1,183,797
4,029,265
29.4%
Change
14,540
(5,241,937)
15.5%
Change
514,451
(44,738)
13.2 pts.
(i) At June 30, 2016 and December 31, 2015, the Corporation met its internal guideline of cash to trailing 12 months revenue of approximately 30 per cent.
WestJet Second Quarter 2016 │ 33
Return on invested capital
($ in thousands)
Earnings before income taxes (trailing twelve months)
Add:
Finance costs
Implicit interest in operating leases(i)
Return
Invested capital:
Average long-term debt(ii)
Average shareholders' equity
Off-balance-sheet aircraft leases(iii)
Invested capital
Return on invested capital
June 30
2016
414,831
December 31
2015
520,258
44,221
91,210
550,262
53,665
91,397
665,320
(9,444)
(187)
(115,058)
1,617,149
1,919,542
1,302,998
4,839,689
11.4%
1,181,748
1,868,748
1,305,668
4,356,164
15.3%
435,401
50,794
(2,670)
483,525
(3.9 pts.)
Change
(105,427)
(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, 2016, the trailing 12
months of aircraft leasing expenses totaled $173,733 (December 31, 2015 – $174,089).
WestJet Second Quarter 2016 │ 34
Financial Statements and Notes
Condensed Consolidated Interim Financial Statements
and Notes
For the three and six months ended June 30, 2016 and 2015
WestJet Airlines Ltd.
Second Quarter 2016 Financial Statements and Notes
July 25, 2016
Condensed Consolidated Statement of Earnings
For the three and six months ended June 30
(Stated in thousands of Canadian dollars, except per share amounts)
(Unaudited)
Note
Revenue:
Guest
Other
Operating expenses:
Salaries and benefits
Aircraft fuel
Rates and fees
Sales and marketing
Depreciation and amortization
Maintenance
Aircraft leasing
Other
Employee profit share
Earnings from operations
Non-operating income (expense):
Finance income
Finance cost
Gain (loss) on foreign exchange
Gain (loss) on disposal of property and equipment
Loss on derivatives
11
Earnings before income tax
Income tax expense (recovery):
Current
Deferred
Net earnings
Earnings per share:
Basic
Diluted
10
10
Three months ended
June 30
2016
2015
Six months ended
June 30
2016
2015
814,402
134,911
949,313
828,909
113,089
941,998
1,700,622
280,136
1,980,758
1,785,855
239,640
2,025,495
218,250
182,583
152,470
84,118
86,821
50,345
44,973
69,519
(1,192)
887,887
61,426
202,513
214,948
138,516
74,376
62,766
37,009
43,981
58,142
9,359
841,610
100,388
440,573
348,998
306,214
173,195
168,590
103,283
91,280
142,617
21,310
1,796,060
184,698
405,594
425,393
272,706
157,099
119,945
72,486
91,636
123,966
59,122
1,727,947
297,548
3,547
(12,793)
1,574
(1,782)
(249)
(9,703)
51,723
4,251
(13,477)
940
(3,216)
(11,502)
88,886
7,294
(17,955)
6,295
(2,862)
(1,561)
(8,789)
175,909
8,470
(27,398)
313
2,402
(16,213)
281,335
14,945
124
15,069
36,654
26,845
487
27,332
61,554
54,430
(2,820)
51,610
124,299
66,421
12,623
79,044
202,291
0.30
0.30
0.49
0.49
1.02
1.02
1.60
1.58
The accompanying notes are an integral part of the condensed consolidated interim financial statements.
WestJet Second Quarter 2016 │ 36
Condensed Consolidated Statement of Financial Position
(Stated in thousands of Canadian dollars)
(Unaudited)
Note
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable
Prepaid expenses, deposits and other
Inventory
Non-current assets:
Property and equipment
Intangible assets
Other assets
Total assets
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable and accrued liabilities
Advance ticket sales
Deferred rewards program
Non-refundable guest credits
Current portion of maintenance provisions
Current portion of long-term debt
Non-current liabilities:
Maintenance provisions
Long-term debt
Other liabilities
Deferred income tax
Total liabilities
Shareholders’ equity:
Share capital
Equity reserves
Hedge reserves
Retained earnings
Total shareholders’ equity
Commitments
Total liabilities and shareholders’ equity
3
4
5
6
7
6
7
8
June 30
2016
December 31
2015
1,698,248
45,507
113,642
91,553
32,684
1,981,634
1,183,797
68,573
82,136
131,747
36,018
1,502,271
3,808,352
61,840
81,301
5,933,127
3,473,262
63,549
89,942
5,129,024
420,750
695,799
132,812
42,157
91,083
140,558
1,523,159
545,438
620,216
117,959
40,921
85,819
141,572
1,551,925
234,480
1,870,591
16,580
317,504
3,962,314
243,214
1,033,261
13,603
327,028
3,169,031
567,979
87,265
(15,757)
1,331,326
1,970,813
582,796
82,713
1,903
1,292,581
1,959,993
5,933,127
5,129,024
13
The accompanying notes are an integral part of the condensed consolidated interim financial statements.
