WestJet (WJA-T) Last Call Before Takeoff

Transcription

1 (WJA-T) Last Call Befre Takeff July 21, 2015 Gerge Trapkv, CFA Analyst - (416) gtrapkv@beacnsecurities.ca Ahmad Shaath, MBA Assciate - (416) ashaath@beacnsecurities.ca We are initiating cverage f WestJet with a Buy rating and a 12- mnth target price f $ In summary, ur recmmendatin is based n the fllwing: Canada s lw-cst carrier has been successful in making travel very affrdable fr almst 20 years. The cmpany is n a new jurney t expand the affrdability t underserved cities acrss Canada as well as cnnecting its dmestic netwrk t internatinal destinatins. WestJet Encre t Drive Lng-Term Grwth: We believe WestJet is just at the beginning f a multi-year strategy f expanding Encre int underserved dmestic and transbrder rutes. Encre perates at a lwer cst than the mainline and generates ver 40% in traffic grwth when it enters new markets. As Encre grws its fleet t up t 45 Q400s by 2018, it culd prvide significant upside t earnings. Internatinal Markets Represent a $12 Billin Opprtunity: We see a ptential fr WJA t build n the success f its fray int internatinal travel t grw its market share. We estimate that a 10% gain in market share can add in excess f $300 millin f EBITDAR, a ptential 30% uplift t ur 2015 estimates level. The cmpany recently added Lndn- Gatwick as its third transatlantic destinatin, which we believe culd serve as a linchpin fr future destinatins acrss Eurpe. Ancillary Revenue Grwth: With the intrductin f first checked-baggage fee, WestJet accelerated the grwth f its highly prfitable ancillary revenue. Additinal entertainment fferings n bard f the Being aircraft shuld prvide anther high-margin surce f ancillary revenue. With WJA s ~20 millin guests a year, every additinal dllar f ancillary revenue per passenger shuld translate int at least $5 millin f EBITDAR. Selling Is Overdne: WJA is dwn ~35% frm recent peaks n cncerns abut capacity grwth and RASM declines. We believe the current stck price reflects these cncerns. Hwever, it is ur pinin that RASM declines are a temprary result f the initial phase f expansin int new markets. WestJet is trading at 7.1x 2015E P/E with lw cst carriers peers trading at ~12.5x P/E. We apply a 10.0x multiple n FY16E EPS t arrive at ur $ mnth target price. BUY! Price (C$) 12-mnth Target Price (C$) Ptential Return $22.53 $ % 52 Week Price Range (C$) $ $34.95 Yield 2.5% YE: Dec 31 FY14 FY15E FY16E Revenue ($MM) 3,977 4,120 4,504 EBITDAR ($MM) 894 1,046 1,133 FD EPS Valuatin FY14 FY15E FY16E EV/Sales 1.1x 1.0x 0.9x EV/EBITDAR 4.7x 4.0x 3.7x P/E 9.2x 7.1x 6.4x Stck Data Shares Outstanding (MM) Market Cap ($MM) Basic 127 FD 129 Basic $2,864 FD $2,896 Estimates Adj. Net Debt (MM) $1,357 EV (MM) $4,221 Abut the Cmpany WestJet Airlines Ltd. prvides passenger air transprtatin services. It ffers scheduled flights, vacatin packages and carg service acrss Nrth America, Central America and the Caribbean. The cmpany d is headquartered in Calgary, Canada. 2,000 1,500 1, Initiating Cverage BUY $35.00 All prices in C$ unless therwise stated WestJet (WJA-CA) Vlume (Thusands) Stck Perfrmance Price (CAD) Aug Oct Dec Feb Apr Jun Average Vlume - WJA-CA Vlume WestJet Surce: FactSet Prices Beacn Securities Ltd. 66 Wellingtn Street West, Suite 4050, Trnt, Ontari, M5K 1H

2 Cntents Investment Thesis... 3 Brief Histry f WestJet... 4 Revenue Grwth Opprtunities... 4 Cst Opprtunities... 9 Valuatin: What s it Wrth Mre passengers + Ancillary Revenue = Earnings Higher Multiple Higher Stck Price. Buy - $35.00 Target Price Market Cmparables Financials Balance Sheet Financials Incme Statement July 21, 2015 Page 2 Gerge Trapkv gtrapkv@beacnsecurities.ca

