Enriching the lives of everyone in WestJet's world.
I am proud to work with a highly committed team dedicated to providing the best possible experience for our guests. WestJetters' passion comes through in everything we do, and this teamwork is the basis for our ongoing success and growth. We undertook many new initiatives in 2013 that laid the groundwork for our continued success as we grow to meet the needs of our guests and an ever-changing competitive environment.
This year, the theme and title of our annual report is Expanding our success, and this report will illustrate the accomplishments we had in 2013 and our vision to grow this success in 2014 and beyond.
We have continued our long trend of successful operational and financial performance. We completed 2013 by marking our ninth consecutive year of profitability and reaching a return on invested capital of 13.9 per cent, the sixth consecutive quarter in which we have surpassed our 12 per cent sustainable target. In 2013, we achieved record net earnings of $268.7 million, a 10.9 per cent increase over 2012, and record earnings per diluted share of $2.03, a 14 per cent year-over-year increase. We reported 6.9 per cent higher revenue of nearly $3.7 billion, and recorded an earnings before tax margin of 10.2 per cent, up 0.3 percentage points from 2012.
In 2013, we were proud to successfully launch WestJet Encore, our new short-haul regional airline, bringing WestJet's caring service and low fares to more communities in Western Canada. WestJet Encore has also enabled us to create new connections between existing WestJet markets, build additional feed into our current network, and increase our schedule efficiency. We're excited about expanding WestJet Encore across Canada and into the U.S.
In 2013, we also successfully launched our fare bundles product, which offers our guests additional flexibility, comfort and convenience. Specifically, our new Plus product includes extra legroom, complimentary change and cancel options, advance boarding, priority security screening at available airports, and complimentary food and beverages. Fare bundles have also created incremental revenue opportunities, which we expect to be at the high end of the $50-million to $80-million range on an annualized basis, as we've forecasted.
In the year 2013 our airline expanded as we took delivery of five Boeing 737 Next-Generation (NG) aircraft to end the year with a total of 105 Boeing 737 NGs in our fleet. As well, WestJet Encore took delivery of its first eight Bombardier Q400 NextGen aircraft. We flew nearly 18.5 million guests in the year, a 6.1 per cent increase over 2012.
At the beginning of 2013, we announced our business transformation initiative with the goal of reducing our annual costs by $100 million by the end of 2015. This is part of our long-term vision to ensure WestJet's unit costs are competitive with other low-cost North American airlines, allowing us to continue to offer low fares to our guests. I'm proud to say we have identified and put into action measures that we believe will enable us to achieve these savings by the end of 2014, a year ahead of our initial goal, and we will continue to identify and implement new cost-saving initiatives. Some of these measures include fleet optimization and seat reconfiguration initiatives; our transition to a 1:50 flight attendant staffing ratio, allowing us to compete on an equal basis with North American and international carriers; and moving to a multi-base model for our crews, reducing costs and improving operational reliability.
WestJet's network expansion continues, and we now serve 88 destinations in 20 countries in North America, Central America, the Caribbean and Europe. Combined with our airline partners, our network includes more than 140 destinations. In November 2013, we announced we are bringing WestJet's brand of caring service and low fares to Europe with service to our first transatlantic destination – Dublin, Ireland, beginning in June 2014. During 2013, we grew the total number of airline partnerships to 33, as we evolved our interline agreements with Air France and China Southern Airlines into code-sharing agreements. In 2014, our focus will be on maturing our existing relationships and adding a number of new partnerships.
In 2013, we announced two major initiatives as part of our long-term fleet strategy, starting with the sale of 10 of our oldest Boeing 737 Next-Generation (NG) 700 aircraft to Southwest Airlines and our concurrent agreement to purchase a total of 10 new Boeing 737 NG 800 aircraft in 2014 and 2015, effectively reducing the average age of WestJet's fleet by approximately one year. In September 2013, we entered into an agreement to purchase 65 Boeing 737 MAX aircraft, with deliveries scheduled between 2017 and 2027. We anticipate that the 737 MAX aircraft, with its fuel-efficient technology and enhanced amenities, will support our continued growth and low-cost operating model while providing our guests with an exceptional experience.
