WestJet Airlines' (WJAVF) CEO Gregg Saretsky on Q4 2015 Results - Earnings Call Transcript

| About: WestJet Airlines (WJAVF)

WestJet Airlines Limited (OTC:WJAVF) Q4 2015 Earnings Conference Call February 2, 2016 10:00 AM ET

Executives

Hugh Harley - Director Investor Relations

Gregg Saretsky - President and Chief Executive Officer

Harry Taylor - Executive Vice President Finance and Chief Financial Officer

Bob Cummings - Executive Vice President of Sales, Marketing and Guest Experience

Ferio Pugliese - Executive Vice President of WestJet and President of WestJet Encore

Analysts

Fadi Chamoun - BMO Capital Markets

Walter Spracklin - RBC Capital Markets

Andrew Didora - Bank of America Merrill Lynch

Turan Quettawala - Scotia Capital

Cameron Doerksen - National Bank

Kevin Chiang - CIBC

Ben Cherniavsky - Raymond James

Tim James - TD Newcrest

Chris Murray - AltaCorp Capital

David Tyerman - Canaccord Genuity

Vanessa Lu - Toronto Star

Operator

Good morning, ladies and gentlemen, thank you for standing by and welcome to WestJet's 2015 Fourth Quarter Conference Call and Webcast. As a reminder all participants are in listen-only mode to prevent any background noise. After the speakers’ remarks there will be an opportunity to ask questions. [Operator Instructions]

As a reminder this conference call is being broadcast live on the Internet and is being recorded. Your conference speakers today are Mr. Gregg Saretsky, President and Chief Executive Officer; Mr. Harry Taylor, Executive Vice President Finance and Chief Financial Officer; Mr. Bob Cummings, Executive Vice President Commercial and Mr. Ferio Pugliese, Executive Vice President of WestJet and President of WestJet Encore.

I will now turn the conference over to Mr. Hugh Harley, Director of Investor Relations. Please go ahead.

Hugh Harley

Thank you, Joe and good morning everyone. Welcome to WestJet's 2015 fourth quarter and year-end financial results conference call. I'd like to provide you with an outline of today's call. Gregg and Harry will provide some opening remarks, which will be approximately 15 minutes. Following this we'll take questions from the analysts and then we will conclude the call with questions from the media. When we are at the Q&A portion of the call I would like to request that you limit yourself to two questions. That should allow us to get to as many questioners as possible.

Before turning the call over to Gregg, I would like read remind the customary cautionary language. We caution you that today's conference call will contain forward-looking statements about WestJet's future financial and operating performance including statements with respects to our outlook for the 2016 first quarter and full year. This information is based on certain assumptions and reflects WestJet's expectations as of today's date and importantly are subject to change after such date.

Forward-looking information is subject to a number of risks and uncertainties that could cause actual results or events to differ materially from our expectations. These risks and uncertainties are discussed in documents WestJet files from time to time to security regulatory authorities. Acceptance maybe required by Canadian Securities law, we do not undertake any obligation to update any forward-looking statement whether as a result of new information, future events or otherwise.

Furthermore certain non-GAAP measures and additional GAAP measures may be discussed or referred to on today's conference call. Please refer to the section entitled reconciliation of non-GAAP and additional GAAP measures in WestJet’s, MD&A of financial results for the year ended December 31, 2015 for further information.

Now I'll pass the call over to Gregg.

Gregg Saretsky

Thank you and good morning everybody. Thank you for joining us. We had a record year in 2015, with all time high net earnings of $367.5 million or $2.92 for fully diluted share, up 16% and 19% year-over-year respectively.

We delivered a return on invested capital of 15.3% within our target range of 13% to 16% and well above our cost of capital. We benefited from 29% lower economic jet fuel prices and grew our top-line by 1.3%, which allowed us to expand operating margins by 2.1 percentage points to 14.1%.

I want to take a moment to thank all WestJeters for their hard work that contributed to another record year in 2015. For their efforts we accrued almost $101 million in profit sharing for the full year, an all-time high and I’m pleased that they were been justly rewarded.

Turning to 2016, we continue to feel the impact of macroeconomic weakness in Alberta and the Prairie provinces and the weakening of the Canadian dollar to US dollar exchange rate on our business. It’s not clear it’s on the bottom yet of the current downturn at this point.

In the first quarter of 2016, we anticipate year-over-year declines in RASM of 10% to 12% versus the very strong first quarter of 2015. Furthermore, we expect first quarter 2016 will be the low point for RASM and expect sequential improvement through the year.

Much of this softness is driven by Alberta markets which are contributing approximately 700 to 900 basis points of that decline, since roughly 25% of our system capacity originates from Alberta and over 40% of our system capacity touches this province. Nevertheless, we expect our first quarter EBT margin to be roughly in line with our five year average excluding the 2015 high wire market.

To respond to the softening in Alberta and the Prairie provinces, we made adjustments to our schedule effective mid-February. As part of these adjustments, our summer schedule includes capacity reductions year-over-year of approximately 5% specifically in Alberta markets.

The net effect of these adjustments is a drop in system capacity of approximately 1% from our prior plans. And on an adjusted annualized basis we now expect system wide capacity to grow between 7% and 10% for the full year.

It’s important to reiterate that of the 7% to 10% system capacity growth approximately 6 percentage points will be from our new 767 service to Hawaii and London Gatwick. Advanced ticket sales in our wide-body UK services are very strong, assisted by the strong Pound Sterling which makes Canada abundant for travelers.

Early bookings reflect strong point of sale UK results, with sales running well ahead of expectations. London is no doubt the Crown Jewel [ph] of international travel from Canada and we expect our 767 services to be immediately accretive to earnings this year.

Although we have poor visibility to the second half of 2016, we’re keeping capacity plans fluid and expect a gradual improvement through the year due to actions being taken to mitigate the short-term effects of that mammoth weakness. Specifically, as I noted, we’re adjusting our schedules and redeploying capacity from softer Alberta markets to markets of greater strength effective mid-February.

As we previously indicated we expect to return to Lessors, the three leased aircraft up for renewal in 2016. We are renewing our cost savings initiative program and should have more details to share with you on the next quarterly conference call.

We’re exploring options to potentially differ Boeing aircraft deliveries scheduled in the fourth quarter of 2016 and finally we’re also exploring return options for the six leased aircraft up for renewal in 2017.

Notwithstanding the economic weakness in Alberta and the Prairie provinces, the fundamentals of our business are strong and the strategic initiatives we’ve been undertaking to continue to evolve our business would help us weather the storm.

These include the continued expansion of WestJet Encore, the introduction of wide-body aircraft to our fleet, the further evolution of our fare bundles product and ancillary revenues, our new flight entertainment and connectivity system and the continuing development of our code-share in airline partnerships.

WestJet Encore continued its successful expansion in 2015. During the year we announced Boston, Massachusetts as of our first transborder destination, with service beginning in March and recently we added Nashville, Tennessee to Encore’s network, this service beginning in June.

