WestJet (TSX: WJA) today provided 2019 to 2022 targets at its Investor Day held in Toronto from 9:15 a.m. ET to 12:30 p.m. ET.
In 2019, WestJet expects to expand margins through a combination of improved revenue performance, a continued focus on cost control and a prudent approach to capacity management.
For the full year of 2019, RASM is expected to be in the range of up 2.0 per cent to 4.0 per cent year over year driven by solid demand and strength in the core WestJet business, the roll-out of branded fares across all WestJet operated routes, the increase in WestJet's first bag fee, Swoop ancillary per traveller increasing to $40, and the introduction of premium and business cabins on the Boeing 787 Dreamliner, offset by capacity increases in Swoop which have a dilutive effect on overall RASM performance.
For the full year of 2019, CASM, excluding fuel and employee profit share is expected to be flat to up 2.0 per cent year over year driven by continued investment in the business to support the Boeing 787 Dreamliner and the infrastructure required to deliver on WestJet's strategic plan and capacity increases in Swoop which have a dilutive effect on overall CASM performance.
In 2019, WestJet continues to expect system-wide capacity growth of between 6.5 and 8.5 per cent and domestic capacity growth of between 1.0 and 3.0 per cent. Growth in 2019 is attributed to the launch of transatlantic service on the airline's new Boeing 787 Dreamliner and the incremental capacity associated with Swoop increasing to ten aircraft.
For the full-year 2019, capital expenditures are expected to be between $1.0 billion and $1.2 billion driven by deposits and acquisition of Boeing 737 MAX and 787 Dreamliner aircraft. WestJet has signed a letter of intent to sell and lease back the first three Boeing 787 Dreamliners to be delivered in the first quarter of 2019; the proceeds from the sale will fund approximately half of 2019 capital expenditures. The full-year annual effective consolidated income tax rate for 2019 is expected to be in the range of 29 to 31 per cent.
The full-year 2019 expected CASM, excluding fuel and employee profit share and capital expenditures are based on an average forecasted foreign exchange rate of approximately 1.30 Canadian dollars to one U.S. dollar.
Year ended December 31, 2019
RASM
Up 2.0% to 4.0%
Fuel cost per litre
CASM, excluding fuel and profit share
Flat to up 2.0%
System capacity
Up 6.5% to 8.5%
Domestic capacity
Up 1.0% to 3.0%
Effective tax rate
29% to 31%
Capital expenditures
$1.0 to $1.2 billion
Building off of a challenging base year in 2018, WestJet is expecting improved earnings per share performance with a compound annual growth rate (CAGR) of greater than 40 per cent from 2018 to 2022 along with an improving annual return on invested capital (ROIC(1)) that is expected to return to double-digits in 2020 and reach 13 per cent in 2022. WestJet expects heightened capital expenditures of approximately $1.1 billion in 2019, $980 million in 2020 and approximately $1.1 billion in 2021 as the Boeing 787 Dreamliners are inducted into the fleet. Through this period, WestJet expects to deliver cumulative free cash flow(1) of $900 million to $1.1 billion, including the proceeds from the sale lease back of the first three 787 Dreamliner aircraft. In terms of its key credit metric, WestJet estimates its adjusted net debt to EBITDAR(1) to end 2022 at 1.0.
In addition, WestJet has identified annual cost savings opportunities of $200 million through 2020. These cost savings opportunities are spread over several initiatives that include fleet reconfigurations, fuel savings, guest atonement, airport operations cost savings, optimized maintenance plans, digital self service, and sales and distribution channel efficiencies.
In-person attendance at WestJet's Investor Day is by invitation only and the media and other interested persons are welcome to listen in via the webcast in the Media and Investor Relations section of westjet.com.