Westjet 2006 Annual Report Download

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WESTJET 2006
An Overview
ANNUAL REPORT 2006

Table of contents

  • Page 1
    WESTJET 2006 An Overview ANNUAL REPORT 2006

  • Page 2
    UPLIFTING 2006 WAS A BIG YEAR FOR US in terms of both earnings and growth.

  • Page 3
    ... 2006, WestJet employed 5,990 people, and carried 11.2 million guests to its 23 Canadian destinations of Victoria, Comox, Vancouver, Abbotsford/Fraser Valley, Prince George, Kelowna, Grande Prairie, Calgary, Edmonton, Fort McMurray, Saskatoon, Regina, Winnipeg, Thunder Bay, London, Hamilton, Toronto...

  • Page 4
    SUNNY THE FUTURE BECAME DISTINCTLY BRIGHTER for both WestJet and the airline industry.

  • Page 5
    ... the discussion and in-depth analysis of our achievements and success in 2006. Both offer an impressive overview of an airline that is spreading its wings and poised to increase its value in the years to come. Once again, we thank you for investing or considering to invest in WestJet and we hope you...

  • Page 6
    FERTILE AT THE END OF 2006, our net earnings grew by 378 per cent to $114.7 million.

  • Page 7
    ... Operating Statistics Revenue Passenger Miles (RPM) Available Seat Miles (ASM) Load Factor Yield (¢) Revenue per ASM (¢) Operating cost per ASM (¢) Average stage length (miles) Cost per passenger mile (¢) Segment guests Fuel consumption (litres) Fuel cost per litre (¢) Number of full-time...

  • Page 8
    BREATHTAKING IT WAS A YEAR OF MILESTONES. We recorded four record quarters of profit, and we went international, adding the Bahamas to our growing list of destinations.

  • Page 9
    ...ect on WestJet's performance throughout 2006 is a privilege. This was a momentous year for our airline, highlighted by significant growth, record earnings, industryleading performance and award-winning standards. This 12-month journey began with the cost-conscious retirement of our last 200-series...

  • Page 10
    ..., to share the role of CFO. We have identified a corporate vision that by 2016 WestJet will be one of the five most successful international airlines in the world providing our guests with a friendly and caring experience that will change air travel forever. We are searching for our new Executive...

  • Page 11
    ... people through empowerment, accountability and ownership. We have identified a corporate vision that by 2016 WestJet will be one of the five most successful international airlines in the world providing our guests with a friendly and caring experience that will change air travel forever. We plan...

  • Page 12
    COMMUNIT Y-SPIRITED OUR CARING SPIRIT SHONE THROUGH IN 2006. We donated time, money and ï¬,ights to numerous charities and communities.

  • Page 13
    ... caring from 40,000 feet right down to the communities we serve. LACEY TAYLOR Property Coordinator VERN ADAMS Building Operator SUPPORTING OUR COMMUNITIES Financial success is only one leg of WestJet's 2006 journey; the complete picture comes down to people: our WestJetters, our guests and...

  • Page 14
    SUPPORTING CHILDREN'S HEALTH In 2006, kids and kids' health was identified as the key strategic focus for our community investment program. In 2007, this initiative is growing into a company-wide commitment. Recently re-branded WestJet Cares for Kids, this program supports charities and non-profit...

  • Page 15
    ...WestJet Fun 'n Festival Series partnered with a number of community events throughout 2006: • CanWest ComedyFest in Vancouver • Just For Laughs Festival in Montréal • Okanagan Wine Festivals • WestJet Festival of Friends in Hamilton • Calgary Stampede • HubCap Comedy Festival in Moncton...

  • Page 16
    MODERN WE UPGRADED TO NEXT-GENERATION AIRCRAFT, ï¬,ying North America's most modern ï¬,eet.

  • Page 17
    ... forward-looking statements. WestJet's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements. Additional information relating to WestJet, including Annual Information Forms and financial statements, is located on...