WestJet Encore now operates a total of 25 Bombardier Q400 aircraft with 164 daily departures serving 31 destinations in North America, it’s quite a little success story. Our fare bundle product continued to evolve in 2015.

In September, we launched enhancements to our Plus products including two-by-two seating for more space and privacy and upgraded amenities and meal options on longer flights. These new features are an addition to priority boarding and security screening as well as flight change flexibility that operate as part of WestJet’s Plus product.

While these added features provide exceptional value to our guests, we also expect the enhancements to support ancillary revenues on a go-forward basis. Market response to enhance Plus has been very strong and those factors in Plus are seating our system booked factors [ph] on long flights.

In July we launched WestJet Connect, our new inflight entertainment system. We’ve installed and activated WestJet Connect on 34 of our Boeing 737s and two of our Boeing 767s and expect installations to be completed on a majority of our Boeing 737 and 767 fleet by the end of the year.

Over the course of 2015, we continued to develop of our airline partnerships, evolving our interline agreements with Philippine Airlines and Aeromexico [ph] into code share agreements. We continue to see strong partnership revenue growth and our virtual network now provides our guests with access to over 150 destinations worldwide.

As we move forward in 2016, we’re focused on a number of new initiatives which we expect to bring value to guests and shareholders alike. I just want to enumerate these now. We’re looking at launching an expanded Plus section across our fleet, continuing to reconfigure our fleet with a higher percentage of larger Boeing-737-800 and Max 8 aircraft, including the addition of four extra seats on those variants.

Enhancing our alliance partnerships that fully include receptacle earn or burn opportunities and enhancing our WestJet RBC MasterCard benefits to drive even stronger membership numbers, all well further lowering our cost structure and making our fair advantages better known to guests and corporate accounts.

In addition to these strategic initiatives, there are other upward forces acting to support us through this downturn. Both our charter and cargo businesses are growing and strongly with year-over-year revenue increases of approximately 37% and 21% respectively for the full-year 2015.

We continue to see strong growth in our reward program and the number of guests who hold our WestJet RBC MasterCard. Active reward members are up 32% this year, far outstripping our guest growth of 3.2%.

More impressive perhaps our Gold members, plus elite top-tier members have grown approximately 27% and our credit card members increased approximately 48%. These are extremely impressive numbers, especially in a maturing market.

Finally, we are entering fewer new markets this year. And the new markets we entered in 2050 are starting to mature. So, the portion of our network that's underdevelopment will be reduced year-over-year.

I want to thank our more than 11,000 WestJeters were continuing to provide our guests with our brand of caring, friendly service and we work through what is shaping up to be a most challenging economic environment in 2016.

And with that, I’d like to turn the call over to Harry, who will discuss our financial results in more detail including the remaining outlook items. Harry?

Harry Taylor

Thank you, Gregg. Good morning, everyone, and thanks for joining us today. As Gregg mentioned, notwithstanding the recent impact of macroeconomic weakness, 2015 was a record year for WestJet.

We reported record full-year net earnings of $367.5 million in 2015, or $2.92 per fully diluted share. These full-year results represent our 11th consecutive year of annual profitability and the 19th time we reported an annual profit in our 20 years of reporting.

For the fourth quarter, we reported net earnings of $63.4 million or $0.51 per fully diluted share, representing our third best fourth quarter ever and very nearly matching our second best fourth quarter ever, which we reported in 2013.

For the fourth quarter, traffic increased by 0.6%, while increased system capacity by 2.3%, resulting in an overall load factor of 78.4%, a year-over-year decrease of 1.3 percentage points.

This decrease in load factor coupled with a 4.2% decrease in yield during the quarter, resulted in a 5.8% decline in RASM and a 3.6% decline in total revenue for the fourth quarter.

100% of the RASM decline was attributable to the weak performance in Alberta and the Prairie provinces. Although fourth-quarter revenue was down year-over-year, we reported record revenue for the year exceeding $4 billion in annual revenue for the first time in WestJet’s history.

We are pleased with the continued year-over-year increases in our ancillary revenues. In the fourth quarter, ancillary revenue increased by just over 19% year-over-year to $79.8 million and by 18% year-over-year to $16.39 on a per guest basis.

These increases were driven primarily by our checked bag fees, higher fees associated with the enhanced Plus product that we introduced in mid-September 2015 and the continued penetration of our WestJet RBC MasterCard program.

In terms of cost, our total CASM for the fourth quarter was 3.2% lower year-over-year, due mainly to a decrease in aircraft fuel expense, partially offset by an impact of the devalued Canadian dollar and an increase in depreciation and amortization expense.

CASM excluding fuel and employee profit share for the fourth quarter, increased by 9%, primarily as the result of increased depreciation and amortization expense versus the fourth quarter of 2014, when 10 of our Boeing-737 aircraft were classified as assets held for sale and not subject to depreciation, as well as the weakening of the Canadian dollar to US dollar exchange rate.

Foreign exchange weakness accounted for approximately 2.7 percentage points of the increase in CASM, excluding fuel and employee profit share for the fourth quarter. And I would note that our fourth-quarter results include a pre-tax loss on foreign exchange by $10.1 million in our non-operating expenses.

In the fourth quarter of 2015, fuel costs per liter decreased by almost 30% year-over-year to $0.57. Fuel remains a significant portion of our cost at about 22% of total operating expenses for the fourth quarter.

Average jet fuel prices were US$57 per barrel in the fourth quarter versus US$101 per barrel in 2014, a decrease of almost - this year-over-year decrease was partially offset by the effect of the weaker Canadian dollar versus the US dollar. As fourth-quarter 2015 average jet fuel prices in Canadian dollars were $76 per barrel, down a little over 33% from the $114 per barrel in 2014.

In terms of our full-year 2015 results, our revenue of over $4 billion was up 1.3% year-over-year, while RASM was down 3.6% year-over-year, driven by a 1.9% decrease in yield and a 1.4% percentage point decrease in load factor.

Our full-year 2015 total CASM was down 6% year-over-year, driven largely by the decrease in fuel prices, as our CASM excluding fuel and employee profit share was up 3.4% year-over-year to $9.46.

We continue to make use of our strong investment grade balance sheet in 2015. During the year, the invested in 12 new Boeing-737NG-800s and nine new Bombardier Q400s, while disposing five of our oldest Boeing-737NG-700 aircrafts, resulting a net aircraft additions of approximately $758 million. We continue to grow the number of unencumbered aircraft in our fleet, ending the year with 28, up from nine at the end of 2014.

I would like to cover our cost and capital expenditure outlook items and make a comment on reclassifications we’ve made in our financial statements before handing the call back over to Gregg.

We expect CASM excluding fuel and employee profit share to be up 7.5% to 8% year-over-year in the first quarter of 2016, primarily as the result of higher depreciation and amortization expense and the continued weakening of the Canadian dollar to US dollar exchange rate, which we expect to moderate in the back half of the year.

For the full-year 2016, we now expect CASM excluding fuel and employee profit share to be flat to up 2% year-over-year. This compares with our previous full-year 2016 guidance of down 0.5% to up 1.5% year-over-year, with a difference primarily driven by the continued weakening of the Canadian dollar to US dollar exchange rate.

