Profitable growth continues
as we expand our reach.
I have been fortunate enough to be part of the airline industry since 1985 and I can‘t imagine a more exhilarating business. Not everyone in this world is lucky enough to be doing what they love, but at WestJet, I know myself and thousands of others feel very lucky to be doing exactly what we love. I am extremely proud to lead a team of more than 8,600 WestJetters who share my passion for the industry and know that their contributions and teamwork are what makes WestJet successful.
The theme of this year’s annual report is expanding our reach and if you have not already done so, I invite you to visit the online version of the 2011 Annual Report at westjet.com/expandingourreach. The report provides more detail on how we continue to expand our reach and also profiles some of the friendly WestJetters who, as owners, know our success story best.
Growth has certainly been the story at WestJet since our inception in 1996, but more specifically, profitable growth has been our headline. It was another very successful year for WestJet as we flew more than 16 million guests, topped the three-billion-dollar revenue threshold for the first time and reported a 65 per cent improvement in net earnings year over year. For WestJet, 2011 marks the fifteenth time we have reported an annual profit in our 16-year history and we expect this profitable trend to continue.
In 2011, we introduced capacity growth of 8.5 per cent into the market which was absorbed nicely thanks to a healthy demand environment. We were not immune to inflated fuel costs but were able to more than offset this impact with revenue momentum. We achieved improvements in both our 2011 operating and earnings before tax margins and were once again one of the top-performing airlines in North America.
Our current scheduled network serves 76 destinations and through our airline partners we are able to offer guests even more destinations. We launched 13 new airline partnerships in 2011 and are pleased with the early returns we are seeing. This is also bringing incremental guest traffic onto our network and we expect to add even more partnerships in 2012.
We strengthened WestJet’s value to business travellers in 2011 by introducing improved service among the eastern triangle cities of Toronto, Montreal and Ottawa, and by securing landing slots at New York’s LaGuardia airport with service commencing in June 2012. In May 2012, we’ll also introduce new service to Chicago’s O’Hare International Airport with flights between Chicago and Vancouver and between Chicago and Calgary. Our frequent guest program – WestJet Rewards – continues to mature and now guests can earn WestJet dollars through our code-share flights with Delta Air Lines and American Airlines.
One of our ongoing objectives at WestJet is to make it easier for our guests to do business with us. We expanded the WestJet Rewards program in 2011 so that every guest can start earning WestJet dollars with their first flight or vacation package taken. Our guests can also now redeem their WestJet dollars online. We revamped our website and also incorporated an upgraded WestJet Vacations site into westjet.com.
We continually look for ways we can add convenience for our guests. Self-serve bag tagging was launched at seven more airports across Canada and we introduced interactive voice response technology in our call centre. We have had significant growth in our social media interactions and will continue to use this presence to connect with guests in a timely and meaningful manner.
As we expand our reach, we will not lose sight of the importance of our culture, which is built around caring, a simple but powerful concept. WestJetters care about our guests, they care about each other and they care about our airline. It is very powerful when an entire workforce says, “We succeed because I care,” and believes that each individual contribution is crucial to the collective success of the company. We have an overwhelming sense of community and teamwork and we will work tirelessly to maintain this as the WestJet family grows.
We were honoured to have been awarded a number of recognitions in 2011 which were only possible thanks to the commitment and care of WestJetters. We were named J.D. Power 2011 Customer Service Champion, one of only two Canadian companies to receive the award. WestJet was voted Canada’s best flight attendants in an annual poll conducted by the online travel website FlightNetwork.com. We were also named one of Canada’s Top 100 Employers as measured in Mediacorp’s annual study of the best workplaces in Canada, received third place recognition in Aon Hewitt’s Best Employers in Canada study, and named one of Canada's 10 Most Admired Corporate Cultures by Waterstone Human Capital.
We talk a lot about our culture at WestJet and that is because we truly believe it sets us apart from our competitors. WestJetters are encouraged to provide ideas for how we can continue to improve our airline and share their thoughts on important business decisions that impact our culture and brand. This culture of inclusion is something we are proud of and was a very important piece of the new short-haul, low-cost, regional airline analysis.