  • Page 18
    ....3% and load factor improvements of 3.6 points. CHARMAINE ARSENAULT Aircraft Maintenance Engineer In 2006, we generated one of the best operating margins in the North American airline industry, growing by 6.8 points from 2005. Our focus on cost control is fundamental to our success. We continuously...

  • Page 19
    ... accounting principles and are reported in Canadian dollars. This information should be read in conjunction with the consolidated financial statements for the year ended December 31, 2006, and related notes thereto. Annual Audited Financial Information (IN MILLIONS EXCEPT PER SHARE DATA) 2006...

  • Page 20
    ... buy-on-board food sales and headset sales. In 2006, ancillary revenues grew by 67.6% over 2005 to $74.8 million. A significant revenue initiative we undertook during 2006 was the launch of a wholly owned subsidiary of WestJet Airlines Ltd., WestJet Vacations Inc. offering guests packaged vacation...

  • Page 21
    ... during the year. These initiatives typically are intended to enhance our long-term business objectives, such as incentive programs implemented to increase travel agent and corporate sales and an enhanced compensation structure under our new pilot agreement. 2006 | WestJet Annual Report 19

  • Page 22
    ..., Administrative Assistant We successfully managed high fuel costs through operating efficiencies inherent in our infrastructure. One of our most significant cost advantages is that we operate the youngest ï¬,eet operated by any large North American commercial airline. 20 2006 | WestJet Annual...

  • Page 23
    ...number of ï¬,ights. SALES AND MARKETING Sales and marketing encompasses a wide variety of expenses related to advertising and promotions, travel agency commissions, corporate incentive programs, credit card fees, global distribution system costs, the AIR MILES® reward miles program costs, and live...

  • Page 24
    CONNECTED WE BRING PEOPLE TOGETHER with our 35-city North American and Caribbean network.

  • Page 25
    ... our accounting, treasury, audit and advisory services, information technology, legal, "people" (human resources), procurement and logistics and facilities teams. Also included in these costs are executive compensation, professional fees and insurance. In 2006, total general and administrative costs...

  • Page 26
    ... our guests. In 2006, our Sales Super Centre was named the Best Call Centre in the country in an airline phone survey conducted by Canadian Business Magazine's consumer reports department. The survey focused on the quality of customer service in addition to phone wait times. To support guest-focused...

  • Page 27
    ... generously reward employees. Our average WestJetter received approximately 8.2% of their base pay as profit share for 2006. In 2006, our Super Sales Centre was named the Best Call Centre in the country in an airline survey conducted by Canadian Business Magazine. 2006 | WestJet Annual Report 25

  • Page 28
    ... EXCHANGE On average, the Canadian dollar was stronger during 2006 compared to 2005, ending the year at $0.86, relative to the US dollar. WestJet's exposure to the US dollar primarily relates to aircraft lease payments, jet fuel, airport operations at our U.S. destinations and certain maintenance...

  • Page 29
    ... million. Other capital expenditures relate primarily to information technology and miscellaneous aircraft parts. On February 26, 2007, we filed a notice with the Toronto Stock Exchange (the "TSX") to make a normal course issuer bid to purchase outstanding shares on the open market. As approved by...

  • Page 30
    ...Canada commenced a lawsuit against WestJet. Air Canada claimed damages in the amount of $220 million in an amendment to its statement of claim. On May 29, 2006, as a full settlement, we agreed to pay Air Canada's investigation and litigation costs incurred totalling 28 2006 | WestJet Annual Report

  • Page 31
    ...sheets in the airline industry. NON-REFUNDABLE GUEST CREDITS We also make estimates in accounting for our liability related to certain types of non-refundable guest credits. We may issue future travel credits related to guest compensation for ï¬,ight delays, missing baggage and other inconveniences...

  • Page 32
    INVITING WE LAUNCHED WESTJET VACATIONS, bringing our high level of service to the packaged holiday market.