Notwithstanding, our flat to up to 2% CASM excluding fuel and employee profit share guidance, we are taking a rigorous look at all aspects of our business with a view to increasing efficiencies and reducing costs as part of our renewed cost savings initiatives programs, which Gregg has already mentioned.

We anticipate first-quarter fuel cost per liter to be between $0.47 and $0.49 representing a year-over-year decrease of 25% to 28% based on current forecasted jet fuel prices of US$40 per barrel and average foreign exchange rate of approximately CAD$1.41 to US$1.

In terms of capital expenditures, we continue to forecast approximately $830 million to $850 million for the full-year 2016. For the first quarter of 2016, we are forecasting our capital expenditures to be between $240 million and $250 million.

The first quarter and full-year 2016 expected CASM excluding fuel and employee profit share and capital expenditures are based on an average forecast foreign-exchange rate of approximately CAD$1.41 to US$1.

Finally, you will note in the financial statements we released this morning that we’ve transitioned from a functional-based presentation of operating expenses to a nature-based presentation of operating expenses.

This was done to align more closely with the industry reporting practices and enhance comparability with the industry peers. There have been no changes to the presentation of aircraft fuel, depreciation and amortization, aircraft leasing, or employee profit share expense line items.

Salaries and benefits have been disclosed as a separate line item and the remaining operating expenses have been classified as rates and fees, sales and marketing, maintenance, or other expenses. Total operating expenses remain unchanged.

You will find tables showing our last eight quarters under the new nature-based presentation, as well as a description of the nature of expenses reclassified under the heading Nature-Based Reporting in our MD&A released this morning.

In closing, I also want to thank all of our WestJetters for their efforts in delivering a record year in 2015 and for their continued efforts to keep our low-cost culture strong.

With that, I'll hand it back over to Gregg.

Gregg Saretsky

Thanks, Harry. Before turning the call back to the operator for our Q&A, I’d like to say that we are looking at tough comparable periods this year and we expect our margins to be squeezed in the short-term. Having said that, WestJet has a proven track record of profitability, we’ve built the right management team to guide our airline through this period of economic weakness and we are confident in delivering on our long-term plan.

We're focused on responsible capacity management for our shareholders and our ROIC target of 13% to 16%, while maintaining the only investment grade credit in the Canadian airline industry. Today, we announced that the TSX has approved an amendment to our existing normal course issuer bid to increase the maximum number of shares we are allowed to repurchased under our current bid from 4 million and 6 million shares, demonstrating our continued confidence in WestJet’s proven business model and the financial strength of our airline.

And with that, Joe, we are ready for the Q&A.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now begin the analyst question-and-answer session. [Operator Instructions] First question today is from Fadi Chamoun with BMO Capital Markets. Please go ahead.

Fadi Chamoun

Okay, good morning. Gregg, you’ve talked about sort of cascading capacity in the sort of stronger market. I'm wondering whether you are taking risk here of cascading the weakness as well, given how bad the macro is out there. And I'm wondering given sort of this macro picture, why not take a much deeper cut to capacity here to stabilize fares in the outlook?

Gregg Saretsky

Yeah, maybe, Fadi, that to describe what's happened with our capacities, think of it as different lines of business. So, in our first line of business, we have 767 operations. We have four 767s coming in, 33 are three are already here in flying and that will generate 6% ASM growth. So, if we did nothing else, we’ve got this wide-body capacity at six points of growth. And we’ve deployed that into a market of great strength. We're seeing great forward bookings. We’re benefiting from the very strong Pound Sterling. I think Canadian tourism is going to benefit greatly this summer and we are very increased by what we are seeing there. So, I would classify that as almost no risk.

Then on the second line of business, we have our Q400 operation, which - the big increase that we're seeing in Q1 as a function of the year-over-year overlap. So, all the deliveries that we’ve taken in 2015 are generating incremental ASMs until we lap that in the middle of the year. And so, the growth from a Q400 fleet appears large. But it's a function of the annualization of capacity added in 2015.

The last piece is our 737 fleet. And so when I think about the guidance we’ve given, the growth of 7% to 10%, the six points of that comes from 767, then you can deduce that the rest of our systems only growing at 1% to 4% and while we're seeing macroeconomic weakness in Alberta across the Prairies, we're seeing pockets of strength in British Columbia and Central Canada and that's where our capacity has been redeployed too. So, all in all, I don't think capacity is expanding past the GDP growth with the exception of the international 767 operation that I've already characterized.

Fadi Chamoun

Okay. Maybe just one follow-up, were you sort of surprised by sort of the drop-off and sort of yield and RASM that you experience in Alberta. I’m just wondering it feels like it got towards quicker than you are expecting and I'm wondering whether your ability to foresee that in other markets is also as good as it used to be or I'm just wondering why this sort of got weaker so quickly?

Gregg Saretsky

Yeah, let me jump in and I'm going to ask Bob to give us more color. So, on the macroeconomic front in Alberta, I think what we're seeing is the delayed effect. The economy has been slowly declining, but continuing to decline. The people have got laid off in the late 2014 and early 2015, received severance payments, and believe that perhaps this should be a short dip that we experienced in 2008-2009 and I suspect many - also that bonuses in the early part of 2015 based on 2014 earnings which were still robust in Alberta and that really kept things flow through most of the year. We didn't really start to experience much softness in our bookings and in yields until late Q4 and it was sudden and it's gotten very deep. And so, as a result, we’ve very quickly moved to redeploy capacity here in January, for effect the middle of February and there is a lag as you know, we can't move capacity overnight, well, you can, but it takes a while. You get bookings on that new capacity when you move it and so we have been cautious there too, but maybe, Bob, you can give some more color.

Bob Cummings

Yeah, the bookings last year were obviously strong through April and then we saw some [Indiscernible] and a bit of softness, but nothing significant and then as we moved into the fall, we talked of corporations [ph] and the sighting got more bearish in general that started to get reflected in I’ll say, the November timeframe in terms of bookings, perhaps a little bit earlier. And if you look at the corporate] in Alberta and how they budgeted for 2016, the look for 2016, we're now seeing the impact of that.

Gregg Saretsky

And Fadi, you can be critical of our not moving fast enough, but we're also following guidance from Bank of Canada, which has revised the economic forecast for all of Canada three times in the last six months from 2.2% down to 2%, down to 1.7% and I suspect before we close the books on this year, it will be well below 1.7% as well.

Fadi Chamoun

Okay. I'm just wondering if we're going to sort of see - because of the weakness in the Canadian dollar sort of a delayed impact on some of the transborder fares and some of the markets that look good right now or look like they’re holding up okay, but ultimately there could be delayed reaction like you saw in the Alberta market.

Gregg Saretsky

Yeah, we didn't see that in 2008, when the Canadian dollar also plummeted, transborder traffic remained rather robust, in fact, if you look at our history, we have a massive capacity expansion in ‘08 and ‘09 on transborder and did quite well by it. And everything that’s changing is, the weak Canadian dollar makes Canada bargain. So, we’re seeing point of sale swings to US point of sale and that should be good for Canadian tourism business in general and WestJet will benefit from that.