3 Investment Thesis Flying has quickly becme the g-t, and safest methd fr us t get arund the glbe. The deregulatin f air travel in Nrth America (1978 in USA and 1987 in Canada) gave industry participants the freedm t set prices and ptimize their rutes. While ne might have expected such deregulatin t allw the carriers t becme mre prfitable, that hasn t been the case and until recently, the industry had been synnymus with unprfitability. Hwever, a few pineers managed t buck the trend ver that perid, led by the champin f the lw-cst carrier mdel Suthwest Airlines (LUV-US, nt cvered). Suthwest s successful strategy revlved arund cmpeting n price, while maintaining a streamlined cst base and capacity, which has resulted in 42 cnsecutive years f prfitability. In the early 1990s, Canada s airline industry was dminated by Air Canada (Buy rated, $20.00 TP) and Canadian Airlines (acquired by Air Canada in 2000). Calgary-based entrepreneurs saw an pprtunity t duplicate Suthwest s mdel and started WestJet in In the beginning, WestJet had nly three aircraft that were flwn t five Canadian cities. The cmpany became successful by cupling the lwcst mdel with an emplyee-prfit sharing mdel. Almst 20 years later, WestJet generates ~$4 billin in revenue and carries ~20 millin passengers a year. Nw this is nt the end. It is nt even the beginning f the end. But it is, perhaps, the end f the beginning (Churchill). We believe WestJet stands n the cusp f what culd be anther multiyear grwth trajectry prpelled by the expansin f its mainline int mre internatinal markets and its lw-cst carrier, Encre, int additinal Canadian and transbrder destinatins. With the additin f extended-range B767 aircraft, WestJet can nw expand mre aggressively int internatinal destinatins, leveraging its dmestic passengers as a feed. The cmpany recently added Lndn- Gatwick as its third transatlantic destinatin, which we believe culd serve as a linchpin fr future destinatins acrss Eurpe. We estimate that a 10% gain in market share can add in excess f $300 millin f EBITDAR, grwth f clse t 30% cmpared t ur 2015 estimates. Additinally, we expect Encre t ffer additinal Canadian and transbrder destinatins. We als expect WestJet t cntinue t shw strng yy grwth in ancillary revenues. With WJA s ~20 millin guests a year, every additinal dllar f ancillary revenue per passenger culd translate int at least $5 millin f EBITDAR. We believe fair value fr the cmpany s assets is between C$ C$40.00 (i.e x P/E). Cnsequently, with the stck trading at C$22.53 which represents 7.1x 2015E EPS (pst 2008 financial crisis lw multiple), we believe the shares are undervalued. We are initiating cverage f WestJet with a Buy rating and C$ mnth target price, based n 10.0x ur FY16 EPS frecast. July 21, 2015 Page 3 Gerge Trapkv gtrapkv@beacnsecurities.ca

