1

WestJet: Financial Management Analysis

To: Jan Klakurka By: Ariella Woods, Justin Chatterson, Amber Patrick, Marco DOnofrio, and Anne Rubino MOS 3310 A December 3rd 2012

Executive Summary
Founded in 1996, WestJet has quickly become a leader in the Canadian airline industry. Since its inception, WestJet has held the core belief that the average Canadian should not only pay significantly less for a flight from point A to B, but also receive the same services as those of major airlines. With this philosophy engrained in the minds of their staff, WestJet began its journey. Key success factors that have enabled this success include: Exceeding Customer Experiences/expectation Enthusiastic Corporate Culture Providing Affordable Air Travel During WestJets 16 year operations, the organization has expanded their fleet to 99 in-service carriers, 55 in-use and 25 on-call carriers in rotation. With the recent purchase of the Boeing-737 fleet (2013), WestJet has big plans for expansion. Staff members are major contributors to the success of WestJet, and WestJet prides themselves on having the friendliest and most efficient staff in the Canadian Airline industry. WestJets major incentive program, Employee Share Purchase Plan, dominates over 80% of share control. Employees can purchase up to 20% of their gross salary and WestJet will match their contribution, dollar for dollar. Current financial health of WestJet seems promising. WestJet shows positive returns with respect to profitability, and sees healthy returns with respect to assets, equity, and capital. WestJet is making a gross margin of 30% on their services. This gross margin is 7% above their other Canadian competitor, Air Canada. WestJets EBITDA margin suggests healthy operating profitability and again is greater than the industry standard. Share price of WestJet (WJA) has risen semi-annually, 8.16% (of quoted share value price). Dividends have increased by 33%, now declaring a $0.08 dividend per common voting share and variable voting shares to shareholders. In terms of strengthening this financial position, WestJet needs to look at feasible and safe financial ventures that could be anything from reorganizing capital structure to international expansion. We have reviewed several possible options for WestJet. The first option, expanding within Canada, is the most favourable option for the current management at WestJet. CEO, Gregg Saretsky, argues that WestJet should offer more domestic flights to new locations, specifically in the Western region of Canada, to better compete with Air Canada as they offer more domestic flights than WestJet. Currently, WestJet has achieved their highest-ever quarterly load factor of 84.6%.WestJet would need to acquire more seat capacity and therefore invest more into the purchase of planes to expand in Canada. The second option may be to expand internationally. While it is currently more favourable for WestJet to remain a primarily domestic flight company, WestJet does have limited growth opportunities within Canada for the future. WestJet has many partners worldwide, and it is likely that they could enter the international market shortly. One major issue with this option is that their current fleet cannot undertake international flights. This would require WestJet to make a huge capital investment that may or may not be successful. In addition, costs, both variable and fixed, would increase immensely. These options have been evaluated and our recommendation is to remain in the Canadian market, as they already hold a large market share and have a history of success in the industry. This allows WestJet to maintain the most control over the company, instead of relying on partnerships for international expansion.

Table of Contents
Title Industry Overview Industry Industry Economic Trends Key Competitors Air Canada Comparison Company Overview History inancial Analysis "#are $alue &ividends &aily Operations ()P "a*ety in Operations Opportunities uture (ecommendations,Conclusion E-#i.its "ources 0lossary o* Terms 3 ! % ' ' ' + + 12 1/ 21 22 1 1 2 2 Page

Industry Overview
Industry:
In North America, the overall air industry is quite mature. Many flight networ s are fully develo!ed, leaving room for only organic growth. "ue to economic conditions In an era and with increasingly high fuel costs, many com!anies are focusing efforts on revam!ing its aging fleet #y re!lacing inefficient air!lanes with the !urchase of new ones. $oday, com!anies are reducing their economic concerns #y retiring old !lanes, im!lementing new technologies, and im!roving o!erations. $he world airline industry has reali%ed !rofits since 2&1& as the world !ushed through the glo#al recession. In North America, the industry has e'!erienced !rofits of 4.1 #illion in 2&1&, 1.3 #illion in 2&11, and 1.4 #illion forecasted for 2&12 (Airline Industry )rofits iota*. +owever, the relative tight !rofit margins are due to high fuel cost, maintenance fees, and o!erating costs. Im!lementing a modern, highly fuel efficient fleet is currently the #est strategy for commercial aviation com!anies. In addition, the aviation industry has many regulations regarding the environment in res!ect to local air quality, emission, and noise !ollution. Modern air!lanes have immensely im!roved in this area from the !lanes that e'isted thirty years ago. ,ollowing this trend, im!rovements to technology and #etter strategic o!erational decisions will remain in the industry in an attem!t to monitor regulations and reduce !ollution.