Fadi Chamoun

I appreciate that. Thank you.

Operator

The next question is from Walter Spracklin with RBC Capital Markets. Please go ahead.

Walter Spracklin

Thank you. Thank you very much. Good morning, everyone. So, I guess I want to follow up on the RASM guidance that you provided for the first quarter. Obviously, as you mentioned, it's going to be up against the tough compatible, but down quite significantly. Based on picking whatever growth number you want to pick on the capacity guidance you’ve given, it translates into a fairly significant yield, implied negative yield of around 7% plus or minus, that kind of number is going to catch some attention as it is interpreted by on fares. But obviously you’ve got a lot of things going on with regards to your capacity and where you’re moving roots around, so we know stage lengths is bumping around a little bit there, how much comfort can you give us that the 7% decline in yield is not driven by a significant decline in same-store fares?

Gregg Saretsky

Sure. Entirely I understand your question. But let me crack at it. First of all, I want to paraphrase by saying, we’re not managing WestJet for our Q1 results. We have a fantastic track record over 20 years, but we want to work to uphold and we're going to generate great profitability in 2016 notwithstanding the softness that is impacting 40% of the ASMs that we are flying. So we have already guided that, we expect load factors to be up every single month in Q1. We had a good January we are seeing robust demand in February and March. But we have also guided on previous calls that we are seeing yield softness because we are having to discount to generate that kind of demand. So your math is good, we do expect yields to be on the order [indiscernible] that you’re describing. It is driven as Harry said in a comment, a 100% in Q4 was the Alberta effect and as I said 700 to 900 basis points of our minus 10 to 12 is also Alberta. So the rest is performing reasonably well and that should give everybody confidence that what we have is bit of a unique problem where we have a lot of our ASMs currently deployed.

Walter Spracklin

So when you say 100% is Alberta, it means all of your fare cuts are coming in Alberta. Is that what you mean?

Bob Cummings

I can provide a bit more color, its Bob. We are still - if you still look at our schedule, we’re still 12% up in Alberta year-over-year and when we talked about the softness we are price discounting to fill seats into and out of Alberta. When you do the math and do it run those through in and in that aspect you get that the basis point number that Gregg is talking about. Outside of that, there is some certain pockets that have high capacity year-over-year where there is some discounting or you would see some fare degradation. Atlantic Canada, there is a bit of an impact in terms of re-force [ph] movement and the amount of capacity there but if you look at BC and Ontario, BC is looking at close to 3% GDP. This year Ontario over 2% you look at where we are moving capacity, we look at the health of the bookings out of those regions and we are managing accordingly.

Walter Spracklin

Okay, I guess my second question is thing kind of strategic here is on your guidance with regards to earnings before taxes for first quarter is equal to your five-year average excluding the high watermark of 2015. Of course 2015 being driven by as well the lower fuel prices and I’m just curious, you’re getting a great opportunity with lower fuel prices and you’re kind of guiding us that we’re not going to see any benefit from that, that we should be excluded when we look at our EBT margin, the 2015 number which benefited and we are only going to do margin in line what we have done in the first quarter in the past. My question therefore is, when you look at your wide-body strategy, how deep are you into this now? You’ve indicated that you are kind of on the experiment stage but it just seems to be a lot of capacity coming in when your shareholders and investors are quite frankly wanting you to focus really on yield management and capacity discipline. So I’m just going to put it back to you as to the wide-body strategy and the timing that it is coming at giving the weakness in the economy and given the opportunity you have with fuel prices and just whether - how firm you are on rolling out that wide-body strategy.

Gregg Saretsky

So I think Walter the wide-body strategy that you - the question you are raising is a bit of reassurance. To put it into perspective it is three aircraft that operate with the fourth spare on a fleet of 140 some odd aircraft, it is around a year. But that notwithstanding, we are flying it in a strong market at a time when probably you couldn’t take a better time to be entering. We are flying 767s, which have low capital cost, we are flying at a time when fuel is at 13 year low and so these aircrafts which are not as a fuel-efficient as 787s, we have bought the whole fleet for well less than one 787 and we are not particularly concerned about how much less fuel - as the economy we are not getting on that fleet because fuel is cheap. So, I would hypothesize that this is actually very best time for us to be doing this and it’s generating slow traffic across the rest of the network, so supporting other domestic markets.

Walter Spracklin

So your margins going from 18 to 11 then, how would you explain it in the first quarter?

Gregg Saretsky

Alberta.

Bob Cummings

I will provide a little bit of color. I mean the quarter-over-quarter margins versus the long-term and the ROIC and the EPS utilizing [ph] all your assets and the absolute numbers we are looking at returning and responsible capacity management. We balance all of that as you look through the year and you look into Q3, Q3 we are actually projecting to probably be below zero, shrink year-over-year domestic capacity. I would call that’s responsible capacity management with respect to us having the network infrastructure point-of-sale all of the success factors for launching a successful wide-body business. I think the table is set, there is a bit of a ramp up here nonetheless we are expecting the 767 to be run into the great of this year and we believe it is a right thing for our business and we’re entering into a $10 billion market, addressable market. We have the fundamentals to be successful in that market not only this year but ongoing.

Harry Taylor

And Walter this is Harry just piling on at this point, but I want to reiterate the point Greg made earlier which is, we want to deliver the best profit growth we can every single quarter but we’re not trying to just arrive by the hood ornament. So we want to make sure that we’re building the business and developing it for the medium and long term. We believe that not only will be accretive this year but it will return that within that 13% to 16% return on invested capital, that we target. So we are trying to balance both of our short-term pressures with the long-term. The wolf is not at the door, our credit metrics are even - we have been better at the end of 2015 than they were at 2014. They will continue to be strong. EBITDAR will be at incredibly high as it always has been that et cetera or so. We are trying to manage both sides simultaneously.

Walter Spracklin

Okay, thank you very much.

Operator

The next question is from Andrew Didora with Bank of America Merrill Lynch. Please go ahead.

Andrew Didora

Hi, good morning everyone and thank you for taking the question. Greg, I appreciate the color on the Alberta weakness in 1Q, but can you give us a sense of what level of softness you guys are seeing from booking perspective on your transborder routes given the change in fracture and also I don’t know if they have quantified this, but what type of RASM impact are expecting over the course of 2016 from just folding in the new wide-body flying.

Gregg Saretsky

So we are not really seeing softness on the transport board, you know loads of good I would say RASM is steady, even from Alberta, our southern flying from Alberta is holding up much better than the domestic flying from Alberta. So not seeing the Canadian dollars foreign exchange impact they are affecting us particularly negatively. The other question, we don’t give guidance by segments. So I can’t really tell you what we expect other than just to say - this has been repeated couple of times, we expect these new operations to accretive to earnings even in year one.

Andrew Didora

Got it and I think Gregg in your prepared remarks you said that 1Q could be the low point for RASM, did I hear that correctly and if I did, what gives you the confidence in that statement just given the fact that doesn’t seem like we have reached the bottom in the macro yet.