4 Brief Histry f WestJet WestJet was funded in 1996 by Clive Bedde and ther Calgary entrepreneurs as a lw-cst Western Canadian reginal carrier. It started flying with three aircraft t five cities. In 2000, WJA expanded its netwrk t Eastern Canada and added Hamiltn, Mnctn and Ottawa t its destinatins. In 2004, WJA started its transbrder service and started flying t seven American cities. WestJet entered the packaged vacatin market and started flying t internatinal destinatins in The cmpany has been very practive in establishing cdeshare agreements and it has signed up 13 wrld leading airlines as cdeshare partners. Prir t 2013, WestJet had nly ne class f seats with n business class. In 2013, WestJet intrduced its premium ffering Plus seats, which cme with extra leg rm, pririty barding, refund flexibility and cmplimentary meals and drinks n bard. The plus ffering has been successful and WJA is making additinal enhancements in late Tday, WestJet ffers scheduled service t ver 90 destinatins in Nrth and Central America, the Caribbean and Eurpe. WestJet perates a mdern fleet cmprised f Being (starting in July 2015), and the Being Next-Generatin , and aircraft. WestJet Encre perates a fleet f Bmbardier Q400 NextGen turbprps. The cmpany has a ~36% market share f the Canadian dmestic market, ~21% f the transbrder traffic and an insignificant share f the transatlantic market. In 2014, WestJet cmpleted its first transatlantic flight frm St. Jhn, NL t Dublin, Ireland. Revenue Grwth Opprtunities WestJet Encre WestJet Encre is the reginal airline peratr fr WestJet, currently perating a fleet f 21 Q400 aircraft. Encre is expected t fly t 31 destinatins (up frm 28 currently) by the end f As Encre grws its fleet t up t 45 Q400s by 2018, it culd prvide significant upside t earnings. We believe new destinatins culd ptentially include smaller underserved airprts in the US and Canada, thus ptentially bsting traffic n these rutes. Based n IATA data (Exhibit 1), nce WestJet enters a new rute, passenger traffic n that rute increases by ver 40% yy and average fares decrease by 20-40% yy. WestJet is perating the smaller Q400s at a lwer cst allwing it t be very cmpetitive when entering new markets. July 21, 2015 Page 4 Gerge Trapkv gtrapkv@beacnsecurities.ca

5 Exhibit 1: Impact f WestJet Encre n Traffic Vlumes n New Rutes Surce: Cmpany reprts, 2015 and IATA. Additinally, we believe that ~50% f Encre s passengers use a cnnecting flight with WestJet s mainline, hence new rutes culd ptentially bst WestJet s system-wide lad factrs further. Additinal passengers n a rute cme with a very high margin. Fr example, while explring the ptential fr new destinatins, we lked at the ptin fr a flight between Winnipeg and Minneaplis: Currently, nly Delta airlines (DAL-US, nt cvered, nt rated), a WestJet partner, has direct flights between Winnipeg and Minneaplis. At the same time, WestJet has 26 daily departures ut f Winnipeg by ur cunt, fur f which we believe are perated by WestJet Encre. While we acknwledge that Delta is an imprtant partner fr WestJet, we believe that pprtunities exist fr the cmpany t prfitably pen new rutes. Internatinal Expansin We expect internatinal expansin t be a majr driver fr WestJet s grwth ver the next few years. Internatinal markets represent a $12 billin pprtunity fr WestJet. We estimate that a 10% gain in market share can add in excess f $300 millin f EBITDAR, a ptential 30% uplift t ur 2015 estimates level. We believe WestJet can leverage its strng psitin in the dmestic market (~36% market share) t feed traffic int its new internatinal destinatins where it has insignificant market share. After what the cmpany described as an extremely successful launch fr its first transatlantic destinatin, WestJet annunced its secnd such destinatin, Glasgw, UK, in May The leg riginates frm Halifax, NS utilizing B NG (range > 6,000 km). July 21, 2015 Page 5 Gerge Trapkv gtrapkv@beacnsecurities.ca

6 Mre imprtantly, WestJet recently annunced Lndn-Gatwick as its first transatlantic destinatin fr the B767. We believe that this is a great destinatin fr cnnecting t ther rutes in Eurpe. If these new internatinal rutes prve successful, which we believe they will, we see an pprtunity fr WestJet t mve quickly by leasing used planes fr additinal transatlantic rutes withut having t cmmit large capital investments. WJA currently has cdeshare arrangements with sme f the largest Eurpean airlines and we believe it can analyze histrical bkings data t uncver pprtunities fr additinal internatinal destinatins. T give an example f the ptential EBITDAR cntributin f ne B767, cnsider the fllwing: 262 seats = 24 Plus seats regular seats (18 seats with extended leg rm). Fr a mid-july (July 15-22) return trip t Glasgw frm Trnt, price fr Flex fare is $1,386 and Plus fare is $1,780. Limited seats are available which leads us t believe that lad factr is well abve 90%. Assumed daily cntributin frm the Glasgw flight at 90% lad factr: 22 plus seats sld at $1,780 = $39,160 Regular seats sld at $1,386 = $296,604 Ttal revenue cntributin per daily return flight = $335,764 Applying WJA s EBITDAR margin f 26%, it translates int an annual EBITDAR cntributin f ~$32 millin. At a mre cnservative 80% lad factr, annual EBITDAR cntributin culd be ~$25 millin. With the B767 flying range, we see an pprtunity fr WestJet t add ppular destinatins in Asia (e.g. Beijing, Shanghai, Hng Kng), flying ut frm Calgary and/r Vancuver. Such rutes culd prvide a significant uplift t WestJet s tpline revenue and enhance EBITDAR. With $1.4 billin f cash and $300 millin f undrawn credit lines, we believe WJA is well psitined t execute n an internatinal expansin strategy as we utlined abve. If WestJet was t secure three mre B767 aircraft in 2016/2017, it culd cntribute an additinal $75 millin t EBITDAR, a 7% upside t ur estimates. July 21, 2015 Page 6 Gerge Trapkv gtrapkv@beacnsecurities.ca