Industry Economic Trends:

"emand for air travel is closely lin ed with the world economy. $he word -") growth rate for 2&11 was 3.4 and e'!ected to decrease to 3.2. in the ne't few years. As the glo#al economy is showing !ositive growth, glo#al airline travel is e'!ected to ta e a similar !ath. /!ecifically, in North America, where most of 0est1et2s ma3or o!erations are, -") growth

4 forecasted to 2&12 is around 25. $his loo s !romising foras 0est1et, as they can e'!ect a slight increase in air travel demand in the coming years. $he !rice for 3et fuel, the largest e'!ense of the airline industry, closely matches the !rice for crude oil. 6il !rices and oil !rice volatility are ma3or determinates of im!ortant o!erating decisions for 0est1et must ma e. Also, continuing interest rates are at historical lows and are e'!ected to remain low for the ne't few years. 0est1et could ta e advantage of these low rates #y financing a new fleet of !lanes or develo!ing new air!ort hangers for a a low financing e'!ensecost. +owever, currently in the 7nited /tates, there is an underlying crisis of high government de#t. As the 7./ government loo s for solutions, many American citi%ens will #e affected with higher ta'es. $his will lower income and could !otentially #e a ris as airline travel demand would decrease.

Key Competitors:
0est1et2s ma3or com!etitors are American Airlines, 8an1et Airlines, and Air 8anada. $hese com!etitors face the same ey industry and economic issues, however differing in #usiness models. Air 8anada is the #iggest com!etitor that 0est1et has, as they #oth o!erate out of 8anada.

Air Canada Comparison:

Air 8anada is one of the largest air carriers in North America and is the flag carrier for 8anada. 0ith over 19& destinations worldwide, it is the most relevant com!etitor of 0est1et. Air 8anada was created in 1:3. and has a#sor#ed several 8anadian air carriers such as Air1a%% and 8anadian Airlines. )ast financial hurdles such as filing for ;an ru!tcy in 2&&3 and the 2&&: <conomic =ecession have heavily im!acted the o!erations of Air 8anada. In addition, Air 8anada has had a hard time trying to sta#ili%e o!erations as la#our dis!utes affect o!erations every cou!le of years. +owever, the cor!oration has tried to overcome their struggles with diversification of mar et segmentation and !artnershi!s with other international airlines. Air

. 8anada is com!rised of three segments> !assenger, cargo and other. $he creation of the /tar Alliance has created incentive to choose flying Air 8anada due to the transfera#ility of frequent flyer miles with !artnering /tar Alliance carriers. Also, Air 8anada2s si%e gives them a com!etitive advantage against 0est1et as they are a#le to o!erate routes and charge !remiums that 0est1et cannot. $hisat #eing said, Air 8anada has struggled over recent years to earn a net !rofit and control their e'tensive de#t, thus limiting the com!any2s overall growth (/ee <'hi#it A and ; for ?ey ,inancials 8om!arison* -iven the age and National Association of Air 8anada, 0est1et is com!eting for ma3or mar et share in the 8anadian airline industry. @et, 0est1et has a different !roduct to offer 8anadians, with smaller !lanes, afforda#le !rices and a Ano frillsB ty!e service. 0est1et ho!es their new regional carriers (2&13* will create significant gains for the com!any. 8anadian Air 8arrier Industry is growing and this is the !erfect time for 0est1et to #ranch out to new flight routes and areas in the airline industry while solidifying their name as a leading 8anadian Airline.

Company Overview
History:
0est1et is a relatively new cor!oration in the commercial aviation industry. $he com!any was founded in 1::. #y 8live ;eddoe, along with other entre!reneurs who saw an o!ening in the industry. $he founders of 0est1et strongly #elieved that the average 8anadian should not only !ay less for a flight from A to ;, #ut also receive the same services as other airlines. 0ith this !hiloso!hy engrained in the minds of 22& staff, 0est1et #egan its 3ourney. Cater that year the airline #egan o!erations with three aircraft and five destinations to choose from. $he !hiloso!hy the founders !ut forth has allowed 0est1et to grow considera#ly since

D 1::.. $oday, the num#er of staff has risen from 22& to 99&&. 8urrently 0est1et offers services to over 9& countries in North America, 8entral America and the 8ari##ean. 0est1et has wor ed diligently over the years to create a strong, wellEdefined cor!orate culture. $he focus of their cor!orate culture is centered on the guests that the com!any services. ;y #uilding a culture on the #asis of customer satisfaction, 0est1et has successfully created one of the most distinct cor!orate culture models today. In 2&11, 0est1et was designated as a 1.". )ower 8ustomer /ervice 8ham!ion, ran ed 3rd in Aon +ewittFs #est em!loyers in 8anada, and was also chosen as the 8anadian airline with the #est flight attendants #y flightnetwor .com. Moreover6n to! of this, 0est1et was chosen as 8anadaFs !referred airline. 0est1et2s a#ility to engrainesta#lish a standardi%ed !hiloso!hy and create a distinct cor!orate culture has allowed 0est1et to Ata e offB from their com!etitors in the commercial aviation industry. /ee <'hi#it 8 for the /06$ analysis for 0est1et.
ission: $o enrich the lives of everyone in 0est1etFs world #y !roviding safe, friendly and

afforda#le air travel.