Gregg Saretsky

Yeah, so that’s really a reflection of the capacity we’ve deployed in Alberta. We expect this year to be a soft year in its entirety in Alberta. But removing from a Q1 ASM year-over-year growth of 12 points to a Q3 of minus 5, so there is a delta there of, 17 points of capacity that move away from Alberta and that’s why we believe that we are at a low point in Q1.

Andrew Didora

Great and then just final question for me, from a CASM perspective, I know I think you have outlined just the 1Q growth rate is coming largely from higher depreciation and amortization and continued FX pressures. Is there any other timing from a maintenance perspective or anything like that or just seems like a big number in 1Q relative to the rest of the year.

Bob Cummings

It is a big number Andrew and it will much like a greatest first quarter from the RASM it is we expected to be a worst, over the course of the year it should get better and for the full year since zero flat to up two which is partially overlap and partially the actions we have taken.

Andrew Didora

Largely from that capacity coming in drives that down.

Bob Cummings

Yeah, it is driving the depreciation and amortization. The foreign exchange will be with us for the first half but we expect it to moderate in the second half.

Harry Taylor

We have some big deltas year-over-year. We had some maintenance work that was - as we look year-over-year we have a change to the maintenance provision which was driven by FX. We had some lease return aircraft for which we have had to provide maintenance provision on. So those are driving sort of period over period unique changes that go way in the second, third and fourth quarter. We have the FX year-over-year change on all offer maintenance program which is very large delta in Q1, but since the Canadian dollar started to fall last year that starts to normalize year-over-year when you get into the back half of the year. So we’ve got some very unique thing that affect our maintenance expense in Q1, but certainly not we expect in run rate for the year.

Andrew Didora

Great, thank you everyone.

Operator

The next question is from Turan Quettawala with Scotia Capital. Please go ahead.

Turan Quettawala

Yes, good morning. So I guess on the CASM then it is partly the Canadian dollar as well as some other shift is that what I’m hearing clearly Gregg.

Harry Taylor

Yes, so the Canadian - as Gregg outlined. Canadian dollar has caused a significant inflation in the fourth quarter and we expect that to continue in the first quarter. That would drive with 2.7 points in the fourth quarter, we think that will roll over into where the first as well. We are overlapping some of these unusual maintenance items which will come out of as we move through. And then we’ve have got the different movements and capacities as well. So the depreciation and amortization and maintenance are the big foreign-exchange as two big drivers, Turan.

Turan Quettawala

Thank you, sorry if I was asking that again. I guess the other question that I had been on the US - a couple of US airlines have mentioned they are seeing a bit of reduction in demand from many of the border airports I assume that’s a dollar as well. Are you seeing any of the demand that have trickled through on to your network maybe in some of your stronger markets or is it just people aren’t flying as much anymore.

Ferio Pugliese

No, we are seeing some of that the demand return in Canada you know there are 5.5 million Canadians that fly from US border cities and with FX impact now, it is not the bargain that it used to be so we are mostly impacted by what is going on at the Bellingham airport across from Vancouver and Bellingham airport is reporting that their traffic is down 14% year-over-year at the end of the year. And that Canadians are not driving across the border and they are still flying because we know that the total boarding that are up 5% year-over-year and we are seeing a fair share of that. So there is lastly gets you mostly a function of the bargains having run away with weakening of the Canadian dollar. So it is great to see Canadians flying from home under and watch that benefit in from that.

Turan Quettawala

Okay, great and I guess really one last question on the new premium product, are you - can you give us any update, how is that going and maybe some update on the yield side.

Bob Cummings

It is going very well as Greg mentioned in his script that we are seeing for long very high load factors as a matter of fact about system average as of late and we are very happy with the makes that changed from upgrade to booking that fires in advance and that’s the repositioning of the product last September that was a goal. So it is tracking nicely and the feedback on the value side and I guess in general is still lacks a bit of awareness and trials, so we see really good potential there, through the air, if you look at that part of - that the cabin isolated [ph] the revenue occurred nicely above what they were for the previous product or that portion of cabin previously before we went in empty middle seat, so all good there and we are looking forward to on future conference calls providing you some more colors, some more detail on how to attract.

Gregg Saretsky

So Turan, just to get a little bit more color, we’re actually seeing year-over-year yield increases in the Plus cabin, which is quite different than what we are seeing in the rest - on the rest of the aircraft where we are seeing yields of up to minus 7%, so it is moving in a very different direction. I think that is reflective of the fact that this is the right product for the right time. It’s a value priced business product and as Canadian companies are looking to save money, they are looking to take advantage of fares where a business products that are 30% to 50% lower than our competitors and business peers. And we think there is a lot of traction on that, so much so that we are looking at expanding the number of rows made available to Plus guests on our flights.

Turan Quettawala

Great, thank you very much.

Harry Taylor

Hey Turan, it is Harry just a follow-up on the expenses I neglected to mention rates and fees and our new nature-based presentation are also - we expect to increasing fairly significantly that’s all foreign exchange related as well, so all three of the key drivers of CAD to CASM growth in Q1, we believe we get sequentially better over the course of the year based on both overlaps and the moderating foreign-exchange.

Turan Quettawala

Got it and Harry could you tell me what ForEx using for the full year then.

Harry Taylor

We’re using 141.

Turan Quettawala

Is that for the quarter or for the full year?

Harry Taylor

Both

Turan Quettawala

Okay, thank you.

Operator

The next question comes from Cameron Doerksen with National Bank Financial. Please go ahead.

Cameron Doerksen

Yeah, thanks good morning, you mentioned on in the prepared remarks that about the point of sale in the UK for the new of wide-body flights is that running ahead of expectations. I would think that given you’re relatively new player on the transatlantic market that your point-of-sale in the UK would be less than what we’d see with some of your competitors. I’m just wondering if you can talk about what you’re doing to boost that and what kind of point of sale as a percentage of total sales you are actually saying out of UK?

Bob Cummings

It is Bob here, I’m not going to give you the percentage, like any new line of business we had a plan to ramp up to what I call more normal levels when we our more dependent in year one on Canadian point-of-sale, but the way we’ve modeled it is, we are significantly exceeding what we plan year one on the UK side. We have been over there and talked to the travel agent community. The digital world now with the Expedia’s and so forth really enable you to go globally and the target some expenditures that you have the right price and value proposition connect with the right consumers. So all in all and we spent a little bit through social media and some fun pieces are so forth that for a very minimal expenditure have given us some awareness and we timed some of our fares and with sales that are gone on our website and managed to get on the shopping list. So a very prudent ramp up on our part with respect to target expenditures and target channel activity and it is all going well. And I’ll just add to that, going into Dublin and Glasgow and getting some experience over there and some relationships that certainly has boded well so far for the activity that we ramped up in the UK.

Cameron Doerksen

Okay good and just on US Transborder where are you on point-of-sale know now, I mean I know used to be you’re much more secured Canada. I assume it is still is, but how is that trending for US point of scales because I think that would be positive RASM contributor for you as [indiscernible].

