Westjet 2007 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    SINCE 2005, NET EAR A YEAR OF STR 2006 $115 M 2005 $24 M RASM vs. CASM (cents)

  • Page 3
    RONG RESULTS 2007 $193 M RNINGS ARE UP 183% Revenue (millions of dollars) Available Seat Miles (millions)

  • Page 4
    ... ...4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS 2007 ...8 MANAGEMENT'S REPORT TO THE SHAREHOLDERS ...41 AUDITORS' REPORT TO THE SHAREHOLDERS ...41 CONSOLIDATED FINANCIAL STATEMENTS ...42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ...46 THE EXECUTIVE TEAM ...60 THE BOARD OF DIRECTORS...

  • Page 5
    ... thousands of Canadian dollars, except per share amounts) 2007 CONSOLIDATED OPERATING RESULTS Revenue Earnings before income taxes Net earnings (loss) Earnings (loss) per share Basic Diluted CONSOLIDATED OPERATING STATISTICS Revenue Passenger Miles (RPM) Available Seat Miles (ASM) Load Factor Yield...

  • Page 6
    ... 2007's strong financial performance to add to our accomplishments, we have established ourselves as a consistently high performer. After 12 years in business, our people have an unrelenting commitment to the success of our airline. SEAN DURFY President and CEO PAGE 4 WESTJET ANNUAL REPORT 2007

  • Page 7
    ... that is bringing more guests onboard. At the end of 2007, we had 34 per cent of the domestic market share with 45 per cent of our guests ï¬,ying for business travel. We believe we can deliver a world-class guest experience and we will continue this drive in 2008. WESTJET ANNUAL REPORT 2007 PAGE 5

  • Page 8
    ... that delivers on our service promises at every point of contact from the time guests book until they pick up their luggage. REVENUE AND GROWTH With our incredible people and amazing guest experience we will work to achieve an average annual compound growth rate in available seat miles of 10 per...

  • Page 9
    ..., benefitting us culturally and financially by having everyone under one roof. On behalf of the Executive team, the Board of Directors and 6,700 WestJetters, thank you for your continued support of our airline. Sean Durfy WestJet President and CEO March 11, 2008 WESTJET ANNUAL REPORT 2007 PAGE 7

  • Page 10
    ... million. Once again in 2007, WestJet was named Canada's Most Admired Corporate Culture for the third consecutive year. Our strong culture drives our success, which is attributable to our 6,700 dedicated WestJetters who exemplify the best in airline guest service. PAGE 8 WESTJET ANNUAL REPORT 2007

  • Page 11
    Three months ended Dec. 31 2007 ASMs RPMs Load factor Yield (cents) RASM (cents) Cost per passenger mile (cents) CASM (cents) Fuel consumption (litres) Fuel costs/litre (cents) Segment guests Average stage length (miles) Number of full-time equivalent employees at period end Fleet size at period end...

  • Page 12
    ...dollars in profit with our WestJetters. After all, they're the reason 2007 was our best year yet. L to R: CAM BERTSCH Intermediate Accountant II, ROSANNA GARDNER Guest Service Agent, RAJ AGGARWAL Financial Applications Support Manager, SANDY METZ Team Services Manager PAGE 10 WESTJET ANNUAL REPORT...

  • Page 13
    WESTJET ANNUAL REPORT 2007 PAGE 11

  • Page 14
    ... accepted 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, 2007, and related notes thereto. 2007 Total revenues Net earnings Basic earnings per share Diluted...

  • Page 15
    ... sales of buyon-board food products, pay-per-view movies and headsets. In 2007, ancillary revenues per guest averaged $7.65, an increase of 10.7 per cent from $6.91 in 2006. The increase in charter and other revenues was also attributable to growth of incremental WestJet Vacations non-air revenue...

