Saturday, March 25, 2017

Company Summary : WestJet

    On February 29th, 1996 a new airline in Canada took flight.  This new airline was called WestJet  based out of Calgary, Alberta.  This company started small with only 3 planes, 5 destinations, and 220 employees. Most employees of WestJet (over 85%) own shares in WestJet though their employee stock purchase plan.  As a result, WestJet refers to their employees as WestJetters because they are actual partial owners of WestJet.

     WestJet is in it's 21th year of business.  It had grown tremendous over that time.

Some of the highlights of 2016 are7 as follows:
  • 12th consecutive year of profitability
  • The 4th Quarter of 2016 was the 47th consecutive profitable quarter.
  • Returned appromiately  $193.2 million  dollars to shareholders via dividends and buybacks.

      Since 2010, WestJet has returned approximately $942.5 million to shareholders via dividends and stock buybacks.  WestJet share price as of March 24 is $22.63 per share.  The current annual dividend rate is $0.56 per share per year. Therefore, the current yield is 2.47%.  The dividend payout ratio based on the previous 4 quarters of net income is 22.76%. With a dividend payout ratio low, I believe WestJet will continue to pay dividends and buyback shares in the foreseeable future.

    WestJet has grown its revenue from $3.427 billion in 2012 to $4.123 billion in 2016.  This represents a compound annual growth rate (CAGR) of approximately 4.73% over the last 5 years.  Due to the nature of the airline industry and its related costs, is a good number.  

    WestJet available seat miles  as grown over the last 5 years.  Available seat miles (ASM) is a measure of an airline's passenger carrying capacity.  ASM is equal to the number of seats available multiplied by the miles flown. WestJet's ASM has grown from  approximately from 22.064 billion in 2012 to 29.298 billion in 2016.  This represents a CAGR of 7.35% over the last 5 years.  WestJet has added more planes to its fleet and added more destinations to its operations as it continues to grow.

    WestJet has increased its diluted earning per share from $1.78 per share in 2012 to $2.45 per share in 2016.  This represents a CAGR of 8.31%.  A CAGR for EPS of 8.31% over the past 5 years is quite impressive, when you take into account the recession in its home province of Alberta.  WestJet operates in 4 cities in Alberta which are Grande Prairie, Fort McMurray, Edmonton, and Calgary.  Grande Prairie and Fort McMurray are smaller cities, so flights to and from these cities involved flying from bigger airport. 
  In 2016, WestJet had an operating margin of 10.7%. Their revenue increase 2.3% Y/Y.  This increase was operating margin was driven by increase an increase in ancillary revenue which was partially offset by lower guest revenue resulting from downward pressure on their fares due to the economic downturn of the energy sector (Source:  WestJet 2016 Annual Report).   


    WestJet has remain profit despite their home based province of Alberta being in the worse recession since the company was founded in 1996. Alberta has been in a recession for over 2 years.  My previous employer had approximately 98% of their business dealing with the energy industry.  As the demand was not there, my company had several round of layoffs and eventually closed its doors in late 2016.  Due to oil currently trading less than $50 per barrel, I foresee Alberta remaining in a recession in 2017.  The government of Alberta recently tabled its budget in the past 2 weeks, and they predict the price of oil to remain below $60 into 2021. 

   WestJet has expanded its destinations both nationally and internationally over the past years.  This means the company can reduce their flights in markets were the demand is not strong.  People from all over Canada work in the oil patch in Alberta, in which most of them working in Fort McMurray.  Although Alberta is in a recession, the rest of Canada is not. Therefore WestJet still has a lot of potential passengers to use their services.

   On October 28,  I purchased 140 shares of Westjet Airlines (WJA.TO) at $22.39 per share for a total cost of $3140.04 including commissions. 

6 month chart
     WestJet had traded between $20 and $24 over the last 6 months.  I am possibly thinking taking profits if the stock rises a bit here and buying back in a lower price than $22.39.

     I have never worked for WestJet, but I am happy to be a shareholder. I flew across Canada on WestJet and the their customer service was excellent.

Disclosure:  Long WJA.TO

I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.

Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk.

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