!ision> ;y 2&1., 0est1et will #e one of the five most successful international airlines in the

world !roviding our guests with a friendly, caring e'!erience that will change air travel forever.
!alues:

G 8ommitment to safety G )ositive and !assionate in everything we do G A!!reciative of our )eo!le and -uests G ,un, friendly and caring G Align the interests of 0est1etters with the interests of the com!any G +onest, o!en and ee! our commitments

9 0est1et does not want anything #ut success. $wenty years ago, 0est1et had 3 aircraft and offered services to 4 destinations. Now, 0est1et has goals to #e one of the to! airlines in the world. 0est1et has made this transformation !ossi#le #y staying true to their cor!orate values and e'ercising them in all areas of #usiness.
Environmental Commitment> 0est1et a!!roaches their commitment to green #usiness !ractices

through four core values> G 0e invest in fuelEefficient 3et aircraft. G 0e invest in technology and !rocedures that ena#le us to ma'imi%e o!erating efficiency and safety. G 0e invest in infrastructure to mitigate the environmental foot!rint of our ground o!erations. G 0e wor in good faith with government agencies and regulators to develo! rules and !olicies that further drive our o!erating efficiency and our a#ility to grow sustaina#ly. ;y following these core values, 0est1et will continue to ensure that they are actively wor ing to o!erate an environmentally friendly #usiness to the #est of their a#ilities. In addition, such green initiatives will have !ositive effects on the overall image of the airline.
"leet: 0est1et has s!ent over 2 #illion dollars from 2&&1E2&1& on new aircraft, which has

allowed for more efficient o!erations. $he industry standard for the age of a fleet is 11 years, whereas 0est1et2s fleet is an only 4 years old.
Innovation: 0est1et has added winglets to the wing ti!s of all their aircraft. $his modification

has allowed for fuel consum!tion to #e decreased #y 2.D5.

"inancial Analysis:
,or this section, !lease refer to <'hi#its " H <.
#rofitability: 0est1et shows !ositive returns with res!ect to !rofita#ility. Also, 0est1et is seeing

healthy returns with res!ect to assets, equity and ca!ital. 0e would li e to see these healthy

: !atterns continue in su#sequent years. Although they are #elow industry average in regards to return on equity, a 145 =6< is not raising red flags at this !oint in time.
ar$in Analysis: 0est1et is ma ing a gross margin of 3&5 on their services. $his gross margin

is D5 a#ove their other 8anadian com!etitor Air 8anada. 0est1et2s <;I$"A margin suggests healthy o!erating !rofita#ility and again is greater than the industry standard. 0e will e'amine more o!erating !rofita#ility #y loo ing at the cor!oration2s cash flow statement for 2&11.
Asset Turnover Analysis: 0est1et is generating I1.9& in sales revenue for each dollar of assets

they own, suggesting a res!ecta#le asset turnover. $hey are also turning over their accounts receiva#le at quite a healthy rate, which suggests a tight nit circle of life. 0hen 0est1et has revenue on account, they are consistently getting !aid from their customers, showing !ositive, healthy liquidity from an investor2s !ers!ective.
Credit %atios: ;oth the current and quic ratios are a#ove 1. 7sing 1 as a standard #enchmar

ensures reasona#le liquidity if the shortEterm demand for cash arises. $his healthy ratio is another good indicator that 0est1et is a reasona#le, sta#le investment.
&on$'Term (ebt: 8urrently 0est1et is holding more de#t than equity, which is common amongst

the industry, as well as more lia#ilities than assets. $his doesn2t raise a red flag since 0est1et has ra!idly #een growing since 1::., however, 0est1et should try to reverse these trends over the u! and coming years.
Cas) "low Statement Analysis: As we can see from the o!erations section of the cash flow

statement, 0est1et has a vast source of cash coming from the dayEtoEday o!erations. 0e can also see a consistent increase in cash from o!erations from yearEtoEyear. 7nfortunately, the investments 0est1et has made over the years are not !roducing cash for the cor!oration. Ideally, we would li e to see this area of the statement !roducing a source of cash rather than a

1& significant use. 0e can also see from the statement that 0est1et is has #een !aying down ma3or !ortions of their longEterm de#t over the !ast 4 years. 0est1et should continue to !ay down this de#t to ma e longEterm de#t ratios more attractive. 6verall, we do see !ositive cash flow and 0est1et should continue with what they are doing to ensure a successful future. S)are !alue 0est1et is !u#licly traded on the $oronto /toc <'change and has #een a !u#lic com!any since 1:::. $he sym#ol for 0est1et stoc is 01A for common voting shares and 01A.A for varia#le voting shares. In order to !urchase 0est1et shares, shareholders need to !urchase them through an investment advisor or a #ro er. 6n the first day of trading, one 0est1et share was o!ened at I2.:.. $oday, a common voting share is quoted at I19.:2 (Novem#er 2:, 1&>44 am* and a varia#le voting share is quoted at I19.:9. A common voting share is owned and controlled #y 8anadians. <ach common voting share has the right to one vote at 0est1et shareholder meetings. A varia#le voting share is owned and controlled #y nonE 8anadians. $hey hold one vote !er varia#le share held. =eferring to the e'hi#its, <'hi#it , re!resents the quoted !rice of common shares over the 2&12 fiscal year whereas <'hi#it - dis!lays the quoted !rice of varia#le shares over the 2&12 fiscal year. As shown through these resultsimages, although #oth share values are increasing over time, varia#le shares have had a slight edge over common shares. .A stoc s!lit is an action where a com!any2s e'isting shares are divided into multi!le shares. $his results in an increased num#er of outstanding shares #y a s!ecific multi!leJ however the total dollar value of the share remains the same as the !reEs!lit amount. /toc s!lits occur #ecause a com!any2s e'isting share value has #ecome too e'!ensive for investors to !urchase the normal stoc value. 0ith a stoc s!lit investors are !urchasing a fraction of that normal stoc value. +istorically 0est1et has had three stoc s!lits, occurring in May 2&&&, 2&&2, 2&&4, which were all a!!roved #y shareholders.

