WestJet Reports Record Quarter on Strong Ancillary Revenues

WestJet Airlines Ltd. (TSX:WJA), Canada's second largest airliner, released record second-quarter earnings results before the market opened on July 28, A summary look at the results is below;

2015 second quarter financial results represent our 41st consecutive quarter of reported profitability with total revenue of $942 million and net earnings of $61.6 million and a second quarter record diluted earnings per share of $ 0.49. During the quarter ,our operating margin expanded to 10 .7 per cent , driven largely by continued lower fuel prices and an increase in ancillary revenue . Total revenue increased by 1.3 per cent year over year, driven by the increase in ancillary revenue which was offset by lower guest revenue resulting from downward pressure on our fares and a lower load factor .

We returned approximately $ 45.1 million to our shareholders through our dividend and share buy - back programs in the second quarter of 201 5 . Since these programs began in 2010, we have returned over six hundred million dollars to our shareholders. At June 30, 2015, our 12 - month record ROIC of 16.0 per cent marks the 12th consecutive quarter of exceeding our goal of a sustainable 12 .0 per cent ROIC and represents an increase of 1 .7 percentage points compared to our 201 4 full - year ROIC of 14.3 per cent . As of the date of this MD&A, we revised our previous ROIC goal from a sustainable 12.0 per cent to a targeted range of 13 .0 to 16.0 per cent.

The  overall  increase  in  total  revenue  was  driven  by  an increase  in  ancillary  revenue  included  in  other revenue , partially offset by lower guest revenue resulting from downward pressure on our fares and a lower load factor . On an ASM basis,  for the three months ended June 30, 2015  revenue decreased by 5.7 per cent to  14.16 cents from  15.02 cents in the same quarter of 2014 .

This record ancillary revenue is largely due to WestJets transition to GuestLogix (TSX:GXI) next-generation onboard retail solutions.  WestJet continues to leverage the Company’s leading retail platform and PCI-compliant handheld POS devices to transact food and beverage sales on its flights, as well as utilize GuestLogix’ Global Payment Gateway™ for enhanced revenue protection. 

 Ancillary revenue, which includes service fees,  our  WestJet RBC ® MasterCard ± program revenue and  onboard sales, provides  an  opportunity  to  maximize  our  profits  through  the  sale  of  higher - margin  goods  and  services  while  enhancing  our  overall  guest experience by providing guests with additional products and services to  meet their needs.

The following table  presents  ancillary revenue  and ancillary revenue on a per guest basis for the three  and six  months ended  June 30 , 2015:

 

For  the  three  and  six  months  ended  June 3 0 ,  2015 , ancillary  revenue was  $ 82.9 million and  $166.0  million ,  an  increase  of  73.3 and  68.5  per  cent  from  $ 47.8 million and  $98.5  million,  respectively, in  the  same  periods of  the  prior  year .  These increase s are mainly attributable to  the introduction of the  first bag fee in late 2014. Other areas  contributing to the increase  include higher guest bookings , an  increase in  Plus seating upgrade sales and t he continued penetration of our WestJet  RBC ® MasterCard ± program. On a per guest  basis,  ancillary fees for  the quarter  and  year to  date increased  by  66.7 and 63.4  per  cent  to  $16.74 and  $16.83  per  guest,  from  $ 10. 04 and  $10.30 per  guest ,  respectively, for  201 4 . This  change  is  mainly  attributable to the introduction of the first bag fee.

WestJet  Vacations  continues to  generate revenue  which  supports WestJet’s  overall  network .  The land  component,  which  includes  hotels,  attractions  and  car  rentals,  is  reported  on  the  condensed  consolidated  statement  of  earnings  at  the  net  amount received . In the first  half of 2015 , WestJet Vacations’ non-air revenue component declined as the  weaker Canadian  dollar impacted  our  margins  throughout the  first half of 201 5 compared to the same period in the prior year. The majority of  the land  components are paid in US dollars , which is netted against the gross revenue collected in Canadian dollars.