WestJet Second Quarter 2016 │ 37
Condensed Consolidated Statement of Cash Flows
For the three and six months ended June 30
(Stated in thousands of Canadian dollars)
(Unaudited)
Note
Operating activities:
Net earnings
Items not involving cash:
Depreciation and amortization
Change in maintenance provisions
Amortization of transaction costs
Amortization of hedge settlements
Loss on derivatives
(Gain) loss on disposal of property and equipment
Share-based payment expense
Deferred income tax expense (recovery)
Unrealized foreign exchange gain
Change in non-cash working capital
Change in restricted cash
Change in other assets
Change in other liabilities
Purchase of shares pursuant to compensation plans
Maintenance provision settlements
Three months ended June
30
2016
2015
Six months ended
June 30
2016
2015
36,654
61,554
124,299
202,291
86,821
19,760
929
247
249
1,782
6,958
124
(5,276)
9,302
17,215
(321)
(258)
(6,237)
(23,275)
144,674
62,766
14,300
1,091
350
3,216
5,250
487
(4,417)
(12,874)
11,487
3,313
469
(5,109)
(11,749)
130,134
168,590
42,085
2,162
567
1,561
2,862
11,370
(2,820)
(6,183)
23,409
23,066
6,799
(977)
(6,383)
(23,637)
366,770
119,945
30,545
2,311
700
(2,402)
8,750
12,623
(11,769)
50,945
15,532
(5,892)
283
(13,071)
(22,854)
387,937
(256,701)
(130)
(19,260)
(24,264)
(300,355)
(234,708)
35,217
(16,226)
48,992
(166,725)
(468,247)
73
(36,659)
(29,227)
(534,060)
(444,163)
82,651
(31,873)
54,108
(339,277)
562,096
(43,492)
(52,968)
(16,782)
40
(8,361)
2,764
443,297
51,546
(43,011)
(27,601)
(17,535)
36
(8,490)
3,344
(41,711)
914,791
(85,104)
(66,933)
(33,914)
40
(24,715)
(10,360)
693,805
117,870
(85,497)
(71,906)
(35,207)
36
(23,829)
(26)
(98,559)
287,616
(78,302)
526,515
(49,899)
3,722
291,338
2,515
(75,787)
(12,064)
514,451
21,380
(28,519)
Cash and cash equivalents, beginning of period
1,406,910
1,405,339
1,183,797
1,358,071
Cash and cash equivalents, end of period
Supplemental disclosure of operating cash
flows
Cash interest received
Cash taxes paid, net
1,698,248
1,329,552
1,698,248
1,329,552
3,520
(29,533)
4,511
(30,032)
7,099
(74,472)
9,153
(61,304)
8
Investing activities:
Aircraft additions
Aircraft disposals
Other property and equipment and intangible additions
Change in non-cash working capital
Financing activities:
Increase in long-term debt
Repayment of long-term debt
Shares repurchased
Dividends paid
Issuance of shares pursuant to compensation plans
Cash interest paid
Change in non-cash working capital
Cash flow from operating, investing and financing
activities
Effect of foreign exchange on cash and cash
equivalents
Net change in cash and cash equivalents
8
9
The accompanying notes are an integral part of the condensed consolidated interim financial statements.
WestJet Second Quarter 2016 │ 38
Condensed Consolidated Statement of Changes in Equity
For the six months ended June 30
(Stated in thousands of Canadian dollars)
(Unaudited)
Note
Share capital:
Balance, beginning of period
Issuance of shares pursuant to compensation plans
Shares repurchased
Equity reserves:
Balance, beginning of period
Share-based payment expense
Issuance of shares pursuant to compensation plans
8
8
8
8
Hedge reserves:
Balance, beginning of period
Other comprehensive income
Retained earnings:
Balance, beginning of period
Dividends declared
Shares repurchased
Purchase of shares pursuant to compensation plans
Net earnings
Total shareholders’ equity
9
8
2016
2015
582,796
629
(15,446)
567,979
603,287
1,131
(11,919)
592,499
82,713
11,370
(6,818)
87,265
75,094
8,750
(8,270)
75,574
1,903
(17,660)
(15,757)
(3,179)
(124)
(3,303)
1,292,581
(33,914)
(51,487)
(153)
124,299
1,331,326
1,102,300
(35,207)
(59,987)
(5,896)
202,291
1,203,501
1,970,813
1,868,271
The accompanying notes are an integral part of the condensed consolidated interim financial statements.
WestJet Second Quarter 2016 │ 39
Condensed Consolidated Statement of Comprehensive Income
For the three and six months ended June 30
(Stated in thousands of Canadian dollars)
(Unaudited)
Three months ended
June 30
2016
2015
Net earnings
Items to be reclassified to net earnings:
Other comprehensive income, net of tax:
Amortization of hedge settlements to aircraft leasing
Net unrealized gain (loss) on foreign exchange derivatives(i)
Reclassification of net realized gain on foreign exchange derivatives(ii)
Net unrealized gain (loss) on interest rate derivatives(iii)
Reclassification of net realized loss on interest rate derivatives(iv)
Net unrealized gain (loss) on cross-currency swap derivatives(v)
Total comprehensive income
(i)
Net of income taxes of $401 and $3,934 (2015 – $455 and $(3,080)).
(ii)
Net of income taxes of $310 and $1,497 (2015 – $1,301 and $2,553).
(iii)
Net of income taxes of $285 and $1,368 (2015 – $(415) and $1,257).
(iv)
Net of income taxes of $(266) and $(547) (2015 – $(197) and $(394)).
(v)
Net of income taxes of $450 and $450 (2015 – $nil and $nil)
Six months ended
June 30
2016
2015
36,654
61,554
124,299
202,291
247
(1,090)
(849)
(776)
722
(1,225)
(2,971)
350
(1,575)
(3,640)
1,491
550
(2,824)
567
(10,708)
(4,079)
(3,702)
1,487
(1,225)
(17,660)
700
8,439
(7,132)
(3,240)
1,109
(124)
33,683
58,730
106,639
202,167
The accompanying notes are an integral part of the condensed consolidated interim financial statements.
WestJet Second Quarter 2016 │ 40
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2016 and 2015
(Stated in thousands of Canadian dollars, except percentage, ratio, share and per share amounts)
(Unaudited)
1.
Statement of significant accounting policies
The condensed consolidated interim financial statements of WestJet Airlines Ltd. (the Corporation) for the three and six months
ended June 30, 2016 and 2015, were authorized for issue by the Board of Directors on July 25, 2016. The Corporation is a
public company incorporated and domiciled in Canada. The Corporation provides airline service and travel packages. The
Corporation’s shares are publicly traded on the Toronto Stock Exchange (TSX) under the symbol WJA. The principal business
address is 22 Aerial Place N.E., Calgary, Alberta, T2E 3J1 and the registered office is Suite 2400, 525 - 8 Avenue S.W., Calgary,
Alberta, T2P 1G1.
(a) Basis of presentation
These condensed consolidated interim financial statements and the notes thereto have been prepared in accordance with IAS 34
– Interim Financial Reporting. They do not include all of the information required for full annual financial statements and should
be read in conjunction with the 2015 consolidated annual financial statements. There have been no changes to the Corporation’s
significant accounting policies from those disclosed in the 2015 consolidated annual financial statements.
(b) Seasonality
The airline industry is sensitive to general economic conditions and the seasonal nature of air travel. The Corporation
experiences increased domestic travel in the summer months and more demand for transborder and international travel over the
winter months, thus reducing the effects of seasonality on net earnings.