Bob Cummings

It is trending the way you would expected to all airline partnerships maturing with Delta and American and that’s relying on them for a lot of our point of sale activity. We are seeing that ramp up nicely in the US and particular markets. We are working more heavily than we have in the past with destination Canada and provincial tourism agencies in Canada to put some campaigns in place in [indiscernible] basis to drive some leisure traffic up to our beautiful country here. So all in all that is coming up nicely and it is contributing nicely and it is offsetting the exchange nicely.

Cameron Doerksen

Okay, just one follow up this, just wondering if you see any early impact from the Zika virus to the Caribbean destinations?

Gregg Saretsky

We are not - we are not and we have made it easy for our guests those who are saying no to questions asked if you are travelling to one of the area that is impacted by the Zika whereas we would rather give you credit on the ticket you purchased which is far more liberal approach that what others have done. We are not seeing any impact.

Cameron Doerksen

Okay, pretty good. Thanks very much.

Operator

Next question is from Kevin Chiang with CIBC. Please go ahead.

Kevin Chiang

Hi, thanks for taking my question here. Just going back on the capacity when I look at Q1 guide and I know your tougher comes from ‘15, but the last time we saw RASM down this much year- over-year. I think was back in ‘09. I am just wondering, does it feel like it did last during the last recession in terms of what you are seeing in the overall demand environment and more broadly speaking I know you don’t - you’re not managing this company for the next quarter, but is it concerning that you may’ve have too much fixed capacity growth over the near to medium term if the demand profile doesn’t improve as you expected the back half of this year.

Bob Cummings

It is Bob here, the difference in ‘09 is, it is a lot more localized to Alberta in terms of the macroeconomic forecast and the business travelers - the corporate business travelers budgets as well as the [indiscernible] of the leisure traveler for discretionary expenditures. And what this is forcing us to do is - we have done it and we have significantly diversify over the years, but we will diversify a little bit more and it is an opportunity to take an advantage of some of the investments that we made coast-to-coast and build on them in other regions and will do that. With respect to Alberta we are recovering and starting in the upward direction with respect to momentum. As Gregg said, we are looking forward to that happening, but in the meantime we’ll move capacity around, but we do see it is quite different with other regions being very healthy in terms of demand in giving us - help us for more capacity. What’s you second question I can’t remember.

Kevin Chiang

No, that’s in it, maybe just a following up on that. You know you look at this winter season, it looks like you are going to obviously see some yield pressure and looks like return on invested capital is going to be lower year-over-year, during this winter season. I am just wondering you provided some of the detail on some of your longer term capacity, flexibility, but what is specifically will you be looking at, through the remainder of this year to determine to whether you reduce capacity further and you take it lower from the 7% to 10% you’ve called for this year. Are there specific metrics we should be thinking about or are there no line in the same metrics that you basically look at everything in totality?

Gregg Saretsky

Well, I think we are going to be driven somewhat by the goals we set for ourselves around ROIC and profitability. From where we sit today, 2016 well disappointing because EBT and earnings per share are not increasing year-over-year, but we continue to be among one of our best peers. So let’s not be low down on our [ph] outlook with the performance that we are forecasting but we would like to continue to see EPS growth year-over-year-over-year and so we are going to be managing capacity. I think if there is repeating that we are moving from a plus 12% to a minus 5% in Alberta, that’s - if you get context is the massive capacity shift which I think is appropriate for the market that we are seeing. If the rest of Canada starts to catch the cold form Alberta, we’ll clearly have to revisit our fasty [ph] plan, but where we sit today and the regional strengths that we see, we think we are in for a good shape.

Kevin Chiang

All right, that’s it for me, thank you.

Operator

Next question is from Ben Cherniavsky with Raymond James. Please go ahead.

Ben Cherniavsky

Good morning guys.

Gregg Saretsky

Good morning, Ben.

Harry Taylor

Good morning.

Bob Cummings

Good morning.

Ben Cherniavsky

Gregg, I just want to go back a number of years to when you first got to WestJet and one of the initiatives you under took at the time was the everyday low fare strategy and I mean you obviously recall that it was based - if I remember how you explained it at the time when your observations when you got there that there was too much seat sale activity that eroded pricing power and it conditioned the customers and the guests to wait for seat sales because there were so frequent and you reduced seat sale activity and I think you got some positive pricing power and the yields as a result. So how does that - how to use square that what is happening today because there is an awful lot of discounting in the market and lot of promotions and seat sales, is this running counter to that strategy? Has your thought pattern around that changed or are there different circumstances or maybe you could just give a little bit of light to or put some discussions of the yield pressures in that context.

Gregg Saretsky

Yeah, that’s a good question Ben. I will start by sale we haven’t changed. Philosophically I believe that managing through the private like every day lower fares is the right way to go. What we’re seeing is a bit of a regional disparity with Alberta and the Prairie Provinces being, much, much softer than they have been over the last five years including in 2008, 2009 we are seeing more softness today number of them we saw in that peer time. And so we’re responding in the short term because the capacity is somewhat fixed in short-term until we get all moved out, we are responding by discounting. And I will add that the discounting while speaking yields and unit revenue performance down, it still generates profits. So none of what we’re doing is generating losses, I think we should all be focused a little bit on that. We have done fare class realignment, we’ve initiated a new revenue management system from pros that’s all new activity in Q4, which I should start to bear fruit in 2016 and we are trying to move away from being on sale as much as we are. And well as the capacity moves out, I think you will see that change.

Ben Cherniavsky

Okay, thank you and then I’ve noticed that there is - if you look at some of the pricing and options to fly out of the US or to Europe or to London that - actually you guys are showing up as an option now with some pretty attractive fares, pretty competitive fires, is that a deliberate strategy to try and do what Harry kind of talked about in terms of getting traffic to flow up to Canada overseas - as your network now is expanding.

Gregg Saretsky

Yeah, that’s exactly what that is and remind you that our fare class realignment actually creates buckets of capacity that is priced at certain levels that it is made available to US and other slow markets and when those buckets are full, we look to higher points to - higher price points of sale to finish selling the rest of the capacity. But we’re actually seeing very good response in fact again greater than we had anticipated when we put our plan together [indiscernible] a fair amount at US point of sales because obviously the Canadian dollar fare is translated to USD also makes us a little bargain. Some are quite delighted by that.

Ben Cherniavsky

Can I squeeze in one quick last question just ask you what the rationale for the Toronto, Nashville service that one seems like little bit and I am continues it sound so it maybe I am missing something at center but…

Bob Cummings

Ben, it is Bob, there is actually more people that go to Nashville from Canada in a year then go to [indiscernible] and we’ll bring a price point, where we’ll bring some stimulation on that already high number, but I think that by itself would give you cover that you would get repress.

Harry Taylor

It is also markets serves as well with key 400 that size of aircraft.

Ben Cherniavsky

And you are not getting any local community subsidy like you have in the one or two the other market are you in that work group?

Bob Cummings

No, the normal airport [indiscernible].

Ben Cherniavsky

Thanks guys.