7 Ancillary Revenues In Q1/FY15, WJA reprted ancillary revenues f $16.92 per guest which is 60.4% higher than Q1/FY14. This was primarily driven by the intrductin f a first checked-baggage fee in late 2014, which WJA expects t add $100 millin in annual revenue. Exhibit 2: Histrical WestJet Ancillary Revenue $18.00 Ancillary Revenue ($/guest) $16.92 $16.00 $14.00 $12.00 $11.05 $10.00 $8.00 $6.00 $6.03 $7.74 $7.89 $8.94 $4.00 $2.00 $ Q1/15 Surce: Cmpany reprts July 21, 2015 Page 7 Additinally, WJA expects its entire Being fleet t be entertainment ready (i.e. Wi-Fi, streaming vide and music t passenger s wn devices) by the end f Using Air Canada s Gg-pwered Wi-Fi service as a benchmark (i.e. $5/hur ), we calculate the fllwing: In 2014, WestJet carried ~20 millin guests. If we assume 10% f these guests pt t purchase WiFi at $10/flight, the service can generate an additinal $20 millin f revenue. Using WJA s current EBIDTAR margin f 26%, which we believe t be cnservative as ancillary services usually carry a much higher margin, this can translate int at least ~$5 millin f annual EBITDAR cntributin. Further upside t these margins culd cme frm the bring yur wn device plicy, as WestJet will eliminate all n-bard munted screens which will save fuel csts due t reduced weight f the aircraft. We als nte that WJA will have mre pricing pwer ver its service given it will be perated internally (while Gg cntrls pricing n Air Canada s flights) and will als ffer Gerge Trapkv gtrapkv@beacnsecurities.ca

8 mre value-added-services such as vide n demand, live TV and music streaming, allwing fr premium pricing. Fare Bundles & Plus Seating In 2013, WestJet intrduced fare bundles which ffer additinal flexible ptins fr guests at an extra cst. The Plus ffering allws extra leg rm and many cmplementary ptins. WestJet cntinues t add additinal features t the Plus ffering such as n middle seat n B737 starting in September The initial expectatins fr additinal revenues frm the fare bundles were $50-$80 millin we believe current run rate is likely clser t $100 millin. T demnstrate the cmpetitiveness f this ffering, cnsider the fllwing: Fr a trip (ne way) frm Trnt t Vancuver in mid- June, 2015: WJA flex fare was ~$330 which was very clsely matched by AC s Tang fare. Plus fare was ~$640 which was well belw AC s Latitude fare f $1,100. We believe with the remval f the middle seat, WJA can ffer a cmpelling deal fr business travelers at a fractin f the cst. Our checks indicate the price difference has nt narrwed fr flights in Nvember there is an pprtunity fr price increases fr Plus fares as guests becme aware f the new features. As the plus seats are nt classified as Business Class, WestJet culd ffer additinal cnvenience fr frequent business travelers withut the extra expense. July 21, 2015 Page 8 Gerge Trapkv gtrapkv@beacnsecurities.ca