  • Page 16
    ... this award for three years in a row possible. L to R: TOBY SOLAK Revenue Analyst, Loyalty Redemption, GAIL SCHULER Commercial Operations Administrator, RENÉE FRANCIS Culture Coordinator, NAVI GIDDA Operations Duty Manager, VANESSA ACOSTA Inï¬,ight Trainer PAGE 14 WESTJET ANNUAL REPORT 2007

  • Page 17
    WESTJET ANNUAL REPORT 2007 PAGE 15

  • Page 18
    ...2007. CASM (cents) Aircraft fuel Airport operations Flight operations and navigational charges Sales and marketing Depreciation and amortization General and administration Inï¬,ight Interest Aircraft leasing Maintenance Guest services CASM, excluding fuel Three months ended Dec. 31 increase / 2007...

  • Page 19
    ...counter process. We were also the first airline in North America to introduce electronic boarding passes at all Canadian airports. In 2008, we plan to introduce a self-tag baggage process which is expected to further increase productivity and reduce airport costs. WESTJET ANNUAL REPORT 2007 PAGE 17

  • Page 20
    ... 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 satellite television licensing fees. Cost per ASM for sales and marketing remained constant from 2006 at 1.30...

  • Page 21
    ... customer service standards but also improves productivity. This was accomplished through our "front line empowerment" initiative, improvements to our website to allow itinerary changes, as well as a revamped quality and incentive program to increase call centre productivity. WESTJET ANNUAL REPORT...

  • Page 22
    PAGE 20 WESTJET ANNUAL REPORT 2007

  • Page 23
    ... focuses on children's health and well-being. This year we gave over 3,000 ï¬,ights to our partners including Make-A-Wish® Canada. It's just another way our owners care. L to R: BRENDA DUFF Flight Attendant, DEAN LEONZIO First Officer, MELISSA LILLY AND HER FAMILY WESTJET ANNUAL REPORT 2007 PAGE...

  • Page 24
    ... to US indices. WestJet's exposure to the US dollar primarily relates to aircraft lease payments, aircraft fuel purchases, airport operations at our U.S. destinations and certain maintenance costs, and represents approximately one third of our total spend. The foreign exchange gains and losses that...

  • Page 25
    ...due to growth in earnings from operations and improved working capital. Financing cash ï¬,ow In 2007, our total cash ï¬,ow used in financing activities was $59.3 million, consisting mainly of $141.2 million in long-term debt issued related to the financing of four new purchased aircraft, offset by...

  • Page 26
    PAGE 24 WESTJET ANNUAL REPORT 2007

  • Page 27
    OUR OPERATIONAL PERFORMANCE WAS AMONG THE BEST IN THE INDUSTRY. In 2007, we finished in the top five in North America for on-time performance, ï¬,ight completion and baggage - the three categories that measure operational performance. BRAD RIVALIN TAC Team WESTJET ANNUAL REPORT 2007 PAGE 25

  • Page 28
    ... - $743,404. (3) Relates to purchases of aircraft, live satellite television systems, and winglets. These purchase obligations in US dollars are: 2008 - $103,443; 2009 - $7,614; 2010 - $37,189; 2011 - $80,813; 2012 - $521,168; 2013 and thereafter - $218,699. PAGE 26 WESTJET ANNUAL REPORT 2007

  • Page 29
    ...the Air Canada lawsuit, we agreed to pay Air Canada's costs incurred of $5.6 million and make a donation in the amount of Normal course issuer bid On February 26, 2007, WestJet filed a notice with the Toronto Stock Exchange (TSX) to make a normal course issuer bid to purchase outstanding shares on...

  • Page 30
    AT THE END OF 2007, WE HAD 70 AIRCRAFT. But we're not stopping there. 2007 saw us ink a deal with Boeing for an additional 20 Next-Generation 737s, bringing us to 116 aircraft by 2013. L to R: DON KOHLMAN Power Plant Lead, GISELE KRIWOKON Aircraft Appearance Lead PAGE 28 WESTJET ANNUAL REPORT 2007

  • Page 31
    WESTJET ANNUAL REPORT 2007 PAGE 29

  • Page 32
    ... travellers may discourage air travel. A significant increase in the price of aircraft fuel could result in a disproportionately higher increase in our average total costs in comparison to our competitors if they are using more effective hedging programs. Our failure to achieve our growth strategy...