WestJet Second Quarter 2016 │ 41
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2016 and 2015
(Stated in thousands of Canadian dollars, except percentage, ratio, share and per share amounts)
(Unaudited)
2.
Capital management
The Corporation’s policy is to maintain a strong capital base in order to maintain investor, creditor and market confidence and to
sustain the future development of the airline. The Corporation manages its capital structure and makes adjustments in light of
changes in economic conditions and the risk characteristics of the underlying assets. In order to manage the capital structure,
the Corporation may, from time to time, purchase shares for cancellation pursuant to normal course issuer bids, issue new
shares, pay dividends and adjust current and projected debt levels.
In the management of capital, the Corporation includes shareholders’ equity (excluding hedge reserves), long-term debt, cash
and cash equivalents and the Corporation’s off-balance-sheet obligations related to its aircraft operating leases, all of which are
presented in detail below.
The Corporation monitors its capital structure on a number of bases, including cash to trailing 12 months revenue, adjusted
debt-to-equity and adjusted net debt to earnings before net finance cost, taxes, depreciation and amortization and aircraft
leasing (EBITDAR). EBITDAR is a non-GAAP financial measure commonly used in the airline industry to evaluate results by
excluding differences in tax jurisdictions and in the method an airline finances its aircraft. In addition, the Corporation will adjust
EBITDAR for non-operating gains and losses on derivatives and foreign exchange and impairment losses. The calculation of
EBITDAR is a measure that does not have a standardized meaning prescribed under IFRS and therefore may not be comparable
to similar measures presented by other issuers. The Corporation adjusts debt to include its off-balance-sheet aircraft operating
leases. To derive a present-value debt equivalent, common industry practice is to multiply the trailing 12 months of aircraft
leasing expense by a multiplier. The Corporation uses a multiplier of 7.5. The Corporation defines adjusted net debt as adjusted
debt less cash and cash equivalents. The Corporation defines equity as total shareholders’ equity, excluding hedge reserves.
Cash to trailing 12 months revenue
Cash and cash equivalents
Trailing 12 months revenue
Cash to trailing 12 months revenue(v)
Adjusted debt-to-equity
Long-term debt(i)
Off-balance-sheet aircraft leases(ii)
Adjusted debt
Total shareholders’ equity
Add: Hedge reserves
Adjusted equity
Adjusted debt-to-equity(v)
Adjusted net debt to EBITDAR
Adjusted debt (as above)
Less: Cash and cash equivalents
Adjusted net debt
Net earnings
Add:
Net finance cost(iii)
Taxes
Depreciation and amortization
Aircraft leasing
Other(iv)
Trailing 12 months EBITDAR
Adjusted net debt to EBITDAR(v)
June 30
2016
December 31
2015
Change
1,698,248
3,984,527
42.6%
1,183,797
4,029,265
29.4%
514,451
(44,738)
13.2 pts
2,011,149
1,302,998
3,314,147
1,970,813
15,757
1,986,570
1.67
1,174,833
1,305,668
2,480,501
1,959,993
(1,903)
1,958,090
1.27
836,316
(2,670)
833,646
10,820
17,660
28,480
31.5%
3,314,147
(1,698,248)
1,615,899
289,537
2,480,501
(1,183,797)
1,296,704
367,530
833,646
(514,451)
319,195
(77,993)
29,869
125,294
313,566
173,733
5,078
937,077
1.72
38,136
152,728
264,921
174,089
9,499
1,006,903
1.29
(8,267)
(27,434)
48,645
(356)
(4,421)
(69,826)
33.3%
(i)
At June 30, 2016, long-term debt includes the current portion of long-term debt of $140,558 (December 31, 2015 – $141,572) and long-term debt of
$1,870,591 (December 31, 2015 – $1,033,261).
(ii)
Off-balance-sheet aircraft leases is calculated by multiplying the trailing 12 months of aircraft leasing expense by 7.5. At June 30, 2016, the trailing 12
months of aircraft leasing costs totaled $173,733 (December 31, 2015 – $174,089).
(iii)
At June 30, 2016, net finance cost includes the trailing 12 months of finance income of $14,352 (December 31, 2015 – $15,529) and the trailing 12
months of finance cost of $44,221 (December 31, 2015 – $53,665).
(iv)
At June 30, 2016, other includes the trailing 12 months foreign exchange loss of $4,344 (December 31, 2015 – loss of $10,326) and trailing 12 months
non-operating loss on derivatives of $734 (December 31, 2015 – gain of $827).
(v)
The Corporation has internal guidelines for cash to trailing 12 months revenue of approximately 30%, an adjusted debt-to-equity measure of no more
than 2.5 and an adjusted net debt to EBITDAR measure of no more than 2.5. The Corporation’s internal guidelines are not related to any covenants.
WestJet Second Quarter 2016 │ 42
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2016 and 2015
(Stated in thousands of Canadian dollars, except percentage, ratio, share and per share amounts)
(Unaudited)
3.
Cash and cash equivalents
June 30
2016
482,009
1,216,239
1,698,248
Bank balances(i)
Short-term investments(i)
(i)
4.
Included in these balances, at June 30, 2016, the Corporation has US-dollar cash and cash equivalents totaling US $221,139 (December 31, 2015 – US
$170,216).
Restricted cash
June 30
2016
Cash held in trust for WestJet Vacations Inc.
Security on facilities for letters of guarantee
Passenger facility charges
5.
December 31
2015
340,504
843,293
1,183,797
30,467
13,609
1,431
45,507
December 31
2015
53,572
13,366
1,635
68,573
Property and equipment
Aircraft(i)
Ground property and equipment
Spare engines and rotables
Deposits on aircraft
Buildings
Leasehold improvements
Assets under development
Aircraft(i)
Ground property and equipment
Spare engines and rotables
Deposits on aircraft
Buildings
Leasehold improvements
Assets under development
(i)
January 1
2016
2,741,974
72,176
167,446
319,019
106,364
10,374
55,909
3,473,262
Net
Additions
80,990
9,770
12,907
356,664
(64)
2,583
32,928
495,778
Depreciation
(139,315)
(8,798)
(9,259)
(1,766)
(1,550)
(160,688)
Transfers
244,406
(143)
5,494
(201,997)
135
(47,895)
-
June 30
2016
2,928,055
73,005
176,588
473,686
104,534
11,542
40,942
3,808,352
January 1
2015
1,933,286
60,152
144,035
509,684
109,434
10,460
26,143
2,793,194
Net
additions
190,963
20,283
38,421
554,482
89
2,378
126,080
932,696
Depreciation
(216,287)
(15,186)
(15,221)
(3,511)
(2,423)
(252,628)
Transfers
834,012
6,927
211
(745,147)
352
(41)
(96,314)
-
December 31
2015
2,741,974
72,176
167,446
319,019
106,364
10,374
55,909
3,473,262
Aircraft includes (a) aircraft (b) engine, airframe and landing gear core components (c) engine, airframe and landing gear overhaul components, and (d)
inflight entertainment systems. For the three and six months ended June 30, 2016, total aircraft depreciation expense for overhaul components was
$28,610 and $54,259 (June 30, 2015 – $23,264 and $43,060).