9 Cst Opprtunities Fleet Mdernizatin Having newer planes allws WestJet t spend less n maintenance and leverage the enhanced fuel efficiencies and new features. In 2014, WJA added seven new NG and seven new Bmbardier Q400s. Additinally in Q1/FY15, WJA tk deliveries f fur Q400 aircraft and three B NG t end the quarter with 126 aircraft. The remaining tw B NG, which were sld t Suthwest Airlines, are scheduled t be delivered in Q2/FY15. With the afrementined, WestJet s fleet is the yungest cmpared t its main cmpetitrs : WestJet years Air Canada years Suthwest years JetBlue - 8 years WestJet expects t take delivery f 16 additinal aircraft in 2015 which will bring the average age dwn even further. Fuel and FX Impact Aircraft fuel expense, which is currently fully unhedged, represented 31.1% f WJA s 2014 perating expenses. Similar t its peers, WJA benefited frm recent declines in il prices as fuel expense declined 26% yy in Q1/FY15. We expect fuel expense t cntinue t be lwer yy in Q2 as il prices haven t rebunded. Fr the full year 2015, WestJet estimates an US$8 millin annual impact fr every US$1 change per barrel in the price f WTI crude il. WestJet reprts in Canadian dllars; hwever, it incurs expenses in US dllars. These expenses include aircraft fuel, leasing, vacatin packages and maintenance. WJA estimates that a $0.01 increase in the CAD/USD exchange rate will increase annual expenses by $9 millin ($6.3 millin in fuel expenses and $2.7 millin in ther US denminated expenses). July 21, 2015 Page 9 Gerge Trapkv gtrapkv@beacnsecurities.ca

10 Valuatin: What s it Wrth We are initiating cverage f WestJet with a Buy rating and a 12-mnth target price f $35.00 based n 10x ur FY16 EPS frecast f $3.50. Based n ur analysis, WestJet is currently trading at 7.5x NTM cnsensus EPS estimate representing the lwest level in 10 years utside f the financial crisis. Exhibit 3: Histrical WestJet Trading Multiple 30.0x WJA - Frward P/E (NTM) 25.0x 20.0x 15.0x 10.0x 7.5x 5.0x 0.0x Surce: FactSet, n 20/Jul/'15 Exhibit 4: P/E Multiple Sensitivity P/E Sensitivity Share Price 2015E 2016E EPS Estimate 0.0x $3.16 $3.50 Current Price $ x 6.4x $ x 6.6x $ x 6.9x $ x 7.1x $ x 7.4x $ x 7.7x $ x 8.0x $ x 8.3x $ x 8.6x $ x 8.9x $ x 9.1x $ x 9.4x $ x 9.7x Target Price $ x 10.0x $ x 10.3x $ x 10.6x $ x 10.9x $ x 11.1x $ x 11.4x Surce: Beacn Estimates and FactSet July 21, 2015 Page 10 Gerge Trapkv gtrapkv@beacnsecurities.ca

11 Mre passengers + Ancillary Revenue = Earnings Higher Multiple Higher Stck Price. Buy - $35.00 Target Price. We are initiating cverage f WestJet with a BUY rating and a $ mnth target price, representing a prjected ttal return f 58%. In summary, ur recmmendatin is based n the fllwing: a) WestJet Encre will enable the cmpany t cntinue Onward and Upward (the theme f WJA s 1998 annual reprt). As Encre enters new markets, traffic increases 40-55%, fares becme lwer and WestJet s main airline benefits frm cnnecting passengers. With an estimated 50% f Encre passengers cnnecting n a mainline flight, we expect higher lad factrs t bst margins. b) The Canadian internatinal travel market is a $12 billin pprtunity int which WestJet has barely dipped its tes in. An additinal 10% market share can lead t $1.2 billin f revenue and ver $300 millin in additinal EBITDAR, a ptential 30% uplift t ur 2015 estimates level. Dmestic lad factrs culd als ptentially benefit frm this internatinal expansin. c) We expect the next 3 quarters t shw strng yy grwth in ancillary revenues driven by the recent intrductin f a first checkedbaggage fee. By the end f 2015, the new Panasnic entertainment system shuld be fully peratinal n all Being aircraft. This shuld lead t an abve average grwth in the high-margin ancillary revenues. d) In ur view, the recent share price decline f ~35% ff 52-week high is excessive and des nt reflect the lng-term attractive fundamentals f WestJet. Cmbined with ur psitive utlk n WestJet s earnings grwth, we believe the cmpany trades at a very depressed valuatin. July 21, 2015 Page 11 Gerge Trapkv gtrapkv@beacnsecurities.ca

