Westjet Airlines Var (OTC:WJAVF) 2013 Annual General Meeting Conference Call May 7, 2013 4:00 PM ET
Clive J. Beddoe – Chairman
Gregg Saretsky – President and Chief Executive Officer
Richard Bartrem – Vice-President, Communications and Community Relations
Ladies and gentlemen, good afternoon. Welcome to the WestJet's Annual General Meeting, not the Blue Jays General Meeting. You maybe a little surprised by the videos, but we are a very proud partners of the Toronto Blue Jays, and we film these videos for use on our in-flight entertainment about the aircraft, as well as our social media channels. And don’t never let that anybody tell you, you can’t do this, because the Jays didn’t we would be able to pull this off and they love them so much, they’re actually playing them in stadium before the game for free, so we’re pretty proud of that.
The way this is going to rollout this afternoon, we’ll go right way through the formal proceedings of this afternoon with quite better and our board followed by Gregg Saretsky, our President and CEO, who will take you through a review of 2012 and our outlook, not outlook, but a quick review of our first quarter 2013 results.
So it gives me great pleasure this time to welcome to the stage our Founder and Chairman of the Board, Clive Beddoe.
Clive J. Beddoe
Good afternoon and welcome to WestJet’s 2013 Annual General Meeting with shareholders. As most of you know, I’m Clive Beddoe, Chair of WestJet and now we’re chairing this meeting and I thank you very much indeed for coming today.
I would like to take the opportunity to introduce to you a number of my colleagues who are here today our board members. Mr. Hugh Bolton, perhaps you could stand individually, so everyone could see who you are. Mr. Ron Brenneman; Mr. Antonio Faiola. He is our PACT representative on our Board and he has been a great member of our team. (inaudible), all the way from Australia; Mr. Allan Jackson, all the way from Downtown Calgary; Mr. Barry Jackson also from Calgary, Mr. Wilmot Matthews, all the way from Toronto; Mr. Jack Ménard from Montreal; Mr. Larry Pollock from Edmonton, Janice Rennie from Edmonton also, Gregg Saretsky, who you all know, Mr. Arthur Scace from Toronto.
Our executive team, I would like to also introduce. Vito Culmone, Bob Cummings, Cam Kenyon and Ferio Pugliese and Cheryl Smith. Following the formal part of our meeting, Gregg will making short presentation as you heard on WestJet’s financials and operating performance. After the Gregg’s presentation, there will be some time for some questions and answers. With the consent of the meeting, I ask Barb Munro, our Corporate Secretary to act as secretary of the meeting and (inaudible) Jennifer Villareal of CIBC Mellon Trust to act as scrutinizers. Only registered shareholders or duly appointed proxy holders are entitled to vote on all speech on any matter to be voted upon at the meeting.
I’ve received an affidavit from Larry Calixtro of CIBC Mellon Trust Company, as of June meeting; the notice of meeting, information circular, instruments of proxy and the 2012 annual report, including the audited financial statements of the corporation for the year-ended December 31, 2012 and the auditors report thereon.
I reviewed the scrutinizer’s report and the report shows that there is a column of shareholders present at the meeting. I now declare that the meeting is regularly called and properly constituted in the transaction of business. We will proceed with the ballot on all matters to be considered at the meeting today. All registered shareholders entitled to vote at the meeting should have been provided with ballots when you register with the scrutineers for the meeting, any registered shareholders other than those who have submitted proxies who have not received the ballots, please raise your hands so the scrutiny’s can provide you with ballots. Anybody want to raise your hand? The employees will hold shares in the ESP plan, I remind you that votes have to be submitted by proxy and so we will not receive a ballot. I‘d also like to I guess no are balance so we can move on.
The first item of business is the presentation of the annual report to shareholders which includes the financial statements of the corporation from the year ending December 31, 2012 and the auditors report thereon. A copy of the financial statement has been mailed to each registered shareholder as part of the 2012 annual report. The financial statements are also available on our website. There are extra copies of the annual report available to shareholders at this meeting as well as on our website.