WestJet Second Quarter 2016 │ 43
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2016 and 2015
(Stated in thousands of Canadian dollars, except percentage, ratio, share and per share amounts)
(Unaudited)
5.
Property and equipment (continued)
June 30, 2016
Aircraft
Ground property and equipment
Spare engines and rotables
Deposits on aircraft
Buildings
Leasehold improvements
Assets under development
December 31, 2015
Aircraft
Ground property and equipment
Spare engines and rotables
Deposits on aircraft
Buildings
Leasehold improvements
Assets under development
Cost
4,166,626
192,965
258,732
473,686
136,718
24,822
40,942
5,294,491
Cost
3,912,617
183,828
240,893
319,019
136,783
22,104
55,909
4,871,153
Accumulated
depreciation
(1,238,571)
(119,960)
(82,144)
(32,184)
(13,280)
(1,486,139)
Accumulated
depreciation
(1,170,643)
(111,652)
(73,447)
(30,419)
(11,730)
(1,397,891)
Net book value
2,928,055
73,005
176,588
473,686
104,534
11,542
40,942
3,808,352
Net book value
2,741,974
72,176
167,446
319,019
106,364
10,374
55,909
3,473,262
The net book value of the property and equipment pledged as collateral for the Corporation’s long-term debt was $1,527,229 at
June 30, 2016 (December 31, 2015 – $1,574,433).
6.
Maintenance provisions and reserves
The Corporation’s operating aircraft lease agreements require leased aircraft to be returned to the lessor in a specified operating
condition. The maintenance provision liability represents the present value of the expected future cost. A maintenance expense
is recognized over the term of the provision based on aircraft usage and the passage of time, while the unwinding of the present
value discount is recognized as a finance cost. The majority of the Corporation’s maintenance provision liabilities are recognized
and settled in US dollars. Where applicable, all amounts have been converted to Canadian dollars at the period end foreign
exchange rate.
Opening balance
Additions
Change in estimate(i)
Foreign exchange
Accretion(ii)
Settled
Ending balance
Current portion
Long-term portion
June 30
2016
329,033
37,143
3,749
(21,918)
1,193
(23,637)
325,563
(91,083)
234,480
December 31
2015
246,579
59,061
3,677
46,667
1,667
(28,618)
329,033
(85,819)
243,214
(i)
Reflects changes to the timing and scope of maintenance activities and the discount rate used to present value the liability.
(ii)
At June 30, 2016, the Corporation’s aircraft lease maintenance provisions are discounted using a weighted average risk-free rate of approximately 0.5%
(December 31, 2015 – 1.0%) to reflect the weighted average remaining term of approximately 23 months (December 31, 2015 – 27 months) until cash
outflow.
WestJet Second Quarter 2016 │ 44
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2016 and 2015
(Stated in thousands of Canadian dollars, except percentage, ratio, share and per share amounts)
(Unaudited)
6.
Maintenance provisions and reserves (continued)
A certain number of operating aircraft leases also require the Corporation to pay a maintenance reserve to the lessor.
Maintenance reserves are either refunded when qualifying maintenance is performed or offset against end of lease obligations
for returning leased aircraft in a specified operating condition. Where the amount of maintenance reserves paid exceeds the
estimated amount recoverable from the lessor, the non-recoverable amount is recorded as maintenance expense in the period it
is incurred. Non-recoverable amounts previously recorded as maintenance expense may be recovered based on changes to
expected overhaul costs and recoverable amounts over the term of the lease. The Corporation’s maintenance
reserves are recognized and settled in US dollars. All amounts have been converted to Canadian dollars at the period end foreign
exchange rate.
At June 30, 2016, the current portion of maintenance reserves included in prepaid expenses, deposits and other is $18,154
(December 31, 2015 – $15,190) and the long-term portion of maintenance reserves included in other assets is $15,785
(December 31, 2015 – $19,261).
7.
Long-term debt
Term loans – purchased aircraft(i)
Term loans – purchased aircraft(ii)
Term loans – purchased aircraft(iii)
Senior unsecured notes(iv)
Non-revolving facility(v)
USD senior unsecured notes(vi)
Ending balance
Current portion
Long-term portion
June 30
2016
168,365
187,799
445,946
398,179
299,034
511,826
2,011,149
(140,558)
1,870,591
December 31
2015
220,458
198,041
358,415
397,919
1,174,833
(141,572)
1,033,261
(i)
30 individual term loans, amortized over a 12-year term, repayable in quarterly principal instalments totaling $22,058, at an effective weighted average
fixed rate of 5.94%, maturing between 2016 and 2020. These facilities are guaranteed by the Export-Import Bank of the United States (Ex-Im Bank)
and secured by 30 Boeing 737 Next Generation aircraft. There are no financial convenants related to these term loans.
(ii)
7 individual term loans, amortized over a 12-year term, repayable in quarterly principal instalments totaling $5,576, in addition to a floating rate of
interest at the three month Canadian Dealer Offered Rate plus a basis point spread, with an effective weighted average floating interest rate of 2.49%
at June 30, 2016, maturing between 2024 and 2025. The Corporation has fixed the rate of interest on these 7 term loans at a weighted-average rate of
3.20% using interest rate swaps. These facilities are guaranteed by Ex-Im Bank and secured by 7 Boeing 737 Next Generation aircraft. There are no
financial convenants related to these term loans.
(iii)
30 individual term loans, amortized over a 12-year term, repayable in quarterly principal instalments totaling $9,256, at an effective weighted average
fixed rate of 3.20%, maturing between 2025 and 2028. Each term loan is secured by one Q400 aircraft. There are no financial convenants related to
these term loans.