Bob Cummings

You are welcome.

Operator

Next question is from Tim James with TD Securities. Please go ahead.

Tim James

Thanks, good morning, just one quick clarification, Gregg you mentioned upfront, I believe that 40% of system capacity touches Alberta and then you mentioned another number I think it was 20% was that in reference to the originations out of Alberta is that correct.

Gregg Saretsky

Yeah, that’s correct Tim.

Tim James

Okay and then the Alberta capacity decline in the first quarter, your plans that originally for positive 12% but that has been revised to negative 5% with some of the reallocation that you talked about.

Gregg Saretsky

That’s Q1 versus Q3.

Bob Cummings

Yeah, your networking capacity planning and how forward it is, it was interesting in April when it was creeping back up to 59 to 60 bucks. We thought we are potentially going through a flip and Alberta capacity mostly with year-over-year raps, but Alberta capacity year-over-year for Q1is 12%. It goes down to minus 5% year-over-year for the summer/Q3. So a dramatic change in the amount of capacity in the Alberta market where particularly lot of that to BC and Ontario.

Tim James

Okay I’m sorry, just to make sure I understand that the plus 12% that used to be is Q1 ‘16 versus Q1 ‘15.

Bob Cummings

Correct.

Tim James

And it is now going to be down 5% approximately in Q1 ‘16 versus Q1 ‘15

Bob Cummings

No, so year-over-year Q1 over Q1 is up 12%, Q1 ‘16 over Q1 ‘15 up 12% ASMs in Alberta.

Tim James

Okay.

Bob Cummings

That changes by the time it gets to Q3, will be minus 5 year-over-year.

Tim James

Okay, okay thank you that’s helpful. Okay my next question is, just looking at your advanced ticket sales in kind of comparing that with revenue guidance for the first quarter. Of course your revenue guidance implies a further or a greater decline in year-over-year revenue in the first quarter of ‘16. While your advanced ticket sales, the end of Q4 is actually up significantly more than it was at the end of Q3. I am wondering can you just kind of talk about what is causing that difference directionally and what that suggests in terms of the revenue environment, it’s not just the nature of where weakness is and where those travelers are on the booking curve.

Gregg Saretsky

Yeah couple things, we began to get - we in late Q4 we started to get more aggressive with loading Alberta based markets with leisure travelers which have a further booking curve, so there is a bit of that. The 767 as well with respect to booking curve for that and how we ramped up would have a bit over year-over-year impact.

Tim James

I see, right so the more as you ramp up 767 that’s by nature people are booking further in advance that’s going to place it higher, okay. And then just my last question here and this comes back to sort of managing the business for the long-term as oppose to the next quarter, which is what your investors are - most of your investors want and this implies I believe that at some point in time earnings for WestJet should be higher than they would have been had you chosen a strategy of capacity restrained and then just focusing on the short term, could you therefore help us kind of think about the time frame of when you expect earnings to be higher under the strategy that you’ve chosen for maximizing long-term profitability, then what it would be - had you chosen a strategy just to maximize earnings and really restrain capacity in the short-term?

Gregg Saretsky

Yeah, Tim, I think I have to answer that question by asking you one. When will the Alberta and Canadian economies start to improve? We have a bit of a unique thing here across the Prairies and Canada, which is very different than what’s going on in the US economy where the US carriers are seeing a continued margin expansion. Ours is getting back to margin expansion as quickly as possible, but of course, we are also serving - the fair amount of our capacity is serving a very depressed part of the Canadian economy. And so, we are building a capacity plan that will generate a decent return given the circumstances, but which I think will support us in a very nice way once the Alberta economy starts to turn.

Harry Taylor

A bit more globally with respect to looking at the long-term, if you look at the ratios for Canada for the amount of airline service per capita, you look at the pricing levels compared to the rest of the world and how we index the amount of capacity growth to service to market in Canada and if you line it up for the rest of the world, the amount of capacity rows in the four or five years hasn’t been as aggressive as it may appear when you compare globally and compare the pricing levels globally. So, we’re very much aware of the industry structure and potential entrance and the pricing levels do keep a healthy industry structure.

Tim James

Okay, so just to make sure I understand, you know, we advance forward, we get to a point where the Alberta economy has normalized. At that point, WestJet earnings per share return on capital, whatever measure you want to use, should be higher than it would be if today you are just starting to cut capacity dramatically. Is that correct?

Gregg Saretsky

Absolutely, correct.

Tim James

Okay, great, thank you.

Operator

The next question is from Chris Murray with AltaCorp Capital. Please go ahead.

Chris Murray

Thank you. So, guys, just thinking about just the market dynamics, you had a new competitor coming to the market for a little bit anyway and then left, but what we saw was at least on the face of it some fairly heavy discount, just thoughts on the strategy about dealing with competitive reactions and any thoughts on how much that may have impacted yields in the quarter?

Gregg Saretsky

Well, first of all, pricing is always to match and so we are going to match whatever prices come in the market on whatever carrier and then we decide how much of that traffic we want to take. That’s the science of revenue management and we’re pretty good at it. So, no impact in Q1 from newly short entry, and I think what we’ve done there is signal that New York, Canada’s low fare airline and we are going to defend that position strongly.

Chris Murray

Okay, great. Then just moving on to other revenue, you’ve made some comments around the fact that I think you are seeing some good growth in both cargo and also in your charter business, any thoughts on how that extends through 2016. Do we start seeing that those rates are growth slow and then thinking about other pieces of the business, any thoughts around how WestJet vocations is going to look? Are you seeing similar softness right now? And then I guess the fourth piece of this is just talking a little bit about ancillary revenues per guest, because that number seems to be starting to slow now, so any thoughts around those buckets?

Bob Cummings

A lot of it falls into my portfolio. It’s Bob and I’ll comment and then I’ll let Gregg comment as well. If you look at what we budgeted last year versus what we ended up paying for hotels, there was a difference of $61 million with the FX. We weren’t able to recover all of that. So, there was a bit of margin compression in terms of the contribution from that line of business. This winter, again, we’re not able to recover dollar for dollar. We’ve seen a fairly dramatic run-up in the last six weeks. So, that’s expensive on the contribution side for - or it lessened the contribution from what we - none the less maybe it’s doing well in terms of helping us to fill seats and be accretive to the overall enterprise and financials. And we’ve done quite well. This winter we’ve put in a deposit product in November and that gave us access to a whole new segment and that’s ramped up bookings there. So, we’re quite happy.

With the ancillary, the credit card continues to ramp up. We’re getting some people paying for Connect on our 36 aircraft. We put in a first bag charge for international that we launched on January 6. We increased a few other fees and the ancillary will continue to ramp up and contribute nicely in a lot of that for us directly to the bottom line.

Cargo, as we go international, will become a bigger opportunity for us. We worked to the southern markets over the last couple of years and that is - cargo is growing nicely for us on a year-over-year basis. So, the other lines of business and other revenue, all of those are indexing quite nicely above ASM and we’ve various levels of maturity in terms of investments and contribution from those lines of business. I may have missed one or two of your questions, Gregg, you can do that.

