Westjet 2011 Annual Report Download - page 22

Management’s Discussion and Analysis of Financial Results 2011
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Expanding our reach
We announced today our plans to move ahead with the launch of a new low-cost short-haul, regional airline as early as 2013.
In January 2012, we met with WestJetters across the organization to provide them an opportunity to share their input on this
initiative and we are pleased with the overwhelming support received. A short-haul aircraft combined with the WestJet brand,
balance-sheet strength and low-cost structure is expected to allow us to profitability accomplish four main goals:
(1) introduce WestJet’s friendly and caring service to many smaller communities who have asked for our service;
(2) optimize the size of aircraft to efficiently increase flight frequency;
(3) create new connections between existing WestJet markets; and
(4) build additional feed to our current network so that we can continue to profitably grow and add shareholder value.
The regional airline will be a wholly owned subsidiary of WestJet Airlines Ltd. and will operate under its own separate
operating certificate. As of the date of this MD&A, no capital or operational expenditures have been made though we believe
this to be a significant undertaking that will materially impact our future results of operations, financial position and cash
flows. With approval from our Board of Directors to proceed with implementation of a low-cost regional airline, we will move
to the next stage of planning by sending requests for proposal to two aircraft manufacturers; Bombardier for the Q400
NextGen and ATR for the ATR 72-600.
In 2011, we continued to focus on our long-term strategy of establishing strong partnerships with airlines from all major
geographical regions around the world. In 2011, we launched ten new interline agreements: AeroMexico, Air India, Alitalia,
China Eastern Airlines, Delta Air Lines, EL AL Israel Airlines, Emirates, Japan Airlines, Korean Air and Qantas Airways. We also
established code-share agreements with American Airlines, KLM Royal Dutch Airlines (KLM) and Japan Airlines in 2011. In
January 2012, we welcomed Delta Air Lines, the world’s second largest airline, as our fifth code-share partner. We now have
interline-relationships with 17 airlines around the world and code-share arrangements with five airlines: Cathay Pacific,
American Airlines, KLM, Japan Airlines and Delta Air Lines.
In addition to expanding our reach through airline partnerships, we focused on new and increased service across our
scheduled network in 2011. We launched new non-stop service to Orange County, California from Vancouver and Calgary and
new non-stop seasonal flights between Toronto and San Juan, Puerto Rico. We introduced our enhanced schedule in the
eastern triangle to better serve the needs of business travellers flying between Toronto and Montreal as well as Toronto and
Ottawa. We also announced the return of our popular non-stop, seasonal daytime service between Calgary and Honolulu and
Maui, and between Edmonton and Maui achieved by leasing a Boeing 757-200 from Thomas Cook U.K. In July 2011, we
released our winter 2011-2012 flight schedule which included new non-stop seasonal service to popular sun destinations from
Kelowna, London, Thunder Bay, Victoria and Winnipeg; and in December 2011 we announced the early launch of additional
non-stop service to sun destinations from Halifax, Moncton and St. John’s. In January 2012, we announced new non-stop
service between Toronto and Kingston, Jamaica and Toronto and Aruba as well as new daily non-stop service between
Vancouver and Whitehorse beginning May 2012; and in February 2012 we announced the launch of daily non-stop service
between Chicago and Vancouver and between Chicago and Calgary, effective May 2012.
In November 2011, we announced our successful bid of US $17.6 million for eight slot pairs at New York’s LaGuardia airport.
A slot pair is defined as one arriving flight and departing flight. As a controlled airport, this opportunity allows us to execute on
our growth plans, in which increased business travel in the East figures prominently. We look forward to providing our guests
with frequent year-round service to New York City, commencing in June 2012.
We now serve 76 destinations through our scheduled network; including our partners, guests can access through WestJet 105
destinations throughout Canada, U.S., Mexico and the Caribbean.
Revenue and cost
During 2011, total revenues increased by 17.8 per cent to $3,071.5 million compared to $2,607.3 million in 2010, driven
mainly by the additional seat capacity in our network, increased traffic and the 8.9 per cent improvement in yield. On an ASM
basis, revenue grew by 8.6 per cent to 14.50 cents from 13.35 cents in 2010. This growth was key to our success as elevated
jet fuel prices placed downward pressure on our operating margin. In 2011, our operating expenses increased year over year
by 16.5 per cent or $399.0 million to $2,815.0 million. Of this increase, approximately $185 million was attributable to the
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