(iv)
3.287% senior unsecured notes with semi-annual interest payments and a fixed effective interest rate of 3.31% at June 30, 2016, with principal due
upon maturity in July 2019. The notes rank equally in right of payment with all other existing and future unsubordinated debt of the Corporation, but are
effectively subordinate to all of the Corporation’s existing and future secured debt to the extent of the value of the assets securing such debt. There are
no financial covenants related to these senior unsecured notes.
(v)
Non-revolving, unsecured term loan repayable in quarterly principal instalments of $3,750 beginning on March 31, 2017, increasing annually, with an
effective interest rate of 2.51% using an interest rate swap, maturing in 2020. The credit facility contains two financial covenants: (i) minimum pooled
asset coverage ratio of 1.5 to 1, and (ii) minimum fixed charge coverage ratio of 1.25 to 1 measurable on a quarterly basis. At June 30, 2016 the
Corporation has met both covenants.
(vi)
Senior unsecured notes denominated in US Dollars with semi-annual interest payments and a fixed effective rate of 3.59% at June 30, 2016, with
principal due upon maturity in June 2021. The notes rank equally in right of payment with all other existing and future unsubordinated debt of the
Corporation, but are effectively subordinate to all of the Corporation’s existing and future secured debt to the extent of the value of the assets securing
such debt. There are no financial covenants related to these senior unsecured notes.
Future scheduled principal and interest repayments of long-term debt at June 30, 2016 are as follows:
Within 1 year
1 – 3 years
3 – 5 years
Over 5 years
209,431
382,077
1,353,786
357,977
2,303,271
WestJet Second Quarter 2016 │ 45
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2016 and 2015
(Stated in thousands of Canadian dollars, except percentage, ratio, share and per share amounts)
(Unaudited)
7.
Long-term debt (continued)
The Corporation has an $820,000 loan agreement with Export Development Canada for the future purchase of Bombardier Q400
NextGen aircraft. The Corporation is charged a non-refundable commitment fee of 0.2 per cent per annum on the undisbursed
portion of the loan. The undisbursed portion of the loan at June 30, 2016, is $318,294 (December 31, 2015 – $421,975).
Availability of any undrawn amount expires on December 31, 2018. The expected amount available for each aircraft is up to 80
per cent of the net price with a term to maturity of up to 12 years, repayable in quarterly instalments, including interest at a
floating or fixed rate, determined at the inception of the loan.
The Corporation has an unsecured, revolving syndicated credit facility of $300,000 available for general corporate purposes,
including the funding of future aircraft acquisitions, maturing in June 2019 with an option to extend the three year term on an
annual basis. Funds from the revolving credit facility can be drawn through various debt instruments and interest is calculated by
reference to the applicable base rate plus an applicable pricing margin based on the Corporation’s debt rating. The Corporation
also pays a standby fee for the undisbursed portion of the revolving credit facility. At June 30, 2016, the Corporation has $nil
(December 31, 2015 – $nil) drawn on the facility. The credit facility contains two financial covenants: (i) minimum pooled asset
coverage ratio of 1.5 to 1, and (ii) minimum fixed charge coverage ratio of 1.25 to 1. At June 30, 2016 the Corporation has met
both covenants.
On January 5, 2016, the Corporation entered into an unsecured, non-revolving $300,000 4-year term credit facility with a
syndicate of banks. The credit facility is available for general corporate purposes, including the funding of future aircraft
acquisitions. On January 7, 2016, the Corporation received the $300,000 from the credit facility using Canadian dollar bankers’
acceptances. The Corporation has fixed the interest rate over the 4-year term of the facility at 2.757% using an interest rate
swap. Interest is calculated by reference to the applicable base rate plus an applicable pricing margin based on the Corporation’s
debt rating.
On June 16, 2016, the Corporation successfully completed a private placement offering for USD $400,000 3.50% senior
unsecured notes maturing on June 16, 2021. The Corporation has fixed the foreign exchange rate over the 5-year term using a
cross currency swap, refer to Note 12 for additional disclosure. The Corporation will use the proceeds from the sale for general
corporate purposes, including the funding of future aircraft acquisitions.
8. Share capital
(a) Issued and outstanding
June 30
2016
Number
Amount
Common and variable voting shares:
Balance, beginning of period
Issuance of shares pursuant to compensation plans
Shares repurchased
Balance, end of period
123,086,477
43,509
(3,258,561)
119,871,425
582,796
629
(15,446)
567,979
December 31
2015
Number
Amount
127,690,868
115,299
(4,719,690)
123,086,477
603,287
1,833
(22,324)
582,796
At June 30, 2016, the number of common voting shares outstanding was 97,355,676 (December 31, 2015 – 109,089,643) and
the number of variable voting shares was 22,515,749 (December 31, 2015 – 13,996,834).
Under a normal course issuer bid, the Corporation was authorized to purchase up to 6,000,000 outstanding common and
variable voting shares during the period May 13, 2015 to May 12, 2016 (the 2015 bid), or until such time as the bid was
completed or terminated at the Corporation’s option . Any shares purchased under this bid were purchased on the open market
at the prevailing market price at the time of the transaction. Common and variable voting shares acquired under this bid were
cancelled. The bid expired on May 12, 2016, with the Corporation purchasing and cancelling 5,348,121 of the 6,000,000 shares
it was authorized.
WestJet Second Quarter 2016 │ 46
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2016 and 2015
(Stated in thousands of Canadian dollars, except percentage, ratio, share and per share amounts)
(Unaudited)
8. Share capital (continued)
(a) Issued and outstanding (continued)
On May 16, 2016, the Corporation filed a notice with the TSX to make a normal course issuer bid to purchase outstanding
shares on the open market. As approved by the TSX, the Corporation is authorized to purchase up to 4,000,000 common voting
shares and variable voting shares (representing approximately 3.3 per cent of the Corporation’s issued and outstanding shares
as of April 30, 2016) during the period May 18, 2016 to May 17, 2017 (the 2016 bid), or until such time as the bid is completed
or terminated at the Corporation’s option. Any shares purchased under this bid are purchased on the open market through the
facilities of the TSX at the prevailing market price at the time of the transaction. Common voting shares and variable voting
shares acquired under this bid will be cancelled.
