Westjet 2000 Annual Report Download - page 17

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Page15
On a unit basis WestJet’s fuel costs increased by 20.1% or 0.5 cents per available seat mile
during 2000, as a result of rising energy prices on our un-hedged purchases.
Sales and marketing costs increased 2.5% on unit basis in 2000 over 1999. WestJet does
not spend a great deal on media advertising and none on television, with the exception of
promotional dollars spent when we enter a new market. The year 2000 required more
promotion due to eastern expansion and the introduction of our airline to four new cities
in a region where we were virtually unknown.
In 2000, WestJet moved away from extending credit terms to travel agents. This has
decreased our bad debt expense, which was not significant, and has increased the
incidence of credit card discounts or commissions and has provided cost savings and
efficiencies in the booking processes and administration of accounts receivable.
The big news for WestJet’s cost structure was our investment in technology, particularly
the Internet, to enhance our booking process. Our guests were first able to book through
our website (www.westjet.com) in the summer of 1999 and that convenience, was steadily
embraced by more travelers, expanding by about 1.0% per month to 14.0% in June, 2000.
Starting in July 2000, travel agents were encouraged to use the web site with the higher
9.0% commission. Through the last half of 2000, the growth in that portion of our
revenues generated online has been exceptional, and by year-end amounted to more than
25.0% with consistently growing trends. WestJet’s cost of a booking through our Calgary
call centre is approximately $12.00, while the cost of the same booking completed by our
guest on the Internet results in a vast savings to the Corporation.
Our strategy is to continue growing this technological initiative and to continue
improving our online service for both the public and the travel agent community. As a
result, our unit cost of reservations is down by 14.3% from 1999 to one tenth of one cent
per ASM, with opportunity for further improvements in this area.
Flight operation unit costs showed an increase of 3.4% over 1999’s result. The largest
single category of cost in this area is pilot wages and benefits, including the corporation’s
matching of our employee share purchases. WestJet entered into a five-year agreement on
compensation with our pilots in 1997 and that agreement had average base wage increases
Revenue Passenger Miles
(Millions)
1600
1400
1200
1000
800
600
400
200
0
1996 1997 1998 1999 2000
219
406
639
903
1453
Net Earnings
(Millions)
35
30
25
20
15
10
5
0
1996 1997 1998 1999 2000
$1.71
$6.16 $6.52
$15.83
$30.25