The next item of business is to fix the number of directors of the corporation to be elected at this meeting.
Unidentified Company Representative
I move the number of directors to be elected at this meeting, these expect 13.
Unidentified Company Representative
I set the motion.
Clive J. Beddoe
Brave discussion. Voting on this matter has been conducted by ballot and have been advised by scrutiny that the motion has been passed by the required majority, particularly the vote cast on this matter maybe obtained from the secretary of the meeting. A direct scrutiny report on this resolution beyond extra minutes of this meeting are in the schedule.
Next item of business is the election of directors. You will note that it has been proposed that the 13 individuals named in the corporation’s information circular be elected. Board has adopted a majority voting policy which is described further in the information circular. I will now entertain nominations for Directors for the Corporation.
I nominate Clive J. Beddoe, Hugh Bolton, Ron A. Brenneman, Antonio Faiola, Brett Godfrey, Allan W. Jackson, S. Barry Jackson, Wilmot L. Matthews, L. Jacques Ménard, Larry Pollock, Janice Rennie, Gregg Saretsky, Arthur R.A. Scace as Directors of the Corporation to hold office until the next annual meeting of the corporation until their successors are elected or appointed, subject the revisions of the Business Corporations Act Alberta and the bylaws of the corporation.
Are there any further nominations? Voting on this side has been conducted by ballot and I’ve been advised by the scrutinizers that the results are more than 50% in favor of each Director and accordingly those nominated are duly elected Directors of WestJet to hold office until their successors are duly elected or appointed. Particulars of the votes cast on this matter may be obtained from the secretary of the meeting. I direct the scrutinizers report on this resolution be annexed to the minutes of the meeting as schedule.
Next item of business is the appointment of auditors.
Unidentified Company Representative
I move that the firm of KPMG LLP Chartered Accountants be appointed auditors of the corporation until the next annual general meeting or until successors are appointed and that their remuneration as such be fixed by the Board of Directors.
Unidentified Company Representative
I second the motion.
Unidentified Company Representative
Any discussion? Voting on this matter has been conducted by ballot and has been advised with the scrutinizers that the motion has been passed by the required majority. Particulars of the votes cast on this matter may be obtained from the secretary of the meeting. And I direct this is the scrutinizers’ report on this resolution be annexed to the minutes of this meeting as a schedule. There are no further matter on the agenda for today’s meeting, I would entertain the motion the meeting be terminated. Mr. Chairman, I move this meeting be terminated.
Clive J. Beddoe
All right, second motion. All in favor please raise your hand, anybody opposed. Thank you. I declare the meeting terminated. I would like to introduce Gregg Saretsky, our President and CEO.
Thank you, well good afternoon everybody. Welcome. Great to see a big crowd here today and a special welcome to those who are listening in our webcast. It’s become a bit of a custom here to start out a little bit fun, its part of our culture and so we’re going to make a part of our Annual General Meeting, and so I’d like to invite Richard Bartrem to come up and help me get the fun going.
Those of you who have been here in years prior, you know the drill if you are not a WestJet employee, family member of a WestJet employee, I would add that you please raise (inaudible) really good, I thought it was like two or three. So here is what happens, we are in a cost containment, as use it to be (inaudible), it was last year announce the quarter, and here is what we are going to do, I am going to flip this head or tails, if you think what I am going to flip is a head, put your hands on your head, if you think its going to be tail, put your hands on your tail, if you are wrong sit down and we are going to do this again.
It’s a big one, it is one of this new quarter but it’s a one of this new quarters, but its still a tail, so if you got hands on your head, we’re going to go again you got picks up, but we left with one, two, three, four, picks up heads or tails, your hands in front, okay here we go we got a tail it’s a head, so those heads still stay standing, tails have a seat, we are down to two, is that right just the two folks. They go the same we are here a long time but it is head. I forget that. Well, we’re pleased to doing year-after-year by one cup of coffee at Starbuck, but I ship it to anywhere we fly, which is in other way (inaudible) lives up a bit.