During the six months ended June 30, 2016, the Corporation purchased and cancelled 2,148,121 shares under the 2015 bid and
1,110,440 under the 2016 bid for a total of 3,258,561 shares (year ended December 31, 2015 – 4,719,690) for total
consideration of $66,933 (year ended December 31, 2015 – $123,813). The average book value of the shares repurchased was
$4.74 per share (year ended December 31, 2015 – $4.73) and was charged to share capital. The excess of the market price over
the average book value, including transaction costs, was $51,487 (year ended December 31, 2015 – $101,489) and was charged
to retained earnings.
(b) Stock option plan
The fair value of options granted and the assumptions used in their determination are as follows:
Weighted average fair value per option
Weighted average risk-free interest rate
Weighted average expected volatility
Expected life of options (years)
Weighted average dividend yield
Three months ended
June 30
2016
2015
3.58
4.85
0.6%
0.9%
27.9%
26.7%
3.7
3.7
1.9%
1.7%
Six months ended
June 30
2016
2015
3.58
4.85
0.6%
0.9%
27.9%
26.7%
3.7
3.7
1.9%
1.7%
Changes in the number of options, with their weighted average exercise prices, are summarized below:
2016
Stock options outstanding, beginning of period
Granted
Exercised
Forfeited
Expired
Stock options outstanding, end of period
Exercisable, end of period
Number of
options
5,675,047
3,506,668
(122,011)
(11,968)
(30,445)
9,017,291
4,799,921
2016
Stock options outstanding, beginning of period
Granted
Exercised
Forfeited
Expired
Stock options outstanding, end of period
Exercisable, end of period
Number of
options
5,706,547
3,523,980
(150,535)
(32,256)
(30,445)
9,017,291
4,799,921
Three months ended June 30
Weighted
exercise price
$24.42
$20.07
$14.91
$22.72
$23.09
$22.86
$24.48
2015
Number of
Weighted
options
exercise price
3,627,417
22.38
2,269,595
26.92
(176,536)
19.01
(60,651)
23.30
(4,981)
24.57
5,654,844
24.30
2,897,159
22.29
Six months ended June 30
Weighted
exercise price
$24.40
$20.05
$14.88
$24.65
$23.09
$22.86
$24.48
2015
Number of
Weighted
options
exercise price
3,738,714
22.33
2,270,887
26.92
(247,151)
18.98
(102,625)
23.46
(4,981)
24.57
5,654,844
24.30
2,897,159
22.29
WestJet Second Quarter 2016 │ 47
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2016 and 2015
(Stated in thousands of Canadian dollars, except percentage, ratio, share and per share amounts)
(Unaudited)
8. Share capital (continued)
(b) Stock option plan (continued)
Under the terms of the Corporation's stock option plan, with the approval of the Corporation, option holders can either (i) elect
to receive shares by delivering cash to the Corporation in the amount of the exercise price of the options, or (ii) choose a
cashless settlement alternative, whereby they can elect to receive a number of shares equivalent to the market value of the
options over the exercise price. For the three and six months ended June 30, 2016, option holders exercised 119,279 and
147,803 options (three and six months ended June 30, 2015 – 174,101 and 244,716 options) on a cashless basis and received
34,445 and 40,777 shares (three and six months ended June 30, 2015 – 51,448 and 80,058 shares). For the three and six
months ended June 30, 2016, 2,732 options were exercised on a cash basis (three and six months ended June 30, 2015 – 2,435
options).
(c) Key employee plan
Changes in the number of units, with their weighted average fair value, are summarized below:
Three months ended June 30
2016
Number of
units
277,360
102,571
1,615
(135,516)
246,030
Units outstanding, beginning of period
Granted
Units, in lieu of dividends
Settled
Forfeited
Units outstanding, end of period
Weighted fair
value
$23.81
$20.08
$21.19
$23.14
$22.61
2015
Number of
Weighted fair
units
value
377,009
21.13
80,995
26.91
1,511
26.60
(170,833)
19.49
(315)
23.98
288,367
23.73
Six months ended June 30
2016
Number of
units
278,140
110,821
3,557
(144,222)
(2,266)
246,030
Units outstanding, beginning of period
Granted
Units, in lieu of dividends
Settled
Forfeited
Units outstanding, end of period
Weighted fair
value
$24.09
$19.78
$20.46
$23.22
$24.07
$22.61
2015
Number of
Weighted fair
units
value
391,030
20.99
81,247
26.92
3,269
28.36
(186,864)
19.46
(315)
23.98
288,367
23.73
(d) Executive share unit plan
Changes in the number of units, with their weighted average fair value, are summarized below:
Three months ended June 30
2016
RSUs
Number
Weighted
of units
fair value
Units outstanding,
beginning of period
Granted
Units granted in
lieu of dividends
Settled
Forfeited
Units outstanding,
end of period
PSUs
Number
Weighted
of units
fair value
2015
RSUs
PSUs
Number
Weighted
Number
Weighted
of units
fair value
of units
fair value
224,291
98,681
$24.01
$20.33
305,023
196,107
$24.77
$20.08
107,043
44,398
23.24
26.90
217,527
110,573
23.52
26.89
1,805
(61,321)
-
$21.19
$22.39
-
2,884
(64,619)
-
$21.19
$22.10
-
629
(5,978)
(21,313)
26.60
22.68
23.06
1,402
(11,869)
(44,377)
26.60
22.89
23.24
263,456
$22.99
439,395
$23.04
124,779
24.62
273,256
24.97
WestJet Second Quarter 2016 │ 48
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2016 and 2015
(Stated in thousands of Canadian dollars, except percentage, ratio, share and per share amounts)
(Unaudited)
8. Share capital (continued)
(d) Executive share unit plan (continued)
Six months ended June 30
2016
RSUs
Number
Weighted
of units
fair value
Units outstanding,
beginning of period
Granted
Units granted in
lieu of dividends
Settled
Forfeited
Units outstanding,
end of period
PSUs
Number
Weighted
of units
fair value
2015
RSUs
PSUs
Number
Weighted
Number
Weighted
of units
fair value
of units
fair value
222,720
98,681
$24.04
$20.33
302,887
196,107
$24.79
$20.08
179,890
44,398
19.85
26.90
321,620
110,573
20.88
26.89
3,376
(61,321)
-
$20.57
$22.39
-
5,020
(64,619)
-
$20.62
$22.10
-
1,107
(72,796)
(27,820)
28.02
14.80
23.28
2,391
(102,129)
(59,199)
27.96
15.13
23.41
263,456
$22.99
439,395
$23.04
124,779
24.62
273,256
24.97
(e) Share-based payment expense
The following table summarizes share-based payment expense for the Corporation’s equity-based plans:
Three months ended June 30
2016
9.
