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WestJet Flies Into a Flexible Future

This shareholder-friendly airline is laying the foundation for growth.

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 WestJet (WJA) is a profitable, low-cost airline founded in 1996 and based in Calgary, Alberta. We believe its culture of ownership sets WestJet apart from most airlines; it counts more than 85% of 8,800 employees as shareholders. By the end of 2012, the firm will have delivered 31 consecutive quarters of profitability. The company has laid out a flexible growth plan through 2018, with commitments to purchase 35 new mainline aircraft offset by 33 lease expirations. Furthermore, the launch of a new regional airline, WestJet Encore, in the second half of 2013 includes commitments for 20 aircraft with the option to acquire 25 more. We believe WestJet's flexibility is evidenced by the wide range of capacity growth possibilities through 2018, from 12% to 62%. Our base-case scenario assumes capacity increases 40%. A new premium/business-class seat offering paves the way for improved revenue. We think a fully utilized business-class offering at a 50% premium could boost sales more than 8% with minimal cost increases. Shareholder-friendly activities include repurchases totaling nearly 9% of outstanding shares over the past two years and a CAD 0.08 per share quarterly dividend, equal to a 1.2% yield. We think WestJet is well positioned for growth and shareholder returns over the medium term.

WestJet serves 81 destinations in 18 countries and operated a fleet of 100 Boeing 737s as of December 2012. It will launch regional service with Bombardier's Q400 aircraft in late 2013 and is committed to purchasing 20 aircraft by 2016. The company believes its fares will be nearly 50% of those charged by competitors, and it offered evidence of prior campaigns where low fares resulted in materially stronger travel demand. We believe the company's culture will be the primary driver of customer satisfaction along with long-term results at both the regional and mainline operations, and with 91% of employees positive on the launch of a regional service, we expect WestJet to maintain its performance level.

Neal Dihora does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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