All right we try to make this presentation also fun so that doesn’t necessary conclude the bit of fun. I have to start up with something that’s a little bit less than fun that’s our lawyers always remind me that I will be making forward-looking statements and of course this presentation results could change material from the statements that I making and we will not revise any forward-looking information based on new information except or required by law. Okay, that’s a lot that is non-fun thing. There it is.
So for those of you who have been following our story for 17 years, you know that this was a humble beginning that start us in 1996 where we served with only 3 aircraft and 220 employees, five destinations in Western Canada and (inaudible) look how far we’ve come. This is the route map as it looks today 85 destinations that we serve with our own metal including seasonal services and now services with our airlines partners American and Delta to the United States.
Our guests have access to over a 130 destinations via the Westjet Network and this is what it looks like. So the picture could tell a 1000 words. I am going to be efficient with my time and yours and let this next two minutes video tell the story of 2012, which by all measures was a terrific year for Westjet.
So that was the year that was and I am going to turn now to 2013. We have continued improving our return on invested capital which reached 14.3% at the end of the first quarter. And it marks the third consecutive quarter where we surpassed our 12% sustainable ROIC target. Growth and strong financial performance continued at WestJet. This slide highlights some of the key results from our first quarter of 2013 compare to the year prior. We have the highest ever net earnings in a single quarter for the quarter they just ended $91.1 million of net income up 33% year-over-year, earnings per share up 39% and earnings before tax margin up 13%, which is up 2.3 points. When I compare WestJet’s standing to our North American peers, I’m very proud to say we stand in the third position for the first quarter of 2013, ranking ahead of just above everybody else and our Canadian competitors.
But we’re not standing still and certainly crossed to have taken a new important focus for WestJet. We announced in January that we were embarking on a business transformation initiative to reduce annual cost by $100 million over the next 36 months and to continue to focus on costs to get to a point where WestJet clearly stands competitive with all of our North American counterparts. There are four key areas that we’ve targeted for this transformation. Aircraft utilization and distribution channel efficiency to optimize the way we operate and sell our product.
Productivity of our front-line employees, the non-operational and back office expenses including non-aircraft assets and our guest promises, and our people where we’ll be looking at existing programs and policies to ensure that we are competitive and compensating people fairly. It’s important to note that with this transformation, we will do things with WestJetters not to them. It’s something that we are very proud of and very different than our industry competitors.
This morning, we announced we’re taking steps to modernize our fleet. We’ll be selling 10 of our oldest 737, 700s to a third party. These aircraft when they depart our fleet will be in excessive of 12 years old. And they will be replaced with brand new state-of-the-art 737, 800 aircraft direct from Boeing. This will take place in 2014 and 2015. We will also deliver – we will defer delivery of five 737, 700s for a couple of years from 2014 and 2015 to 2016 and 2017. And thanks to our flexible fleet plan which I’ll show you in a minute, this agreement which includes increasing ASMs without increasing our fleet size will reduce the average age of our fleet by one year, improve our fuel efficiency and decrease our maintenance costs. It is a very important part of our business transformation initiative.
The slide highlights the fleet flexibility that we enjoy. You can see that there are 33 lease returns that come up between now and 2018 meeting at our 737 fleet can be smaller than 102 aircraft or as larger than 135 by 2018. In December, last year we took delivery of our 100 737 next-gen and three more have arrived in the quarter. The balance of the year we have two more coming to finish 2013 with a 105 737s.
We’ve also carried this flexible fleet strategy forward into our Q400 orders that will make up the backbone of WestJet Encore’s fleet. You can see that we have 20 firm deliveries commencing in June 2013 and we’ll be taking roughly one aircraft for a month between August and December. Some of our very first Encore employees are here with us today including a brand new class of pilot that started this week. Please raise your hands, so we can show you a warm WestJet welcome.