Stock option plan
Key employee plan
4,322
1,148
Executive share unit plan
1,488
Total share-based payment expense
6,958
Six months ended June 30
2015
2016
3,569
984
2015
7,202
1,585
5,734
1,500
697
2,583
1,516
5,250
11,370
8,750
Dividends
On May 2, 2016 the Board of Directors declared our 2016 second quarter dividend of $0.14 per common and variable voting
share. For the three and six months ended June 30, 2016, the Corporation paid dividends totaling $16,782 and $33,914 (three
and six months ended June 30, 2015 – $17,535 and $35,207).
10. Earnings per share
The following reflects the share data used in the computation of basic and diluted earnings per share:
Weighted average number of shares outstanding – basic
Effect of dilution
Weighted average number of shares outstanding – diluted
Three months ended
June 30
2016
2015
121,122,176
125,883,282
423,720
904,551
121,545,896
126,787,833
Six months ended
June 30
2016
2015
121,957,549 126,494,420
279,246
1,194,639
122,236,795 127,689,059
For the three and six months ended June 30, 2016, 7,425,770 and 8,831,125 employee stock options (three and six months
ended June 30, 2015 – 1,535,902 and 316,939 options) and nil and 139,699 restricted share units (three and six months ended
June 30, 2015 – nil and nil) were not included in the calculation of dilutive potential shares as the result would have been antidilutive.
WestJet Second Quarter 2016 │ 49
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2016 and 2015
(Stated in thousands of Canadian dollars, except percentage, ratio, share and per share amounts)
(Unaudited)
11. Finance cost
Three months ended
June 30
2016
2015
14,740
13,149
(2,424)
477
328
12,793
13,477
Interest on long-term debt
Capitalized interest(i)
Accretion on maintenance provisions
(i)
Six months ended
June 30
2016
2015
28,904
26,445
(12,142)
1,193
953
17,955
27,398
Relates to interest capitalized on deposits paid for Boeing and Bombardier aircraft yet to be delivered using a weighted average interest rate of 3.09%.
Of the total amount capitalized for the six months ended June 30, 2016, $8,197 relates to prior periods.
12. Financial instruments and risk management
(a) Fair value of financial assets and financial liabilities
The Corporation’s financial assets and liabilities consist primarily of cash and cash equivalents, restricted cash, accounts
receivable, derivatives, other interest bearing deposits, accounts payable and accrued liabilities and long-term debt. The
following tables set out the Corporation’s classification and carrying amount, together with the fair value, for each type of
financial asset and financial liability at June 30, 2016 and December 31, 2015:
June 30, 2016
Asset (liability):
Cash and cash equivalents(i)
Accounts receivable
Foreign exchange derivatives(ii)
Interest rate derivatives(iii)
Other deposits(iv)
Accounts payable and accrued
liabilities(v)
Long-term debt(vi)
Cross-currency swap
derivatives(vii)
Fair value
Through profit
or loss
Derivatives
Amortized cost
Loans and Other financial
receivables
liabilities
Carrying
amount
Total
Fair
value
1,743,755
–
–
–
20,272
–
–
(4,528)
(16,001)
–
–
113,642
–
–
–
–
–
–
–
–
1,743,755
113,642
(4,528)
(16,001)
20,272
1,743,755
113,642
(4,528)
(16,001)
20,272
–
–
–
–
–
–
(412,062)
(2,011,149)
(412,062)
(2,011,149)
(412,062)
(2,004,415)
–
1,764,027
3,874
(16,655)
–
113,642
–
(2,423,211)
3,874
(562,197)
3,874
(555,463)
WestJet Second Quarter 2016 │ 50
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2016 and 2015
(Stated in thousands of Canadian dollars, except percentage, ratio, share and per share amounts)
(Unaudited)
12. Financial instruments and risk management (continued)
(a) Fair value of financial assets and financial liabilities (continued)
December 31, 2015
Asset (liability):
Cash and cash equivalents(i)
Accounts receivable
Foreign exchange derivatives(ii)
Interest rate derivatives(iii)
Other deposits(iv)
Accounts payable and accrued
liabilities(v)
Long-term debt(vi)
Fair value
Through profit
or loss
Derivatives
Amortized cost
Loans and Other financial
receivables
liabilities
Carrying
amount
Total
Fair
value
1,252,370
–
–
–
26,675
–
–
17,358
(12,964)
–
–
82,136
–
–
–
–
–
–
–
–
1,252,370
82,136
17,358
(12,964)
26,675
1,252,370
82,136
17,358
(12,964)
26,675
–
–
1,279,045
–
–
4,394
–
–
82,136
(540,912)
(1,174,833)
(1,715,745)
(540,912)
(1,174,833)
(350,170)
(540,912)
(1,124,849)
(300,186)
(i)
Includes restricted cash of $45,507 (December 31, 2015 – $68,573).
(ii)
Includes $180 (December 31, 2015 – $17,409) classified in prepaid expenses, deposits and other, and $4,708 (December 31, 2015 – $51) classified in
accounts payable and accrued liabilities.
(iii)
Includes $3,900 (December 31, 2015 – $4,475) classified in accounts payable and accrued liabilities and $12,101 classified in other long-term liabilities
(December 31, 2015 – $8,489).
(iv)
Includes $20,272 (December 31, 2015 – $21,275) classified in prepaid expenses, deposits and other, and $nil (December 31, 2015 – $5,400) classified
in other long-term assets.
(v)
Excludes foreign exchange derivative liabilities of $4,708 (December 31, 2015 – $51), interest rate derivative liabilities of $3,900 (December 31, 2015 –
$4,475), and cross-currency swap derivative liabilities of $80 (December 31, 2015 – $nil).
(vi)
Includes current portion of long-term debt of $140,558 (December 31, 2015 – $141,572) and long-term debt of $1,870,591 (December 31, 2015 –
$1,033,261).