  • Page 33
    ... to US-dollar denominated prices. We periodically use financial instruments, including foreign exchange forward contracts and options, to manage our exposure. We have entered into a contract to purchase US $2.5 million per month at a forward rate of 1.11 for the payment period from October 2006 to...

  • Page 34
    ...Committee, a Compensation Committee and a Corporate Governance and Nominating Committee. The charters of these committees are reviewed annually by the Board of Directors. In addition, the Board has an Independent Committee of Directors to deal with the claims from Air Canada and Jetsgo. This special...

  • Page 35
    ... through the achievement of sustainable, capital-efficient and profitable long-term growth. The strength of our balance sheet, the success of our seasonal deployment strategy and our low-cost model will continue to be the basis for our future profitable growth. 2006 | WestJet Annual Report 33

  • Page 36
    SMOOTH WE MADE A SEAMLESS TRANSITION to a new company president and a new 5-year strategic plan designed to take us to the next level.

  • Page 37
    ... the Corporation's assets. The systems of internal control are monitored by management, and further supported by an internal audit department whose functions include reviewing internal controls and their application. The Board of Directors is responsible for the overall stewardship and governance of...

  • Page 38
    ... position of the Corporation as at December 31, 2006 and 2005 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles. Chartered Accountants Calgary, Canada February 12, 2007 36 2006 | WestJet Annual Report

  • Page 39
    ... Current liabilities: Accounts payable and accrued liabilities Advance ticket sales Non-refundable guest credits Current portion of long-term debt (note ... financial statements. On behalf of the Board: $ 2,213,092 Clive Beddoe, Director Wilmot Matthews, Director 2006 | WestJet Annual Report 37

  • Page 40
    ..., Except Per Share Amounts) 2006 Revenues: Guest revenues Charter and other Interest income $ 1,558,471 201,400 13,815 1,773,686 2005 $ 1,207,075 179,379 6,308 1,392,762 Expenses: Aircraft fuel Airport operations Flight operations and navigational charges Sales and marketing Depreciation and...

  • Page 41
    CONSOLIDATED STATEMENTS OF CASH FLOWS WestJet Airlines Ltd. Years ended December 31, 2006 and 2005 (Stated in Thousands of Dollars) 2006 Cash provided by (used in): Operating activities: Net earnings Items not involving cash: Depreciation and amortization Amortization of other liabilities ...

  • Page 42
    ... in Canada requires management to make estimates and assumptions, regarding significant items such as amounts relating to depreciation and amortization, non-refundable guest credits, lease return conditions, future income taxes, stock-based compensation expense, deferred sales and marketing costs...

  • Page 43
    ... - 200-series Aircraft under capital lease Other assets under capital lease Buildings Leasehold improvements Basis Cycles Straight-line Flight hours Straight-line Straight-line Flight hours Straight-line Straight-line Straight-line Straight-line Rate Cycles ï¬,own 10 years/lease term Hours ï¬,own...

  • Page 44
    ...purchase shares at the average price during the period. The weighted average number of shares outstanding is then adjusted by the net change. (o) Comparative figures: Certain prior-period balances have been reclassified to conform to current period's presentation. 42 2006 | WestJet Annual Report

  • Page 45
    ... series aircraft in maintenance expense as a result of the abandonment of the winglet program on these aircraft. In addition, the Corporation expensed $1,233,000 (2005 - $1,126,000) of aircraft parts deemed to be beyond economic repair which were also included in maintenance expense. 2006 | WestJet...

  • Page 46
    ...FINANCIAL STATEMENTS WestJet Airlines Ltd. Years ended December 31, 2006 and 2005 (Tabular Amounts are Stated in Thousands of Dollars, Except Share and Per Share Data) 2. Property and equipment (continued): The Corporation has entered into agreements to sell certain spare engines and aircraft parts...

  • Page 47
    ... at the Canadian LIBOR rate plus 0.08%, with a weighted average effective interest rate of 4.35% at December 31, 2006, maturing between 2009 and 2011, guaranteed by the Ex-Im Bank and secured by certain 700-series and 600-series aircraft. $4,550,000 term loan, repayable in monthly instalments...