11 0hen loo ing at Air 8anada2s stoc value, 0est1et2s largest com!etitor, it is currently quoted at I1.D: ("ecem#er 2, 2&12, 1&>&& !m*. 0hen com!aring the mar et !erformance of 0est1et and Air 8anada, 0est1et is ran ed 24 out of 1&& !ercent and Air 8anada is ran ed 4 out of 1&& !ercent. Mar et !erformance is the !rice level !erformance of issued stoc com!ared to the industry. $his means that 0est1et is !erforming #etter than Air 8anada, in com!arison of the overall equity mar ets and ris Ead3usted returns on investments. 0hen loo ing at 0est1et2s !rice to #oo ratio, the )K; is 1..: times, this means that 0est1et2s stoc is highly valued and shareholders are !urchasing more shares in the com!any. (ividends: In Novem#er 2&1&, 0est1et announced quarterly dividend !ayments. $he first dividend distri#uted #y 0est1et was in 1anuary 2&11. /hareholders that owned shares !rior to "ecem#er 2&1& received a dividend of I&.&4. /ee <'hi#it + to see the current value of 0est1et dividends.

(aily Operations
0est1et2s central hu# is located in 8algary and has connecting flights to over 91 locations. "aily average volume of !assengers is 3D3,431 across 8anada and the 7nited /tates. )assenger volume is e'!ected to increase with the !urchase of the new ;oeing fleet. -enerating recurring income is essential to the success of the organi%ation and therefore increasing #usiness value in terms ofn #randing and service quality is veryhighly im!ortant to the o!erations of the organi%ation.

%*#
0est1et has #een the only airline in 8anada using =equired Navigation )erformance (=N)* technology, which im!roves the Laircraft a!!roach2 routes to various air!orts. =N) uses a glo#al !ositioning system to fly with more direct and efficient !recision to and from air!orts.

12 =N) !rovides 0est1et with the a#ility to fly at lowE!ower descents from cruising altitude to the runway (versus conventional descents that include numerous intermediate ste!Edown altitudes and lengthy level segments*. 7sing =N) short transitions, certified aircraft can decrease the flight !ath distance and reduce fuel consum!tion. In 2&1&, the =N) !rogram allowed 0est1et to im!rove their overall fuel efficiency #y an additional &.1 !er cent. Additionally, constant u!dating of fuel management software ee!s 0est1et as fuel efficient as !ossi#le. 0est1et is one of the most e'!erienced air carriers in the world in =N) o!erations.

Safety in Operations 0est1et is a leader in safety and ris management in air o!erations. $he
o#3ective of 0est1et2s (/afety Management /ystem* /M/ is to !rovide !olicies, !rocesses and !rocedures that ensure safety ris management is an integral com!onent in every as!ect of 0est1et2s o!erations. /M/ also !rovides Linternal oversight2 of the com!any2s safety !erformance and !rovides our leadershi! teams with a mechanism for the continuous inde!endent evaluation and im!rovement of the com!any2s safety !erformance.

Opportunities:
0ith a !ositive financial standing, and a strong re!utation, 0est1et is very well suited for some form of e'!ansion, as long as it maintains their ey success factors (/ee <'hi#it I*. $he main dilemma for the com!any, however, is determining which !ros!ective !ro3ect would #e #est for their growth. /ome suggest that growing within 8anada, #y offering more frequent and domestic flights would #e #est, while other analysts stress that 0est1et should #ecome a more international com!any and e'!and further outside the 8anadian mar et. $he first o!tion, e'!anding within 8anada, is the most favoura#le o!tion for the current management at 0est1et. $he 8hief <'ecutive 6fficer, -regg /arets y, argues that 0est1et