(vii) Includes $23 (December 31, 2015 - $nil) classified in prepaid expenses, deposits and other, $4,274 (December 31, 2015 - $nil) classified in other longterm assets, $80 (December 31, 2015 - $nil) classified in accounts payable and accrued liabilities and $343 (December 31, 2015 - $nil) classified in
other long-term liabilities.
WestJet Second Quarter 2016 │ 51
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2016 and 2015
(Stated in thousands of Canadian dollars, except percentage, ratio, share and per share amounts)
(Unaudited)
12. Financial instruments and risk management (continued)
(a) Fair value of financial assets and financial liabilities (continued)
The following items shown in the condensed consolidated statement of financial position at June 30, 2016 and December 31,
2015, are measured at fair value on a recurring basis and classified using level 1 or level 2 inputs. Level 1 inputs are defined as
quoted prices in active markets while level 2 is defined as significant other observable inputs. There are no financial assets or
liabilities classified as level 3 (significant unobservable inputs) in the fair value hierarchy.
June 30, 2016
Asset (liability):
Cash and cash equivalents
Foreign exchange derivatives
Interest rate derivatives
Other deposits
Cross-currency swap derivatives
Level 1
1,743,755
−
−
20,272
1,764,027
December 31, 2015
Asset (liability):
Cash and cash equivalents
Foreign exchange derivatives
Interest rate derivatives
Other deposits
Level 1
1,252,370
−
−
26,675
1,279,045
Level 2
−
(4,528)
(16,001)
−
3,874
(16,655)
Level 2
−
17,358
(12,964)
−
4,394
Total
1,743,755
(4,528)
(16,001)
20,272
3,874
1,747,372
Total
1,252,370
17,358
(12,964)
26,675
1,283,439
During the three and six months ended June 30, 2016 and the year ended December 31, 2015, there were no transfers between
level 1, level 2 and level 3 financial assets and liabilities measured at fair value.
Cash and cash equivalents: Classified as level 1, these consist of bank balances and short-term investments, primarily highly
liquid instruments, with terms up to 31 days. Interest income is recorded in the condensed consolidated statement of earnings
as finance income.
Foreign exchange derivatives: Classified as level 2, these consist of foreign exchange forward contracts where the fair value
of the forward contracts is measured based on the difference between the contracted rate and the current forward price.
At June 30, 2016, the weighted average contracted rate on the forward contracts was 1.3247 (December 31, 2015 – 1.3069)
Canadian dollars to one US dollar, and the weighted average forward rate used in determining the fair value was 1.2919
(December 31, 2015 – 1.3830) Canadian dollars to one US dollar.
Interest rate derivatives: Classified as level 2, these consist of interest rate swap contracts that exchange a floating rate of
interest with a fixed rate of interest. The fair value of the interest rate swaps is determined by measuring the difference between
the fixed contracted rate and the forward curve for the applicable floating interest rates. At June 30, 2016, the Corporation’s
swap contracts have a weighted average fixed interest rate of 1.84% (December 31, 2015 – 1.69%). The June 30, 2016
weighted average floating forward interest rate was 0.92% (December 31, 2015 – 1.14%).
Cross-currency swap derivatives: Consist of fixed US dollar to fixed Canadian dollar uncollateralized cross-currency swap
agreements to mitigate exposure to fluctuations in future cash flows that are attributable to foreign currency risk resulting from
the issuance of US denominated long-term debt. The USD $400,000 notional at 3.50% interest per annum was exchanged for
CAD $511,110 at a 3.56% weighted average interest per annum through the terms of the Swaps, which match the 5-year
maturity of the USD senior unsecured notes. Upon proper qualification, these swaps have been designated as effective cash flow
hedges. At June 30, 2016, no portion of the cross-currency swap agreements designated as cash flow hedges was considered
ineffective. The fair value of the cross-currency swap contract was determined by discounting the difference between the
contracted prices and market based yield curves. These are classified as level 2.
Other deposits: Consist of security deposits related to aircraft financing and airport operations deposits that earn a floating
market rate of interest and are classified as level 1.
WestJet Second Quarter 2016 │ 52
Notes to the Condensed Consolidated Interim Financial Statements
For the three and six months ended June 30, 2016 and 2015
(Stated in thousands of Canadian dollars, except percentage, ratio, share and per share amounts)
(Unaudited)
12. Financial instruments and risk management (continued)
(a) Fair value of financial assets and financial liabilities (continued)
Accounts receivable and accounts payable and accrued liabilities: The Corporation designates accounts receivable and
accounts payable and accrued liabilities as loans and receivables and other financial liabilities, respectively. These items are
initially recorded at fair value and subsequently measured at amortized cost. Due to their short-term nature, the carrying value
of accounts receivable and accounts payable and accrued liabilities approximate their fair value.
Long-term debt: The fair value of the Corporation’s long-term debt is determined by discounting the future contractual cash
flows of principal and interest under the current financing arrangements using the Corporation’s June 30, 2016 implied
Corporate BBB- rate of 3.11% (December 31, 2015 – 3.95%) for a 5.69 year term (December 31, 2015 – 6.44 year term), equal
to the weighted average remaining term of the Corporation’s long-term debt at June 30, 2016.
13. Commitments
(a) Purchased aircraft and spare engines
At June 30, 2016, the Corporation is committed to purchase five 737 Next Generation aircraft for delivery between 2016 and
2017 and 65 737 MAX aircraft for delivery between 2017 and 2027. The Corporation is also committed to purchase 15 Q400
NextGen aircraft for delivery between 2016 and 2018 and a total of 10 Boeing and Bombardier spare engines for delivery
between 2016 and 2026.
The remaining estimated deposits and delivery payments for the 85 aircraft and 10 spare engines are presented in the table
below. Where applicable, US dollar commitments are translated at the period end foreign exchange rate.
Within 1 year
1 – 3 years
3 – 5 years
Over 5 years
583,565
1,409,314
718,015
1,892,223
4,603,117
(b) Leases and contractual commitments
The Corporation has entered into leases and other contractual commitments for aircraft, land, buildings, equipment, computer
hardware, software licenses and inflight entertainment. At June 30, 2016, the future payments under these commitments are
presented in the table below. Where applicable, US dollar commitments are translated at the period end foreign exchange rate.
Within 1 year
1 – 3 years
3 – 5 years
Over 5 years
242,706
339,457
186,653
81,268
850,084
WestJet Second Quarter 2016 │ 53