So in conjunction with our 737s, this allows our fleet to have a flexibility in size between a 122 and 180 aircraft by 2018. We are building on our capabilities, it starts with our partnership of airline partners. These airline partners have allowed us to profitably build relationships that are driving incremental business into our marketplace. Almost everyday there are more than 3,000 guests they are boarding WestJet aircraft coming from the distant geography represented by all of these flight carriers. We are providing access to Canada that was previously unavailable to them and WestJet guests are now able to connect from our network to fly to the far corners of the earth with these partners. With the signing of Air France into a Codeshare relationship this quarter, we now have nine Codeshare agreement and 23 interline partnership bringing our total relationships to 32.
Our business traveler focus includes developing products and promises that will be a value to the business traveler and providing them more access to the more of the globe. It’s a very important part. First quarter revenues from our traveled partners, airline travel partners was up 139% year-over-year.
We’re also excited about the value proposition; we are bringing to our guests with our fair bundles program, which allows guest to choose the combination of products and amenities that does shoot their needs.
Our Econo bundle is primary targeted at cost-conscious leisure guests and as relatively no fuels option with the opportunity to buy as required the things that are guess value most.
Flex bundles most closely represents the previous single fare offering that we had in the market with few amenities around flexibility and extras option that are also available to purchase fee. And our brand new Plus bundle provides great flexibility for a guests in terms of access to the extra legroom we now have across our entire fleet, three changes and cancels early and late shows and some new onboard amenities coming in July.
The picture of the what that extra legroom looks, these aircraft have been configured with 24 seats that provide extended legging for our guests, they allow them some comfortable extra room to stretch out and to get work done, well in flight. And in July we will have adding things like priority security clearance, priority boarding, priority access to overhead bin space and complimentary food and alcoholic beverages all included in the price of the Plus bundle.
WesternJet encore what I can say, we have 48 days away from that airlines first flight, there is a lot of excitement building in WestJet in eoncore and in many communities that will soon benefit from great low to access to affairs, you saw on the previous slide that we have a lot of flexibility with 20 firm and 25 options Q4 100 aircraft that will start to arrive this year.
We believe that we can repeat the success that we had with WestJet have had with WestJet this time in the original space providing Canadians in many cases with the first time access to low fares and the remarkable guest experience for which WestJet has become so famous.
So what’s the size of the opportunity if you look at these three borders you can see the domestic market is roughly a $6 billion market and WestJet enjoys about a 45% share of the Jet narrow body market segment.
The size of that segment is $3.8 billion the narrow body transponder market in the bar chart over is also about $3.8 billion and those two segments are currently served with our 737 fleet. We estimate that the transborder and domestic regional market for 50 plus seats short haul aircraft to be approximately $2 billion that’s the segment that WestJet Encore is targeting and we will exploit it.
This is where we’re starting 30 flight departures per day serving nine stations effective June 24 the map with all the dots shows the possibility potential for WestJet Encore and by the time the network is completely build out we will have service from Vancouver Island to Newfoundland. It will be completely national net worth of Q4 100 serving coast to coast Canadians in small communities.
We might be asking what will the company look like a maturity well WestJet Encore will serve three missions. One it will provide service to brand new destinations, cities that are too small to serve with out 120 to 170 seats 737.
Secondly it will join the dots it will provide service between communities that today have Jet service but not between themselves in example that might be Virginia to Winnipeg where our guests operate to Virginia and they operate to Winnipeg but not between the two cities and lastly it will provide for schedule improvements were at off-peak hours or at slow times of the week or the year and 737s might be substituted with Q400 to provide more frequency during the day.
Guest experience will be exactly the same as it was for WestJet when we launched in 1996. We will leverage our low-cost at WestJet Encore and our renowned corporate culture for an engaging guest experience to provide a world-class guest experience to guests in these markets. As I said, there is a lot of excitement taking place, let's take a look now that coming together of our very first Q400 aircraft being assembled in Downsview, Ontario
Just one of the best slide, I didn’t want to advance here. Our capital structure is strong it gives us competitive advantage. The strong balance sheet is paramount and allows us to take advantage of opportunities as they arise. Including flexibility on the financing of all of these new aircraft and weathering the storms of cyclicality and increased competition.