13 should offer more domestic flights to new locations, s!ecifically in the 0estern region of 8anada, to #etter com!ete with Air 8anada as they offer more domestic flights than 0est1et (/ee <'hi#it 1*. It is true that this e'!ansion would li ely increase the com!any2s !rofits and share !rice, as they would have more revenue o!!ortunities, #ut it still restricts the com!any to !rimarily the 8anadian mar et. +owever, a growth in the 8anadian mar et and a more renowned #rand name may #e #eneficial for 0est1et #efore entering the international mar et. If 0est1et were to offer increased domestic flights, they would #e required to e'!and their fleet to maintain current sales levels and avoid canni#alism of seat sales. 8urrently, 0est1et has achieved their highestEever quarterly load factor of 94..5. $herefore, their flights are often very full, and in order to ensure that these metrics can #e maintained, new air!lanes are necessary to !rovide more flights to new destinations, (they cannot use e'isting !lanes for new destinations without canni#alising current flight destinations*. 0est1et then is faced with the decision of whether to !urchase or lease the new air!lanes, and to determine how many are necessary. Although !urchasing would allow 0est1et to claim the assets fully as their own, and use such assets as future collateral, leasing would #e less e'!ensive initially for 0est1et and has #een a !o!ular choice for 0est1et in the !ast, as 43 !lanes of their current fleet are under lease. $o e'!and into new 8anadian destinations, 0est1et does not require such large !lanes as the ;oeing D9D fleet that they currently use. In recent !ress releases, 0est has confirmed that they will !urchase the M4&& model, with roughly D& seats. $hese models are slightly chea!er, and analysts estimate the !lanes are roughly 3& million each. In addition, -regg /arets y stated that 0est1et would need roughly 2&E 44 M4&&s for this e'!ansion o!tion. ,or a #rea down of the air!lane costs and overall ca!ital asset investment, refer to <'hi#it ?.

14 In order to e'!and the fleet, 0est1et must also determine where the financing will come from, either de#t financing or equity financing. 8urrently, 0est1et does have some equity financing, and with many of the com!any2s shareholders #eing em!loyees. In Novem#er 2&12, the com!any stated that 9.5 of em!loyees were contri#uting an average of 145 of their gross salaries into the <m!loyee /hare )urchase )rogram. $his creates an interesting issue, #ecause if 0est1et wants to e'!and, it must ta e into consideration the em!loyees2 attitudes towards the e'!ansion, as they are !rimary shareholders. 0hile most em!loyees would li ely have little o!!osition to e'!anding within the 8anadian mar et, em!loyees may have varying o!inions towards international e'!ansion. It is !ossi#le that em!loyees would su!!ort an international e'!ansion #ecause they feel there would #e more 3o# o!!ortunities, #ut they may also #e o!!osed to such an e'!ansion #ecause it would mean longer tri!s, more time away from their homes, and the !otential of 3o# loss or outsourcing to the staff of their !artner organi%ations. Aside from em!loyee shareholders, other investors would li ely also see an e'!ansion within 8anada as commenda#le. Investors would li ely see the e'!ansion as a sign of 0est1et #eing !roactive and wisely using their e'cess cash to grow the #usiness. +o!efully, this confidence in the com!any would see the stoc !rice of 0est1et rise if they do e'!and within 8anada. $hat #eing said, investors may #e hesitant to su!!ort 0est1et in an international e'!ansion #ecause of the huge ca!ital investment it would require, which will #e discussed shortly. Most shareholders in 0est1et are used to, and e'!ect, an increasing, steady dividend, and if 0est1et ta es on a large ca!ital investment unli e any !ro3ect of their !ast, they may not #e a#le to maintain their current dividend yield, which could disa!!oint shareholders. If 0est1et decided to finance through de#t, instead of equity, there would also #e some com!lications. ,irstly, most of 0est1et2s !ast loans have #een financed through <'EIm!ort ;an

14 of the 7nited /tates, which requires 945 of the air!lane to #e used as collateral. $his !oses a !ro#lem if 0est1et decides to lease the new fleet, as they would #e required to use their e'isting !lanes as collateral. In addition, 0est1et seems to !refer reducing their long term de#t, as they have #een committed to ma ing !ayments of roughly 4& million in long term de#t each quarter. +owever, if they did decide to use de#t financing, 0est1et would li ely face little trou#le o#taining the de#t #ecause of their res!ecta#le de#t to equity ratio and es!ecially #ecause they do have availa#le collateral, (only 42 air!lanes of their :: fleet are currently #eing used as collateral*. 0hile it is currently more favoura#le for 0est1et to remain a !rimarily domestic flight com!any, 0est1et does have limited growth o!!ortunities within 8anada for the future. 0est1et has many !artners worldwide, and it is li ely that they could enter the international mar et shortly. 6ne ma3or issue with this o!tion is that their current fleet cannot underta e international flights. $he ;oeing D9D air!lanes are not adequately equi!!ed for lengthy tri!s and high fuel ca!acities. $his would require 0est1et to ma e a huge ca!ital investment that may or may not #e successful. In addition, costs, #oth varia#le and fi'ed, would increase immensely. 0est1et would #e loo ing at increased mar eting costs, to enhance their #rand internationally, increased fuel costs, #ecause of such long haul flights, and increased maintenance costs. =ealistically, if 0est1et were not !erceived !ositively in the international mar et, it would #e a huge loss to the com!any as the required !lanes are neither useful nor efficient for 8anadian flights and would #e a very e'!ensive sun cost. 6ne solution could #e conditional leases for 0est1et, however they are uncommon in the air!lane industry and there would still #e additional costs to consider for internationali%ation !lans.