  • Page 48
    ... STATEMENTS WestJet Airlines Ltd. Years ended December 31, 2006 and 2005 (Tabular Amounts are Stated in Thousands of Dollars, Except Share and Per Share Data) 4. Long-term debt (continued): During 2006, the Corporation acquired 12 aircraft supported by loan guarantees from the Export-Import Bank...

  • Page 49
    ...to lease an additional 11 737-700 aircraft and two 737-800 aircraft to be delivered between 2007 and 2009, for terms ranging between eight and 10 years, in US dollars. These amounts have been included at their Canadian- and US-dollar equivalents in the above tables. 2006 | WestJet Annual Report 47

  • Page 50
    ... TO CONSOLIDATED FINANCIAL STATEMENTS WestJet Airlines Ltd. Years ended December 31, 2006 and 2005 (Tabular Amounts are Stated in Thousands of Dollars, Except Share and Per Share Data) 7. Share capital: (a) Authorized: Unlimited number of common voting shares: The common voting shares may be owned...

  • Page 51
    ...any time. Stock options are granted at a price that equals the market value, have a term of four years and vest on either the first, second or third anniversary from the date of grant. Changes in the number of options, with their weighted average exercise prices, are summarized below: 2006 Number...

  • Page 52
    ... Dollars, Except Share and Per Share Data) 7. Share capital (continued): (c) Stock Option Plans (continued): The following table summarizes the options outstanding and exercisable at December 31, 2006: Outstanding options Weighted average remaining life (years) 0.44 3.31 1.94 2.25 Weighted average...

  • Page 53
    7. Share capital (continued): (e) Employee Share Purchase Plan: (continued): Current market price for voting shares issued from treasury is determined based on weighted average trading price of the voting shares on the Toronto Stock Exchange for the five trading days preceding the issuance. Shares ...

  • Page 54
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WestJet Airlines Ltd. Years ended December 31, 2006 and 2005 (Tabular Amounts are Stated in Thousands of Dollars, Except Share and Per Share Data) 8. Income taxes: The provision for income taxes differs from that which would be expected by applying the ...

  • Page 55
    ... in advance ticket sales Increase in non-refundable guest credits Other non-cash items (b) Supplemental cash ï¬,ow information: As at December 31, 2006, cash and cash equivalents includes short-term investments of $316,951,000 (2005 - $219,030,000). As at December 31, 2006, the Corporation had US...

  • Page 56
    ... by the Board of Directors. (c) Contingencies: On April 4, 2004, Air Canada commenced a lawsuit against the Corporation. Air Canada claimed damages in the amount of $220 million in an amendment to its Statement of Claim. On May 29, 2006, as a full settlement, the Corporation agreed to pay Air Canada...

  • Page 57
    ... guests through the use of major credit cards and travel agents. These receivables are short term, generally being settled shortly after the sale. The Corporation manages the credit exposure related to financial instruments by selecting counter parties based on credit ratings, limiting its...

  • Page 58
    ...; Ken McKenzie, Executive Vice-President, Operations; Bob Cummings, Executive Vice-President, Guest Experience and Marketing. NOT PICTURED IN PHOTO: Janice Paget, Vice-President, Controller and Co-Chief Financial Officer; Derek Payne, Vice-President, Finance and Corporate Services and Co-Chief...

  • Page 59
    ....com Auditors: KPMG LLP, Calgary, AB Legal Counsel: Burnet, Duckworth and Palmer LLP, Calgary, AB Stock Exchange Listing: Shares in WestJet stock are publicly traded on the Toronto Stock Exchange under the symbols WJA and WJA.A. Investor Relations Contact Information: Phone: 1-877-493-7853 or...

  • Page 60
    BREATH TAKING To our 5,990 caring and dedicated people who made 2006 such a success, thank you for your continued support. WESTJET.COM