  • Page 33
    ..., government agencies may materially impact our business as to time and costs, and therefore our operating results. The increase in security measures and clearance times required for guest travel could have a material adverse effect on guest travel demand and the number of guests carried by WestJet...

  • Page 34
    PAGE 32 WESTJET ANNUAL REPORT 2007

  • Page 35
    ... introduced mobile check-in, ï¬,ow-through check-in, plus international and transborder web check-in. We were also the first airline in North America to offer the paperless electronic boarding pass. Heading forward, it's innovations like these that will allow us to continue to make flying WestJet an...

  • Page 36
    ... of compensation policies intended to align the interests of our employees with those of our Company and our shareholders. The failure to maintain our unique corporate culture or guest experience could adversely affect our business and financial results. PAGE 34 WESTJET ANNUAL REPORT 2007

  • Page 37
    ... derivatives as cash ï¬,ow hedges. As at, and for the year ended December 31, 2007, we had no outstanding aircraft fuel hedges. For the year ended December 31, 2006, we recognized a net loss of $2.2 million in aircraft fuel resulting from hedging transactions. WESTJET ANNUAL REPORT 2007 PAGE 35

  • Page 38
    WE'RE TAKING OUR GUEST EXPERIENCE INTERNATIONAL. It's amazing how far caring can take you. This year, WestJet added seven amazing sun destinations. They were Mazatlan, Cabo San Lucas, Montego Bay, Puerto Plata, Punta Cana, St. Lucia and Kona. As well, WestJet Vacations established itself as a ...

  • Page 39
    WESTJET ANNUAL REPORT 2007 PAGE 37

  • Page 40
    ... non-refundable guest credits. We issue future travel credits to guests for ï¬,ight changes and cancellations, as well as for gift certificates. Where appropriate, future travel credits are also issued for ï¬,ight delays, missing baggage and other inconveniences. All credits are non-refundable and...

  • Page 41
    ... the Company. In 2007, the Board approved and implemented a majority voting policy for election of directors. Our Disclosure, Confidentiality and Trading Policy and our Code of Conduct were also updated based on management and committee recommendations. In addition, the Board reviewed and approved...

  • Page 42
    REPORTS TO SHAREHOLDERS & FINANCIAL STATEMENTS PAGE 40 WESTJET ANNUAL REPORT 2007

  • Page 43
    ... forth their opinion. SEAN DURFY VITO CULMONE President and Chief Executive Officer Calgary, Canada February 11, 2008 Executive Vice-President, Finance and Chief Financial Officer AUDITORS' REPORT TO THE SHAREHOLDERS We have audited the consolidated balance sheets of WestJet Airlines Ltd. as at...

  • Page 44
    CONSOLIDATED STATEMENT OF EARNINGS WestJet Airlines Ltd. Years ended December 31 (Stated in thousands of Canadian dollars, except per share amounts) 2007 Revenues: Guest revenues Charter and other revenues Interest income $ 1,899,159 227,997 24,301 2,151,457 Expenses: Aircraft fuel Airport ...

  • Page 45
    ... 1,291,136 1,483 14,114 149,283 1,920,500 431,248 58,656 - 316,123 316,123 806,027 $ 2,726,527 On behalf of the Board: Sean Durfy, Director Wilmot Matthews, Director WESTJET ANNUAL REPORT 2007 PAGE 43

  • Page 46
    CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY WestJet Airlines Ltd. Years ended December 31 (Stated in thousands of Canadian dollars) 2007 Share capital: Balance, beginning of year Issuance of shares pursuant to stock option plans (note 9(b)) Stock-based compensation on stock options exercised (...

  • Page 47
    ...and investing activities Effect of exchange rate on cash Net change in cash Cash, beginning of year Cash, end of year Cash is defined as cash and cash equivalents. See note 10 for additional cash information. The accompanying notes are an integral part of the consolidated financial statements. 281...

