Q2 Comparison

[Duster]

interesting comparison from Plane Business pulled from the other forum

Air Canada/WestJet Faceoff: Second Quarter Results - From Plane Business


So what's the latest north of the border? Last week, Ace Aviation Holdings Inc., parent of Air Canada, reported their second quarter results.

Let's see how they compared to those of WestJet, which reported earlier this month.

Air Canada

Last week ACE Holdings Inc., parent of Air Canada reported second quarter earnings.

As we've seen with a few other airlines this quarter, the numbers here are not that easy to dissect.

That is because last year, ACE Holdings sold its frequent-flyer program, Aeroplan. The deal netted ACE Holdings C$143 million. The company also posted a foreign exchange loss of C$107 million.

For the second quarter this year, the airline posted a gain of C$83 million after tax on the sale of its US Airways shares. It also posted foreign exchange gains of C$107 million.

Again, this is why, from an investor standpoint, we're not big fans of holding companies.

But having said that, here are the basic numbers for ACE.

The company posted net income of C$236 million ($211 million) for the quarter, or $2.05. This compared to last year when the company posted net income of C$169 million, or $1.50.

But remember, of that C$236 million, C$83 million was from the sale of US Airways stock.

Last week the airline confirmed again what it had said in its previous calls -- that it plans to spin off Air Canada in a separate IPO before the end of the year. This would be the third IPO, following those for Jazz and Aeroplan. The company will sell a minority stake in the airline.

Chairman Robert Milton also said last week that ACE's board of directors has discussed the possibility of simply breaking up ACE into its parts --Air Canada, Jazz, Aeroplan and Air Canada Technical Services. ACE would cease to exist.

"We've definitely gotten our heads past the possibility that, sometime, there is no ACE," he told analysts.

Just my two cents, but I think it is going to be a mistake to spin off Air Canada. Short term it might bring more bucks into the coffers, but longer term, I don't see the underlying operational numbers that AC has put up as being anything outstanding. At least as part of ACE, if AC falters, the company has other options. I had assumed they set up the holding company for that very reason.

But the company claims the market is not valuing ACE appropriately and that the only way this is going to happen is if they spin off the airline separately.

I disagree.

So enough of all that hoopla that got analysts excited about yet another IPO. We don't really care about ACE. We're more interested in Air Canada. Operationally, how did Air Canada itself perform for the quarter?

Frankly, not that well.

The airline saw operating revenue up 9.1%, while operating expenses rose 9.7%.

RPMs were up 5.5%, while ASMs were up 3%. This resulted in a 1.9 point increase in load factor to 82.1%.

Yield was up 2.8% to 16.6 cents/mile (US), while RASM was up 5.9% to 16.1 cents/mile (US). CASM was up 7% to 15 cents/mile (US), while CASM ex. fuel was up 3.3% to 11.2 cents/mile (US).

See, not that impressive. Especially when you compare the RASM increase to those we saw several U.S. airlines post this quarter. As for costs -- ah, even excluding fuel the airline's costs are way above those of its legacy airline counterparts south of the border.

ACE's operating margin of 6.8% put it 16th out of 19 airlines in North America. Only United, Midwest, Hawaiian and Frontier posted a weaker margin performance.

Give a listen to the call. It seems to me that Milton and the team at ACE are more preoccupied with how to monetize their assets than they are at improving the airline's revenue performance or its cost structure. And this should have been a good quarter for the airline.

Overall, not that impressed. And as for all those headlines that read, "ACE Aviation Profit Jumps" -- yeah, I guess my profit would jump too after a nice hefty return made from selling US Airways stock and a C$107 million foreign exchange gain.

Strip that out and then tell me how well Air Canada, the AIRLINE, did.

WestJet

Two weeks ago WestJet announced earnings. No "monetization" discussions here. Just airline talk.

For the quarter the airline posted a net profit of C$22.4 million, or $0.17 a share. However, this C$22.4 million was after a C$15.6 million payment made to Air Canada. Yes, you remember. White trash bags. Employee websites. Air Canada load information. Even after paying the piper on that whole nasty exercise, the airline's net income was still up 873% over last year's.

WestJet saw operating revenue up 30.3% while opearating expenses were up 21%.

RPMs were up 29.3% while ASMs were up 18.5%, resulting in a load factor increase of 6.5 points to 77.5%.

Yield was up 0.5% to 16.2 cents/mile (US), while PRASM was up 10.9% to 11.1 cents/mile (US). CASM was up 2.4% to 11.4 cents/mile (US) while CASM excluding fuel was flat -- at 8.3 cents/mile (US).

This was the first quarter that WestJet flew only new generation Boeing 737 aircraft. No question this helped in the cost category.

Operating margin here was 11.9% -- including profit sharing expense of C$2.1 million. This was good enough for the airline to post the fourth-highest operating margin of all airlines in North America, behind only Southwest, Republic and SkyWest. It was also a tremendous improvement over its 5.7% operating margin posted for the second quarter last year.

The airline ended the quarter with C$358 million in cash, and a debt to equity ratio of 2.5 to 1, which includes C$441 million in off balance sheet aircraft financing.

Two interesting notes on the revenue side. Revenue from non-fare sources was 17% of ancillary revenue.This includes such things as buy-on-board food, liquor, and headsets. The airline also launched WestJet Vacations this quarter. In the airline's recent earnings call it said that revenue performance for the new venture has already exceeded the airline's initial revenue projections by between 30%-40%.

See any differences?

Yes, I'd say these were much stronger results than those posted by their Canadian airline competition.

As the airline mentioned in its call, while yield was up only 0.5% for the quarter, if you adjust for changes in stage length, the airline posted a 4% increase in yield.

As for hedging, the airline has none in place -- and CEO Clive Beddoe gave a somewhat unusual rationalization as to why the airline is not looking to go out and buy any. "You know, we discussed this yesterday at our board meeting, and concluded that given the huge disparity in our total cost to Air Canada's cost, that it just didn't warrant us paying the very large premium that would be associated with buying essentially what would be a relatively short-term hedge. It just isn't warranted, and if there wasn't such a huge premium involved, it probably would be worthwhile, but we just don't see it, " Beddoe said.

Oh, and the ongoing reservations system upgrade? (Some might call it a nightmare.) The target for implementation remains next spring.

Are there any regional jets in the offing for WestJet?

Beddoe responded in the airline's call, "Absolutely not."

Guess that settles that.

The airline said in its call that bookings remain strong, they are happy with the way they are moving around capacity within their system (changing capacity to match seasonal trends), and Beddoe said he expects yields to improve in the third quarter.

There was not much not to like in this call. The airline posted very strong numbers. It's not been all roses for WestJet the last few years. (Do we all remember Jetsgo?) But these were very, very, good results.

[427wedge]

Me thinks there may be a lot of mirrors with copious quantities of smoke?

The 3rd quarter should tell a more accurate story as there is no planned spinoffs or share sales in legacy carriers.

As I read it it looks like AirCanada the airline is basically break even in one of the strongest quarters in the history of aviation......