Westjet 2004 Annual Report Download - page 26

WESTJET ANNUAL REPORT 2004
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Our sensitivity to fuel price changes has increased by
44% year over year due to our growth. We estimate the
sensitivity of our exposure to changes in fuel costs (WTI
US$ per barrel) to be approximately $4.9 million in net
earnings for every US $1.00 change in the price of crude
compared to approximately $3.4 million in 2003.
Airport Operations
In 2004, the component of our business responsible
for airport operations within North American airports
continues to be influenced by the escalating rates and
fees levied by Canadian and US airport operators. As
rate and fee increases ranged from 5% to 20% across
the network and as our traffic grows primarily in
Canada's most expensive airports, we have worked
diligently to find efficiencies in the ever-shrinking
amount of our controllable costs.
Airports cost per ASM increased by 8.9% in 2004 over
2003, which was partially diluted by the increase in
stage length for the year. On a cost-per-departure basis,
costs increased 24.6% for the year. The main
contributors to the 2004 increase are the continued
rates and fee increases at Canada's airports, which
averaged 8.6% for the year, and a 21.2% increase in
third party ground-handling costs. These costs were
also driven by material growth in WestJet's presence
in Toronto, which is by far the most expensive airport
in Canada. Our departures from Lester B. Pearson
International Airport increased by approximately 212%
in 2004, and now represent 11% of our total Canadian
departures, an increase from 4% in 2003.
We continued our efforts in 2004 to create efficiencies
in airport controllable costs. In 2004, we introduced self-
service check-in alternatives in seven Canadian airports
which reduce the manpower resources necessary to
check-in our guests and to depart an aircraft. We
continued to push for greater utilization of our fixed
cost resources and optimization of staffing levels and
expect to benefit from these efficiencies in 2005.
Flight Operations and Inflight
Flight operations and inflight activities involve the
resources and functions that are required to fly our aircraft
such as pilot and flight crew compensation, training,
dispatch, operations control and crew-scheduling.
In 2004, cost per ASM related to flight operations
increased by 21.9% over 2003. This increase is primarily
a result of stock-based-compensation expense awarded
to pilots, which we began to recognize as an expense
in 2004. During 2004, $11.0 million in stock-based-
compensation expense was recognized in flight
operations, increasing flight operations CASM by
approximately 0.12 cents. Approximately 86% of stock
options are awarded to our pilot group and represent
a significant component of their compensation.
In 2004, we experienced a year-over-year increase in
unit costs related to inflight of 4.2% over the previous
year. This was as a direct result of our drive to enhance
communication between our flight attendants and
management.
Navigational Charges
Air navigational charges are the costs associated with
the provision of air traffic control services provided
by both Nav Canada and the Federal Aviation
Administration (“FAA”). These costs decreased in
“In 2004, we introduced self-service check-in
alternatives in seven Canadian airports…”
Frank Schwab, Projects CoordinatorLeah McDonald and Carissa Dueck, Customer Service Agents