"uture %ecommendations+Conclusion

1. 0est1et has grown as a cor!oration over the !ast 1. years with ma3or o!erations in North America. 0ith their e'!ansion of fleet si%e and destination o!tions, 0est1et has !laced themselves in a !rime !osition to succeed in the 8anadian airline industry. ,inancially, the organi%ation has grown 12.9D5 since 2&11. /emiEannually, the share value of 0est1et (01A* has increased, gaining 9.1.5 (of quoted share value !rice*. "ividends have increased #y 335, now declaring a I&.&9 dividend !er common voting share and varia#le voting shares to shareholders. =ealistically, the #est o!tion for 0est1et would #e to remain in the 8anadian mar et, as they already hold a large mar et share and have a history of success in the industry. In addition, this allows 0est1et to maintain the most control over the com!any, instead of relying on !artnershi!s for international e'!ansion. 0hile 0est1et still has the good o!!ortunity to e'!and domestically, with less ris involved, it would seem senseless to disregard the familiar mar et to 3um! into an unfamiliar and un!redicta#le international mar et at this time. International e'!ansion may #e a!!ro!riate for 0est1et in the future, and e'!anding the #rand in 8anada will hel! set it u! for future successes elsewhere.

Table 11: WestJet Airlines: key financial ratios

#atio Pro*it margin (evenue growt# Asset growt# 4ia.ilities growt# &e.t,asset ratio (eturn on assets (evenue per employee Pro*it per employee
!"#C$: CO<PA)= I4I)0"

2007 +91> 2193> +9/> 39+> !'92> !9'> ?3%'83'2 ?3/8332

2008 %92> 1+9+> +9+> %9'> !!9+> 39%> ?/1!8'23 ?2+82+!

2009 /93> :1293>; !9!> :/92>; !292> 29+> ?3!!8!'' ?138%3/

2010 393> 1/9/> 292> :29/>; 3%9%> 39+> ?3'38!%' ?2281/%

2011 393> !9+> :293>; 293> !293> /92> ?3'%813% ?228!%!

1D

E,HI-ITS

<A(KET4I)E

Ex)ibit A:
%i&'re 1(: WestJet Airlines: re)en'es * +rofitability

%i&'re 1,: Air Cana-a .nc: re)en'es * +rofitability

!"#C$: CO<PA)= I4I)0"

!"#C$: CO<PA)= I4I)0"

<A(KET4I)E
<A(KET4I)E

%i&'re 1/: Air Cana-a .nc: assets * liabilities

Canada 1 Airlines

Ex)ibit -:

22%2 1 2%3! 1 2211 Page 7 23

MARKETLINE THI" P(O I4E I" A 4ICE)"E& P(O&5CT A)& I" )OT TO 6E PHOTOCOPIE&

!"#C$: CO<PA)= I4I)0"

<A(KET4I)E

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Ex)ibit C: Internal Analysis of .est/et: S.OT

Strengths E Afforda#le flights (no frills* E <m!loyee involvement #y offering em!loyee share !urchase !lans E Awarded 8anada2s most admired com!any E /trong #rand image in 8anada, connected with safe, friendly, afforda#le E 8ode sharing with other airline com!aniesE adding new airline !artners means more customers (1& interline and 3 codeEsharing agreements* E ;usiness segment is growingJ customers reali%e the low cost and friendly environment, trying to ma e these tri!s easier access EAwith a growing list of airline !artnershi!s, a maturing guest rewards !rogram, u!coming service to New @or 2s Ca-uardia air!ort and other future !lanes, we will continue to im!rove the value we !rovide for #usiness travellersB E 0est1et E 6verall sales growth E 8onstantly loo ing for e'!ansionE try to focus on their guests (target mar et* E $ry to offer the com!lete e'!erience to every guest E =edesigned we#site that customers can easily access and understandK useful Opportunities E Air freight is e'!ected to grow increasing in the ne't few years E 0ant to #e in the 4 to! successful international airlines #y 2&1. E 0est1et has grown su#stantially since the #eginning of o!erations E <'!and internationally E 6rder more fleetsK invention of the new fleet E $a e advantage of social media the increase customers Weaknesses E "e!end on limited su!!liers (;oeing for their aircraft* E 6nly D. destinations in 8anada E "o not offer transcontinental flights, therefore customers may turn away to another airline in order to fly internationally E "o not offer lu'uryK comfort seating (first class* E "o not have #ig enough seats for larger !assengers E Meals are only offered on flights over 2 hours, some of the hungrier customers do not agree with this

Threats E Increasing com!etition E =ising cost of fuel E "ifferent uses of trans!ortation (#us, train* E 0hen they move into the international countries, they will have to com!ete with much larger airlines