  • Page 48
    ... are reported at the net amounts received, without any associated cost of revenue. Cargo revenue is recognized when air transportation services are provided. Other revenue includes ancillary revenue from fees associated with guest itinerary changes, excess baggage fees, buy-on-board food sales and...

  • Page 49
    ... from time to time in the management of its foreign currency, interest rate and fuel price exposures. The Corporation's policy is not to utilize derivative financial instruments for trading or speculative purposes. The Corporation designates its cash and cash equivalents, including US-dollar...

  • Page 50
    ... TO CONSOLIDATED FINANCIAL STATEMENTS WestJet Airlines Ltd. Years ended December 31, 2007 and 2006 (Tabular amounts are stated in thousands of dollars, except share and per share data) 1. Significant accounting policies (continued): (m) Financial instruments (continued): The Corporation formally...

  • Page 51
    ... of Chartered Accountants (CICA): Inventory In June 2007, the CICA issued Section 3031, "Inventories," which replaces Section 3030, "Inventories" and harmonizes the Canadian standards related to inventories with International Financial Reporting Standards. Effective for interim and annual financial...

  • Page 52
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WestJet Airlines Ltd. Years ended December 31, 2007 and 2006 (Tabular amounts are stated in thousands of dollars, except share and per share data) 3. Property and equipment (continued): During the year, the Corporation capitalized $3,499,000 (2006 - $6,849...

  • Page 53
    ...in aircraft leasing. During the year ended December 31, 2007, the Corporation recognized amortization of $868,000 (2006 - $868,000). ii) Unearned revenue relates to the BMO Mosaik® AIR MILES® MasterCard® credit card for future net retail sales and for fees on newly activated credit cards. During...

  • Page 54
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WestJet Airlines Ltd. Years ended December 31, 2007 and 2006 (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
    ...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 the TSX, WestJet is authorized to purchase up to 2,000,000 shares during the period of February 28, 2007, to February 27, 2008, or until such earlier time as...

  • Page 56
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WestJet Airlines Ltd. Years ended December 31, 2007 and 2006 (Tabular amounts are stated in thousands of dollars, except share and per share data) 9. Share capital (continued): (c) Per share amounts: The following table summarizes the shares used in ...

  • Page 57
    ..., 2007 and 2006, the Corporation elected to purchase these shares through the open market and will continue to review this option in the future. Current market price for voting shares issued from treasury is determined based on weighted average trading price of the common shares on the Toronto Stock...

  • Page 58
    ... CONSOLIDATED FINANCIAL STATEMENTS WestJet Airlines Ltd. Years ended December 31, 2007 and 2006 (Tabular amounts are stated in thousands of dollars, except share and per share data) 9. Share capital (continued): (g) Restricted share units: During 2007, the Corporation introduced a Restricted Share...

  • Page 59
    ... deposits and purchase prices in the equivalent US dollars and Canadian dollars relating to the purchases of the remaining aircraft and live satellite television systems are as follows: US dollar 2008 2009 2010 2011 2012 2013 $ (b) Operating leases: The Corporation has entered into operating leases...

  • Page 60
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WestJet Airlines Ltd. Years ended December 31, 2007 and 2006 (Tabular amounts are stated in thousands of dollars, except share and per share data) 12. Financial instruments and risk management: At December 31, 2007, the Corporation's financial instruments...

  • Page 61
    WE'RE FLYING TO MORE PLACES. 46 DESTINATIONS ACROSS NORTH AMERICA AND THE CARIBBEAN

  • Page 62
    ..., Executive Vice-President, Commercial Distribution; Sean Durfy, President and CEO; Ken McKenzie, Executive Vice-President, Operations; Ferio Pugliese, Executive Vice-President, People; Bob Cummings, Executive Vice-President, Guest Experience and Marketing. PAGE 60 WESTJET ANNUAL REPORT 2007

  • Page 63
    ... Website: www.cibcmellon.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...

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