12 Market Cmparables Airlines Cmparables Sales EBITDAR EPS (FD) EV/EBITDAR P/E Cmpany Ticker Currency Year End Last Price Market Cap. (MM) Adjusted Net Debt (MM) EV (MM) Adj. Net Debt/ Capitalizatin 2014A 2015E 2016E 2014A 2015E 2016E 2014A 2015E 2016E 2014A 2015E 2016E 2014A 2015E 2016E WestJet WJA-CA CAD Dec ,864 1,357 4,221 47% 3,977 4,120 4, ,046 1, x 4.0x 3.7x 9.2x 7.1x 6.4x Legacy Carriers Air Canada AC-CA CAD Dec ,496 5,197 8, % 13,272 14,010 14,233 1,671 2,364 3, x 3.7x 2.8x 6.7x 3.3x 2.0x Air France-KLM SA AF-PAR EUR Dec ,967 13,334 15, % 24,912 25,416 25,488 2,269 2,976 3,381 (0.67) (0.43) x 5.2x 4.5x x Alaska Air Grup, Inc. ALK-US USD Dec , ,773 2% 5,368 5,634 6,001 1,378 1,713 1, x 5.7x 5.6x 16.8x 12.0x 11.6x American Airlines Grup, Inc. AAL-US USD Dec ,093 18,059 46,152 64% 42,650 41,767 43,224 7,819 9,890 9, x 4.7x 4.8x 10.3x 4.6x 6.0x Cathay Pacific Airways Limited 293-HK HKD Dec ,946 47, ,372 61% 105, , ,581 17,250 N/A N/A x x 11.0x 9.7x Delta Air Lines, Inc. DAL-US USD Dec ,069 6,226 41,295 18% 40,204 40,782 41,914 6,768 8,396 9, x 4.9x 4.6x 56.5x 9.9x 8.2x Deutsche Lufthansa AG LHA-DE EUR Dec ,940 2,390 8,401 40% 30,011 31,075 31,603 2,410 2,923 3, x 2.9x 2.6x 107.0x 6.3x 5.7x Internatinal Cnslidated Airlines Grup SA IAG-GB GBP Dec ,632 4,280 16,152 37% 16,249 15,603 16,081 3,158 4,257 4, x 3.8x 3.5x 15.3x 10.9x 9.1x Qantas Airways Limited QAN-AU AUD Jun ,995 4,631 12,633 58% 15,352 15,760 16,145 1,483 2,819 3,549 (1.29) x 4.5x 3.6x x 7.2x Singapre Airlines Ltd. C6L-SG SGD Mar ,722 2,157 16,345 16% 15,566 15,448 15,902 3,343 N/A N/A x x 17.6x 14.1x Transat A.T. Inc. Class B TRZ.B-CA CAD Oct % 3,752 3,587 3, x 5.1x 4.1x 9.3x 18.0x 6.4x United Cntinental Hldings, Inc. UAL-US USD Dec ,144 12,300 33,444 58% 38,901 38,362 39,347 5,326 7,592 7, x 4.4x 4.5x 18.9x 5.2x 6.4x Average 113% 5.9x 4.5x 4.1x 30.3x 10.1x 7.7x Average Excluding Outliers 117% 5.9x 3.3x 3.1x 23.6x 9.6x 7.9x Lw Cst Carriers Allegiant Travel Cmpany ALGT-US USD Dec , ,737 7% 1,137 1,260 1, x 8.3x 8.2x 41.8x 17.1x 16.7x easyjet plc EZJ-GB GBP Sep , ,089 4% 4,527 4,671 4, x 7.9x 7.3x 15.2x 13.5x 12.2x JetBlue Airways Crpratin JBLU-US USD Dec ,167 2,535 9,702 35% 5,817 6,435 7, ,630 1, x 6.0x 5.5x 19.2x 12.8x 11.4x Ryanair Hldings Plc RY4B-IE EUR Mar ,077 (336) 16,740-2% 5,654 6,164 6,440 1,530 1,712 1, x 9.8x 8.4x 19.8x 16.9x 13.9x Suthwest Airlines C. LUV-US USD Dec ,929 1,167 24,096 5% 18,605 19,410 20,603 3,572 5,053 4, x 4.8x 4.9x 20.9x 10.3x 10.2x Virgin America, Inc. VA-US USD Dec ,251 1,006 2,257 80% 1,490 1,521 1, x 5.6x 5.1x 4.1x 7.1x 7.8x Average 22% 7.7x 5.8x 5.3x 21.9x 12.5x 10.2x Average Excluding Outliers 10% 9.3x 7.0x 6.6x 20.2x 12.9x 12.0x Glbal Average 82% 7.1x 5.4x 5.0x 26.5x 11.1x 9.2x Glbal Average Excluding Outliers 47% 6.7x 5.2x 4.8x 21.1x 11.1x 8.9x Surce: FactSet, Beacn Research February 24, 2015 Page 12 Gerge Trapkv gtrapkv@beacnsecurities.ca