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2&

Ex)ibit (: .est/et0s %atio (ata

Ex)ibit E: .est/et "inancial Statements

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Ex)ibit ": Common !otin$ S)ares

Ex)ibit 1: !ariable !otin$ S)ares

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Record Date December 15, 2010 March 16, 2011 June 15, 2011 September 14, 2011 December 14, 2011 March 14, 2012 June 13, 2012 September 12, 2012 December 12, 2012

Payment Date January 21, 2011 March 31, 2011 June 30, 2011 September 30, 2011 December 30, 2011 March 30, 2012 June 29, 2012 September 28, 2012 December 31, 2012

Amount per share (CAD) $0.05 $0.05 $0.05 $0.05 $0.05 $0.06 $0.06 $0.08 $0.08

Ex)ibit H: .est/et (ividends

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Ex)ibit I: .est/et Key Success "actors

?ey /uccess ,actors> 1. <'ceeding 8ustomer <'!eriences o /eat selection o!tions o +ousingK,eeding customers stranded due to delayed flights 2. <nthusiastic 8or!orate 8ulture o Maintaining em!loyee dedication H an engaged wor force o Increasing em!loyee retention 3. )roviding Afforda#le Air $ravel o Maintaining their low cost fare model o =educing costs as much as !ossi#le (limited to a few !lane models* o /electing efficient flight schedules

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Ex)ibit /: Air Canada Canadian destinations vs2 .est/et

Ex)ibit K: Capital Investment

8a!ital Investment > Analysts1 estimate that #ased on the list !rices, an order of 44 M4&& Ne't -eneration !lanes will #e 1.4 #illion> 1.4 ;illionK44 !lanes N I31111111.11 (A!!ro'imately I31 million each* Minimum required (24*> 31 ' 24 N $775 million Ma'imum required (4&*> 31 ' 4& N $1.4 billion (1.3:4* 1htt!>KKwww.canadian#usiness.comKarticleK92191EE0est1etEsaysEitEsE!leasedEwithE!riceEitEwillE!ayEforEnewE
#om#ardierEq4&&E!lanes

Sources
AA#out 0est1etB (2&12*> htt!>KKwww.west3et.comKguestKenKa#outKinde'.shtml

2. AAirlines Industry )rofile> 8anada.O Airlines Industry )rofile> 8anada (2&12*> 1E32. ;usiness /ource 8om!lete. 0e#. 2& Nov. 2&12. ;loom#erg ;usinesswee > A0est1et Airlines Ctd.B (2&12*> htt!>KKinvesting.#usinesswee .comKresearchKstoc sKfinancialsKratios.as!Ptic erN01A>8N ;oeing 8ommercial Air!lanes > 1et )rices (2&12*> htt!>KKwww.#oeing.comKcommercialK!ricesKinde'.html A;om#ardier Mar et ,orecastB (2&12*> htt!>KKwww2.#om#ardier.comKenK3Q&K3Q9Kmar etQforecastK;8AQ2&12QMar etQ,orecast.!df for everything A<'!anding our =each> 0est1et 2&11 Annual -eneral MeetingB (May 2&12*> htt!>KKwww.west3et.comK!dfKinvestorMediaKA-MQ2&12Qv452&,INAC.!df Macroa'is. (2&12, "ecem#er 3*. 8om!are <quities. =etrieved from htt!>KKwww.macroa'is.comKinvestKcom!areK01AEA.$6 $oronto /toc <'change. (2&12, Novem#er 2:*. 0est1et airlines Ctd. 01A. =etrieved from htt!>KKtm'.quotemedia.comKquote.!h!PqmQsym#olNw3a $oronto /toc <'change. (2&12, Novem#er 2:*. 0est1et airlines Ctd. 01A.A. =etrieved from htt!>KKtm'.quotemedia.comKquote.!h!PqmQsym#olNw3a.a A0est1et Airlines> 8ritical /uccess ,actors R ,rom Mar eting )oint of SiewB (n.d.*> htt!>KKwww.seriouso!inion.comKwest3etEairlinesEcriticalEsuccessEfactorsK A0est1et 8<6 -regg /arets y !lots a #igger fleetB (/e!tem#er 2&12*> htt!>KKm.theglo#eandmail.comKre!ortEonE#usinessKcareersKcareersEleadershi!Kwest3etEceoEgreggE sarets yE!lotsEaE#iggerEfleetKarticle134D..4KPserviceNmo#ile A0est1et !lans to create a regional carrier ne't year to com#at Air 8anada, !lacing a #et that lower fares will lure !assengers in smaller mar etsBE -lo#e and Mail htt!>KKwww.theglo#eandmail.comKglo#eEinvestorK0est1etE!lanEaEnewEthreatEtoEairE canadaKarticle13499&&K O0est1et 2M )rofit =ises ..5.O Air $rans!ort 0orld 4:.: (2&12*> 14. ;usiness /ource 8om!lete. 0e#. 24 Nov. 2&12. A0est1et says it2s !lease with !rice it will !ay for new ;om#ardier M4&& !lanesB (May 2&12*> htt!>KKwww.canadian#usiness.comKarticleK92191EEwest3etEsaysEitEsE!leasedEwithE!riceEitEwillE !ayEforEnewE#om#ardierEq4&&E!lanes