Our leverage when compared to other airlines is very favorable. And as you see on this chart it continues to improve. From cash perspective, we ended the first quarter of 2013 with nearly $1.4 billion of cash, which represents 39% of our trailing 12 months revenue. We stated our target is to be in the neighborhood of 30% to 35%, but with all the aircraft coming you can see we have lots of way to spend that cash.
The return cash to shareholders we initiated quarterly dividend and our first normal course issuer bid to buyback stock of 5% in 2010. We completed the first NCIB in August of 2011 and the second one in November of 2012. Coinciding with our Q4 earnings released in early February of this year, we announced the new NCIB as well as third increased our quarterly dividend, which has grown to $0.10 from $0.05 in just over two years.
And through the NCIB, we’ve repurchased approximately 11% of our issued and outstanding shares since that time. Total value return to shareholders for these two programs is $308 million as of the end of the first quarter of 2013. By addition to running an airline and being good for shareholders and our employees, WestJet is tremendously proud of the ways we’ve chosen to get back to the communities in a very socially responsible way.
Our corporate social responsibility strategy has broaden to include and increased commitment to accountability on several fronts including people, corporate governance, our economic responsibility to our shareholders in addition to our environmental responsibility. In December 2012, we were the first airline to report on our social responsibility is in the general reporting initiative otherwise known as the GRI. We believe we can operate responsibly in airline well addressing all of our stakeholders interests.
We’ve donated in excess of 40,000 volunteer hours offered by 875 WestJet in 2012. We’ve supported communities through 1,100 guests of flight that they had used for fund raising efforts and in 2012, 100 WestJet build 10 homes for needy, families in the Dominican Republic. Let’s take a look at my last video of some good work that WestJet are doing with organizations like Big Brothers Big Sisters.
I want to wrap up by reiterating that we are very much a profitable growth company supported by a strong balance sheet and a highly engaged group of WestJetters. We're very confident in our business model and its ability to deliver industry-leading margins, our growth will come from multiple sources again as we expand our fleet and our network, increase the services we offer our guests and penetrate the business travel market while targeting the successful launch of WestJet Encore. Our model has been stress tested and we are ready to move forward. We’re going to fund the additional aircraft that are beginning to arise and we believe that the cash flows that we will generate will support our growth. At the same time, we’re going to be very disciplined about distributing excess cash to shareholders. We are confident that we will continue our profitable growth story. Thank you for your support and for flying with us.
So this is the interactive part, where you get to ask questions. And we have mike runners, so if you have question, please raise your hand, so that folks on the webcast can hear your question.
Unidentified Company Representative
First question right here.
Clive J. Beddoe
The question that was asked is WestJet is seemingly behind the curve when it comes to hiring bilingual flight attendants to be able to provide service in our second national official language, and this gentleman asks why we have to listen to announcements from a prior quarter boxes suppose to having French qualified fly attendants on board.
I will tell you that we have spent the better part of the year and half hiring exclusively French-speaking bilingual flight attendants. Much this grant of many unilinguals across the countries would have been refused the opportunity to join WestJet as we shore up the number of French-speaking flight attendants I think in the 12 months we’ve hired an excess of 250 French speakers and our goal is to provide one French-speaking flight attendant and minimum of one French-speaking flight attendant on every flight to and from the province of Quebec and capital city of Ottawa and Toronto.
We're very close to be able to meet that goal, but of course we're going to acquire some of additional French speakers across other touch points in the organization. So we've also been busy hiring in the call centre in our guest relations department. And I do believe that we’ll get to the point where we will be able to better serve those who wish to be served in the kind of the second official language.
How are you handling regional contracts versus regular WestJet contracts, because they will handle different for the low cost option, because you know your competitors gets in trouble with that all the time.