13 Financials Balance Sheet WestJet Airlines Ltd. Fiscal YE December 31 ($000's) 2013A 2014A 2015E 2016E Assets Cash and shrt-term investments 1,256,005 1,358,071 1,106,511 1,056,874 Accunts receivable 42,164 54,950 56,931 62,235 Prepaid expenses and depsits 133, , , ,941 Unrestricted cash/restricted Cash 58,106 58,149 54,104 54,104 Inventry 36, , , ,115 Ttal current assets 1,526,260 1,730,326 1,503,381 1,472,269 Capital assets 2,487,734 2,793,194 3,511,262 4,209,775 Other lng-term assets 129, , , ,114 Ttal assets 4,143,463 4,646,433 5,156,757 5,824,158 Liabilities and Sharehlders' Equity Accunts payable and accrued liabilities 543, , , ,576 Maintenance accrual 76,105 54,811 32,303 32,303 Advance ticket sales 551, , , ,035 Nn-refundable passenger credits 46,975 45,434 48,139 52,871 Current prtin f lng-term debt 189, , , ,254 Current prtin f capital leases 0 86,870 97,152 97,152 Ttal current liabilities 1,406,460 1,338,301 1,367,092 1,468,192 Lng-term debt 689,204 1,028,820 1,052,583 1,052,583 Lng term liabilities 151, , , ,505 Future incme tax 306, , , ,857 Ttal liabilities 2,553,623 2,868,931 2,988,037 3,089,137 Sharehlders' equity Share capital 603, , , ,547 Cntributed surplus 69,079 75, , ,508 Accumulated ther cmprehencisve lss (gain) 105 (3,179) (479) (479) Retained earnings 916,795 1,102,300 1,429,361 1,853,445 Ttal Sharehlders' equity 1,589,840 1,777,502 2,168,720 2,735,021 Ttal liabilities and Sharehlders' equity 4,143,463 4,646,433 5,156,757 5,824,158 Surce: Beacn Securities., Cm pany Reprts February 24, 2015 Page 13 Gerge Trapkv gtrapkv@beacnsecurities.ca

14 Financials Incme Statement WestJet Airlines Ltd. Fiscal YE December 31 ($000's except per share) 2013A 2014A 2015E 2016E Passenger $3,338 $3,599 $3,697 $4,042 Other Ttal Revenues $3,662 $3,977 $4,120 $4,504 Operating Expenses 2,886 3,082 3,074 3,370 EBITDAR $776 $894 $1,046 $1,133 Earnings Per Share Adjusted $2.03 $2.46 $3.16 $3.50 OPERATING STATISTICS RPM (MM) 19,592 20,829 21,889 23,497 ASM (MM) 23,971 25,584 27,091 28,851 Lad Factr 81.7% 81.4% 80.8% 81.4% Yield ( ) CASM, ex. Fuel & Prfit Share ( ) Surce: Beacn Securites Ltd., Cmpany Reprts February 24, 2015 Page 14 Gerge Trapkv gtrapkv@beacnsecurities.ca

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