The regional airline proposition was presented to WestJetters through various town-hall forums and base visits across the country. Our highly engaged and informed WestJetters voted an overwhelming 91 per cent in favour of launching a new regional airline. The leadership team and board are extremely encouraged to have such a vast majority of WestJetters support the initiative.
We expect to launch the new regional airline as early as 2013 and we are now at the request for proposal stage with two turbo-prop manufacturers. We will select only one type of aircraft for the regional airline to maintain operational efficiencies and flexibility, similar to the successful single-fleet approach we use in our current jet operations.
Using a turbo-prop aircraft will allow us to provide service to new, smaller communities where the larger 737 aircraft does not economically make sense. We will be able to increase frequencies on existing routes, and use the flexibility of the smaller aircraft to fly between existing WestJet cities that do not currently have service between them. We believe the short-haul aircraft, combined with WestJet’s strong balance sheet and low-cost structure, will allow us to strengthen our domestic network and act as a catalyst for the continued profitable growth of our 737 fleet going forward.
Strong 2011 results serve as another example of our ability to consistently deliver profitable growth. Our revenue contributions are coming from various aspects of our business including our partnership strategy, more business travellers, ancillary revenue and the strength of WestJet Vacations. We have diversified our revenue streams without losing focus on our low-cost and great guest experience fundamentals. We held our controllable costs per unit relatively flat in 2011 and only expect a flat to one-per-cent increase in 2012.
In 2011, we completed a normal course issuer bid and paid out our first dividend. Through these programs, we returned approximately $110 million to shareholders in 2011. In February 2012, we announced another share buy-back program along with a 20 per cent dividend increase. Our strong business model and low-cost fundamentals give us confidence in our ability to continue to grow and return additional value to our loyal shareholders.
WestJet was founded as a low-cost carrier with the objective to bring affordability back to air travel in Canada. The launch of a new regional airline provides us the opportunity to expand this founding premise to guests in smaller communities, and replicate our success in these markets. We remain focused on our return on invested capital target of 12 per cent and believe the low-cost regional airline initiative is the logical next step in WestJet’s evolution.
For WestJet, 2011 was another great year and we are excited for 2012 as we continue to expand our airline partnerships, add more conveniences for business and leisure travellers and gear up for the launch of a regional airline.
On behalf of the Executive team, Board of Directors and more than 8,600 WestJetters, thank you for your continued support of our airline.
President and Chief Executive Officer
March 14, 2012
Caution regarding forward-looking statements
Certain information set forth in the above president’s message and the online version of WestJet's 2011 Annual Report, including information regarding our expectations for continued annual profitability, growth in our partnerships, our service offerings, our growth plans, information regarding the launch of our regional airline including the expected timing of launch, our strategy and implementation plans for our regional airline including fleet type and service offerings and the expected impact on our domestic network including profitable growth of our 737 fleet, our expectations for controllable costs in 2012, our ability to grow and return value to shareholders, our return on invested capital target, our rewards program, and our focus on responsible growth, contain forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond WestJet's control. These forward-looking statements are based on our existing strategy, our analysis of the requirements for a regional airline including fleet type and network design, our experience in creating and growing a low-cost domestic airline, currently available implementation plans, agreements and bookings, and our current budget, but may vary due to factors including, but not limited to, changes in fuel prices, changes in guest demand, general economic conditions, competitive environment, ability to effectively implement and maintain critical systems, ability to successfully negotiate and effectively implement new partnering relationships, our ability to obtain necessary regulatory approvals relating to our partnering relationships and our regional airline, and other factors described in WestJet's public reports and filings, which are available on WestJet's profile at www.sedar.com. Readers are cautioned that undue reliance should not be placed on forward-looking statements as actual results may vary materially from the forward-looking statements. WestJet does not undertake to update, correct or revise any forward-looking statements as a result of any new information, future events or otherwise, except as may be required by applicable law.