Clive J. Beddoe
While we’ve been very mindful of the need to do things very differently as we’ve brought WestJet Encore to life because certainly wanted to go down the track that has proven so unsuccessful for many North American airlines at least which is our Canadian competitor.
They are two separate airlines. They are going to be on separate operating certificates and we didn’t want to mess the beautiful simplicity of the – exclusivity 737 operation that we have at WestJet. And at the same time replicate the success of a single fleet of Q400s in WestJet Encore, so separate certificates. They will be in stations that are exclusively serve that WestJet Encore. The employees of those stations will be WestJet Encore employees. And we will pay them at market median rates of pay, commence with competitor set of regional airlines, again some will compete across the country.
So it’s a very different competitor set the jet spaces it is in the turboprops space. I will tell you that, while we are targeting to have a very productive and low costs operation. It has not and we hampered our hiring ability. We’ve had more than 3,000 fighter applicants, more than 600 pilot applicants looking in terms of aircraft maintenance engineers.
Surprising to say, we’re completely staffed up in over the over functions with great choice. We’ve higher some of the best WestJeters at Encore. We’re continue to live and breath the same culture we enjoy WestJet. We think of it has two companies, but culture. All the goodness that we build at WestJet is going to be replicated WestJect Encore. And all of those things that in the past have cause divisions between the regional (inaudible) we’re working hard to eliminate.
Time from me, so I’ll do the second, this one in English which is a bit easier for me. Yeah, my name is [Andrew Pollock] I’m from Calgary, Alberta, and I own 100 shares of WestJet’s stock, and I wish I own more. But as a low income person I just own small positions in an individual company. My question is about your Board of Directors which, it really impresses me, I mean just as a lay person looking at the quality people you put on your Board of Directors.
What do you do to incentivize them, because I suppose they’re all very self motivated, they are a capable people. But at the same time our senior executives you get incentive pay of various sorts when you perform really well. You get bonuses and things of that short, but Directors don’t. So how do you motivate this admittedly outstanding Board of Directors to perform at their very best? Thank you very much.
Good. Hey, the answer on their behalf, but I’d like to say that, I will say first and foremost that, we are very privileged to have such an engaged Board of Directors. The way they show up at all of our Board Meetings, the council that they provide, the leadership and the support they give to our executive management team is unquestionably among the best I’ve ever seen. Many of them they’ve been here for a long time, suppose they have a choice if they wanted to step down they could and they’ve chosen not to, and we really benefited from both their experience and their tenure on our Board. Any of you want to take a crack at why you serve? They tend to themselves with very much WestJetters as we do.
Well, I think it’s important to note Gregg that we are all shareholders of the corporation, so we’re motivated and every that the same way as all of you are being shareholders of the corporation. And the other motivation to be honest is to be able to work with such a fine organization. In a company that has been so successful with the business model that’s allowed it to really stand out from other companies in this business and they’re quite a different, just fun to be here, like I’m sure you feel much the same way as employees, those of you that are here.
Clive J. Beddoe
Thanks, Ron. I guess who is the gentleman who asked that question? Andrew. I have to tell you that this group people has donated enormous of their time, because as Ron said, because of the level of this company and it’s just incredible to watch the passion and determination they might as well own the company 100%, the way they behave. They are now shrinking by this, they speak them on pretty intently, and as I own too.
So there’s no doubt about the commitment of the Board and if anything it is hard to constraints, sometimes we have, I have to keep the meetings abbreviated, because there’s lots to talk about. So they’ll never doubt at the commitment and the integrity of our Board. They’re being actually enormous huge contributors. In fact, I think it probably will be at appropriate time as you might all give them a round of applause, because they don’t get much.
I would like to take this opportunity though to introduce one gentleman, hope you don’t mind please. I’m very first external shareholder, longstanding board member who contribute enormously to WestJet’s success, its reputation and procedure, and because of his reputation we were able attract a lot of capital into WestJet when we first started into one (inaudible) standup and acknowledge.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: firstname.lastname@example.org. Thank you!