In February 2014, we announced that we had signed a contract with Panasonic Avionics Corporation to provide us with a new inflight entertainment system, including wireless satellite Internet connectivity, live streaming television, on-demand movies, magazines and more. Our guests will be able to use their own personal electronic devices to access live and stored content. I'm excited about this initiative to enhance our value proposition for business travellers and broaden the entertainment options available to all our guests.
We were extremely honoured to receive a number of awards in 2013 recognizing the tremendous impact WestJetters have on our continued success. In March 2013, we were recognized as Canada's Most Attractive Employer by the national recruitment firm Randstad Canada, and in May 2013, we received recognition as Canada's Most Preferred Airline by Leger Marketing. In June 2013, we received a Stevie Award in the Transportation Company of the Year category for the seventh annual Stevie Awards for Sales and Customer Service. In addition, WestJet Vacations was recognized by U.S. Travel and Brand USA at the Premier Chairman's Circle Honors. In September 2013, we were delighted that the WestJet RBC® World Elite MasterCard± received Canada's best travel rewards card rating for 2013 by MoneySense magazine, and in November 2013 it was ranked number one among travel reward cards in Canada's Top Travel Rewards Credit Card category by Rewards Canada.
In January 2014, we were proud to be named the 2014 Value Airline of the Year as part of Air Transport World magazine's 40th Annual Airline Industry Achievement Awards. This award is a testament to the nearly 10,000 WestJetters who are committed to providing a safe and caring experience every day.
Our successes in 2013 allowed us to continue returning value to our shareholders. In February 2013, we announced our third quarterly dividend increase from $0.08 to $0.10, and in February 2014, we increased this dividend a further 20 per cent to $0.12. As of the end of 2013, we have repurchased and cancelled 71 per cent of the maximum authorized number of shares under our third normal course issuer bid, which we initiated in February 2013. Since our quarterly dividend began in 2010, and including our three normal course issuer bids, we have returned more than $400 million to our shareholders as of the end of 2013.
I'm proud of what we've accomplished so far, and excited about WestJet's future as we grow to meet the changing needs of our guests today and in the future, enriching the lives of everyone in WestJet's world along the way. We had a successful year, and I anticipate many more successes in 2014 and the years ahead, while we stay true to the core values that make us a great airline.
On behalf of the Board of Directors, the Executive team, and nearly 10,000 WestJetters, thank you for your continued support of our airline.
President and Chief Executive Officer
March 19, 2014
Caution regarding forward-looking information
Certain information set forth in the above president’s message to shareholders, including without limitation information respecting our expansion of WestJet Encore across Canada and into the U.S.; our expectations that the incremental revenue opportunities on an annualized basis associated with Fare bundles will be at the high end of the previously estimated $50 million to $80 million range; our business transformation initiative and our belief that we will achieve our goal of reducing our annual costs by $100 million by the end of 2014; the commencement of WestJet’s service to Dublin, Ireland in June 2014; our focus on maturing our existing airline partnership relationships and adding a number of new partnerships in 2014; and the anticipated timing of the 737 MAX deliveries and the associated benefits of this type of aircraft contain certain 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 strategies, our long-term strategic plan, our fleet plan and our current forecast, 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, regulatory approvals and requirements, and other factors described in WestJet’s public reports and filings, which are available on WestJet’s profile at 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.
This president's message to shareholders contains disclosure respecting non-GAAP measures including, without limitation, return on invested capital. Non-GAAP measures are included to enhance the overall understanding of WestJet's financial performance and to provide an alternative method for assessing WestJet's operating results in a manner that is focused on the performance of WestJet's ongoing operations, and to provide a more consistent basis for comparison between reporting periods. These measures are not calculated in accordance with, or an alternative to, GAAP and do not have standardized meanings. Therefore, they may not be comparable to similar measures provided by other entities. Readers are urged to review the section entitled “Reconciliation of non-GAAP and additional GAAP measures” in WestJet's management's discussion and analysis of financial results for the year ended December 31, 2013.
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