Gregg Saretsky

No, I think part of it is we’re lapping annual numbers on new services in our ancillary revenue stream. So, we do expect cargo and charter revenue to actually grow at increasing rates from the numbers that I gave you in Q4.

Chris Murray

Okay. I mean when I just think about revenue per guest and maybe a different way to think about this, even though we’ve got more buckets and more services, are you seeing pushback? I mean, we are talking about sort of the total revenue number now, like how much of that is going base fare and how much of that is pushed back on some of these newer fees just as travelers are becoming more price sensitive?

Gregg Saretsky

We are lapping first bag by year. First bag was a big change in the Canadian market. And our guest metrics in terms of guest value, guest and so forth. We are now coming back to create first bag levels. The market gets conditioned and there are lower fares in the market. So, if you look at the total price, the consumer is paying the same or a little bit less and I would say that the market has adjusted in terms of how they view the pricing model that’s evolved in the market over the last year or two.

Chris Murray

Okay, guys, thank you.

Gregg Saretsky

Thank you.

Operator

The next question is from David Tyerman with Canaccord Genuity. Please go ahead.

David Tyerman

Yes, good morning. I just want to ask about the RASM comment 100% of the decrease is in Alberta and the Prairie provinces in Q4. So does that - I’m taking that you are suggesting the rest of the market is broad. Is that correct?

Bob Cummings

The rest of the market was actually on the positive side. We dissected our financials, I won’t give you the exact breakdown, but I will tell you that.

David Tyerman

Okay. And would that be the same for Q1 with the 10 to 12? Is that what we should be probably thinking?

Gregg Saretsky

That is 700 to 900 basis points of that is Alberta.

David Tyerman

Sorry.

Bob Cummings

Yeah, there is pockets of capacity where there’s some pricing pressure.

David Tyerman

Okay, so I’m just wondering when you are moving a lot of capacity out of western Canada or at least out of Alberta and the Prairies, isn’t the rest of the market already pretty well served and so are you not going to just be moving the RASM weakness out of Alberta and Prairies to other places?

Bob Cummings

What we are doing is we’re removing the lowest performing ASM out of Alberta or ASMs where we capture a high percentage of revenue to the best opportunities in strong regions. So, you have a significant EBT delta and then you can look at our fundamentals around card structure, point of sale, brand, our products and so forth, it will contribute earnings nicely.

Gregg Saretsky

And in fact, David I just mentioned on the Q400 side we moved three out of Alberta and we brought them east. If you look at some of the markets where those are going with improved schedule, there is still a lot of underserved markets in eastern Canada to which there is room for regional service and we’re seeing very nice stimulation in those markets to some degree, greater than what we’ve seen in the western Canada. Western Canada we’re seeing stimulation in the neighborhood of 60% in the airports that we’ve gone and that have been underserved, in Atlantic Canada in particular. Although they’re local markets, we’ve seen stimulation up as high as 120%.

David Tyerman

Okay, okay, that’s helpful. The other question I had is a broad one. So, your stock is back to almost where it was in 2012 or so. So, there is much move here. There seems to be a lot of anxiety about capacity growth. You’ve got a ton of questions on it. You’ve had it before. And it seems to me that airline investors are quite anxious about this and about how the airlines are doing the bad all things they’ve always done. So, I’m wondering, aren’t you just feeding something here through pursuing aggressive capacity growth that is destructive to shareholder value in long-term contracts, as well as short-term and why not slow down the growth to help the industry get a better reputation as the Canadian industry seems to have a pretty bad one especially relative to the US one.

Gregg Saretsky

Yeah, so David maybe it’s worth repeating that six of our seven to 10 points is 767 service to UK, which is a new market for us. Two million people per year travelling between Canada and UK, a strong Pound Sterling, a strong summer markets, math of peak, we have no concern with that 6 points of growth coming from the 767 in UK. On the rest of our fleet, if I think of it as same store sales, we’re one to four points of growth with an opportunity to share some of that if we don’t like the results as we move through the year.

Bob Cummings

With low fuel prices.

David Tyerman

Okay, evidently the market doesn’t understand something here because your stock is cut in half over the last 15 months, not even that.

Gregg Saretsky

Yeah, I guess time will tell. We’re focused on the long-term and we think these fleets are all good foundation.

Bob Cummings

Industry wide we feel as if we’re being responsible with the 1% to 4% guidance from 737 and Q400 for - in particular that the back half of the year. It is an industry gain now as you said.

David Tyerman

Okay, thank you.

Operator

This concludes the analyst Q&A portion of today’s call. We’ll now take questions from members of the media. [Operator Instructions] The next question is from Vanessa Lu with Toronto Star. Please go ahead.

Vanessa Lu

Hi, good morning. I just wanted to ask about the transborder, you mentioned that Bellingham was seeing a decrease in Canadians crossing the border to catch flights from US carriers. Are you seeing that in Toronto as well and maybe is that why you’ve added the Toronto-LA route?

Gregg Saretsky

I suspect, we don’t - the numbers we get on Bellingham come from the Bellingham airport. I haven’t seen similar numbers from the Buffalo airport, but I suspect the phenomenon is the same across the country and I would expect that Canadians boarding flights at Plattsburgh and Burlington and Buffalo are all down. And yes we’re seeing reasonable strength in Southern Ontario and the Toronto to LA market is a very large market. It’s one that we’re not in, we’re partners on the LAN, the international code-share relationships that our flights will feed and so we see that as a good opportunity.

Ferio Pugliese

Florida, Caribbean, Mexico is all doing well out of Southern Ontario. As Gregg said, we don’t have the exact numbers, of course we do home here Vegas and [indiscernible] and number of markets out of Vancouver are doing well. We don’t have the exact numbers, where you’re told that we have licensed flights coming the other way now to fly out of [indiscernible] airports, which is - it’s quite ironic.

Vanessa Lu

Great, okay and just I going to squeeze in another question, you mentioned that Plus seating has been very popular especially with companies that are looking to cut cost and you’re thinking of potentially expanding the number of rows of Plus seating, can you talk a little bit about what you’re thinking about?

Gregg Saretsky

Yeah, I mean the way we’ve configured the aircrafts, it’s the same physical seats from row one all the way to the last row on the aircraft and we’re currently blocking the middle seats only on the first three rows. So for rows of [ph] incremental cost, we could continue to expand the number of rows that are on offer and the beauty of our product is, because it’s not physically different, it can be dynamic. So in markets where we receive lots of demands, we can have lots of rows and in markets where we receive little demand, we have fewer rows and that’s a bit unique to WestJet. I think we view in this environment that that’s the better mouse trap.

Vanessa Lu

Okay, thank you.

Operator

This concludes the time allocated for questions. I’ll now hand the call back over to Hugh Harley for closing remarks.

Hugh Harley

Thank you for joining us this morning. This call has been webcast and will be archived in the Media Investor Relation section of WestJet.com. This call is also available for replay and calling details were provided in our fourth quarter and year-end earnings release we issued earlier this morning. Thank you again for listening and for your interest in WestJet.

Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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