2D 0est1et. (2&12*. Investor ,AM. =etrieved from htt!>KKwww.west3et.comKguestKenKmediaE investorsKinvestorEfaq.shtml 0est1et. (2&12, /e!tem#er 3&*. Management "iscussion and Analysis of ,inancial =esults. =etrieved from htt!>KKwww.west3et.comK!dfKinvestorMediaKfinancial=e!ortsK0est1et2&12M3E M"A.!df 0est1et. (2&12*. /toc Information. =etrieved from htt!>KKwww.west3et.comKguestKenKmediaE investorsKstoc Einfo.shtml

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1lossary of Terms
Flight leg: A segment of a flight involving a sto!over, change of aircraft or change of airline from one landing site to another. Segment guest: Any !erson who has #een #oo ed to occu!y a seat on a flight leg and is not a mem#er of the crew assigned to the flight. A erage stage length: $he average distance of a nonEsto! flight leg #etween ta eEoff and landing as defined #y International Air $rans!ort Association (IA$A* guidelines. A ailable seat miles !AS"#: A measure of total guest ca!acity, calculated #y multi!lying the num#er of seats availa#le for guest use in an aircraft #y stage length. $e enue passenger miles !$%"#: A measure of guest traffic, calculated #y multi!lying the num#er of segment guests #y stage length. &oa' (a)tor: A measure of total ca!acity utili%ation, calculated #y dividing revenue !assenger miles #y total availa#le seat miles. *iel' !re enue per re enue passenger mile#: A measure of unit revenue, calculated as the gross revenue generated !er revenue !assenger mile. $e enue per a ailable seat mile !$AS"#: $otal revenue divided #y availa#le seat miles. +ost per a ailable seat mile !+AS"#: 6!erating e'!enses divided #y availa#le seat miles. +,)le: 6ne flight, counted #y the aircraft leaving the ground and landing. -tili.ation: 6!erating hours !er day !er o!erating aircraft. /on01AA% an' a''itional 1AA% measures $he following nonE-AA) and additional -AA) measures are used to monitor our financial !erformance> A'2uste' 'ebt: $he sum of longEterm de#t, o#ligations under finance leases and offE#alanceE sheet aircraft o!erating leases. 6ur !ractice, consistent with common airline industry !ractice, is to multi!ly the trailing 12 months of aircraft leasing e'!ense #y D.4 to derive a !resent value de#t equivalent. $his measure is used in the calculation of ad3usted de#tEtoEequity and ad3usted net de#t to <;I$"A=, as defined #elow. A'2uste' e3uit,: $he sum of share ca!ital, equity reserves and retained earnings, e'cluding hedge reserves. $his measure is used in the calculation of ad3usted de#tEtoEequity. A'2uste' net 'ebt: Ad3usted de#t less cash and cash equivalents. $his measure is used in the

2: calculation of ad3usted net de#t to <;I$"A=, as defined #elow. 456T7A$: <arnings #efore net finance costs, ta'es, de!reciation, aircraft rent and other items, such as asset im!airments, gains and losses on derivatives, and foreign e'change gains or losses. <;I$"A= is a measure commonly used in the airline industry to evaluate results #y e'cluding differences in the method #y which an airline finances its aircraft. +AS"8 e9)lu'ing (uel an' emplo,ee pro(it share: 0e e'clude the effects of aircraft fuel e'!ense and em!loyee !rofit share e'!ense to assess the o!erating !erformance of our #usiness. ,uel e'!ense is e'cluded from our o!erating results #ecause fuel !rices are affected #y a host of factors outside our control, such as significant weather events, geo!olitical tensions, refinery ca!acity, and glo#al demand and su!!ly. <'cluding this e'!ense allows us to analy%e our o!erating results on a com!ara#le #asis. <m!loyee !rofit share e'!ense is e'cluded from our o!erating results #ecause of its varia#le nature and e'cluding this e'!ense allows for greater com!ara#ility. $eturn on in este' )apital: =6I8 is a measure commonly used to assess the efficiency with which a com!any allocates its ca!ital to generate returns. =eturn is calculated #ased on our earnings #efore ta', e'cluding s!ecial items, finance costs and im!lied interest on our offE #alanceEsheet aircraft leases. Invested ca!ital includes average longEterm de#t, average finance lease o#ligations, average shareholders2 equity and offE#alanceEsheet aircraft o!erating leases. Free )ash (lo:: 6!erating cash flow less ca!ital e'!enditures. $his measure is used to calculate the amount of cash availa#le that can #e used to !ursue other o!!ortunities after maintaining and e'!anding the asset #ase. Free )ash (lo: per share: ,ree cash flow divided #y the diluted weighted average num#er of shares outstanding. Operating )ash (lo: per share: 8ash flow from o!erations divided #y the diluted weighted average num#er of shares outstanding.