Westjet 2011 Annual Report Download - page 26

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Management’s Discussion and Analysis of Financial Results 2011
│
Expenses
Three months ended December 31
CASM (cents) 2011 2010 Change
Aircraft fuel 4.42 3.57 23.8%
Airport operations 2.01 2.00 0.5%
Flight operations and navigational charges 1.59 1.60 (0.6%)
Sales and distribution 1.25 1.33 (6.0%)
Marketing, general and administration 1.08 1.04 3.8%
Depreciation and amortization 0.83 0.85 (2.4%)
Maintenance 0.80 0.60 33.3%
Aircraft leasing 0.79 0.73 8.2%
Inflight 0.68 0.64 6.3%
Employee profit share 0.10 0.15 (33.3%)
CASM 13.55 12.51 8.3%
CASM, excluding fuel and employee profit share 9.03 8.79 2.7%
For the fourth quarter of 2011, CASM increased by 8.3 per cent to 13.55 cents compared to 12.51 cents in the same quarter
of 2010 due primarily to the 23.8 per cent increase in the cost per ASM of aircraft fuel. Excluding fuel and employee profit
share, CASM increased by 2.7 per cent to 9.03 cents from 8.79 cents in the same quarter of 2010 due for the most part to the
increase in our maintenance cost per ASM.
Aircraft fuel
In the fourth quarter of 2011, aircraft fuel expense increased by 31.4 per cent to $235.6 million from $179.3 million. Of this
increase, approximately $46 million was attributable to the price of jet fuel which remained elevated when compared to the
same period of 2010. On average, the market price for jet fuel was US $125 per barrel in the fourth quarter of 2011 versus US
$100 per barrel in the fourth quarter of 2010, an increase of 25.0 per cent. With the Canadian dollar slightly weaker versus
the US dollar on a year-over-year basis, the average market price for jet fuel increased by approximately 27 per cent to $128
per barrel from $101 per barrel in the fourth quarter of 2010. On a per ASM basis aircraft fuel increased by 23.8 per cent to
4.42 cents per ASM in the fourth quarter of 2011 from 3.57 cents per ASM in the same period in 2010.
The following table displays our fuel costs per litre, including and excluding fuel hedging, for the three months ended
December 31, 2011 and 2010. Please refer to page 58 of this MD&A for a discussion on the use of non-IFRS measures,
including aircraft fuel expense, excluding hedging, which is reconciled to aircraft fuel expense in the table below:
Three months ended December 31
($ in thousands) 2011 2010 Change
Aircraft fuel expense 235,574 179,276 31.4%
Realized gain (loss) on fuel derivatives 18 (1,512) (101.2%)
Aircraft fuel expense, excluding hedging 235,592 177,764 32.5%
Fuel consumption (litres) 255,906,491 242,620,920 5.5%
Fuel costs per litre (dollars) – including hedging 0.92 0.74 24.3%
Fuel costs per litre (dollars) – excluding hedging 0.92 0.73 26.0%
Fuel costs per litre, including hedging, increased to $0.92 per litre during the three month period ended December 31, 2011,
representing an increase of 24.3 per cent from $0.74 per litre in the fourth quarter of 2010. Excluding the effects of fuel
derivatives designated in an effective hedging relationship, our fuel costs per litre remained at $0.92 for the fourth quarter of
2011, an increase of 26.0 per cent from the same period in 2010.
Maintenance
Maintenance expense for the three months ended December 31, 2011 was $42.8 million, a $12.4 million or 40.7 per cent
increase from $30.4 million in the comparable period of 2010. Our maintenance cost per ASM was 0.80 cents in the fourth
quarter of 2011, representing an increase of 33.3 per cent from 0.60 cents in the fourth quarter of 2010. This year-over-year
increase is mainly attributable to changes to the estimated timing of expected maintenance overhauls and discount rates
included within our maintenance provision for leased aircraft. In accordance with IFRS, we provide for the future costs of
certain overhaul maintenance activities on our leased aircraft over the term of the lease rather than expense as incurred. Our
provision is calculated based on the best information available to us and includes estimates on maintenance cycle timing, total
cost and discount rates. Any difference from the provided amount and the actual amount incurred is recognized in the period
the activity is performed. Furthermore, IFRS requires us to adjust the provision as changes in the discount rate used to
determine the present value occur. During the three months ended December 31, 2011, we incurred a $6.8 million non-cash
WestJet Annual Report 2011 26