Westjet

EXECUTIVE SUMMARY

SIMBA Consulting has been hired by Export Development Canada (EDC) to advise it on the possibility of financing WestJet Airlines’ expansion plans. We at SIMBA Consulting have analyzed the financial statements of WestJet Airlines for the financial years 2011 and 2012 and compared it with Air Canada as a benchmark. Based on the analysis we recommend EDC to go ahead with its plans to finance WestJet Airlines for its expansion plans.

The airline industry market share is split between Air Canada (55%) and WestJet (35%), with the rest of the chunk made up of smaller airlines. WestJet flies in both the domestic and North American market as a low cost carrier. It derives its success from its low cost structure and superior travel experience. WestJet is looking to expand its network and airline partnerships by launching WestJet Encore in 2013. WestJet Encore’s mission is to provide lower fares in new Canadian communities, bring new guests into WestJet’s expansive network, increase frequency on existing routes and connect existing WestJet destinations currently not serviced by their Boeing 737 fleet.

The financial statements of WestJet follow IFRS and are prepared by the WestJet Management with the objective of maximizing net income. Their accounting policies are thus biased towards this end. WestJet recorded net earnings of $ 242 million in the financial year ending December 2012, a 63 % increase on a year-over-year basis. Year 2012 marked their eighth consecutive year of profitability. WestJet achieved a year-over-year revenue per available seat mile (RASM) growth of 7.1 percent on a capacity increase of 4.1 percent. In comparison their biggest competitor Air Canada reported a 3.2 percent RASM increase year-over-year on a capacity increase of 1.2 percent.

Our analysis of the key financial ratios too shows fairly promising results. Debt to equity ratio has fallen from 0 .49 in 2011 to 0.39 in 2012, current ratio has increased from 1.51 in 2011 to 1.38...