Yesterday was ‘Investor Day’ at WestJet, where the airline gives financial analysts a look at its thinking, plans and financial projections for the year – and years – ahead.
The airline told attendees that it is targeting an annual operating margin of 10-12% in 2018 to 2020 and an improving annual return on invested capital (ROIC) that is expected to exceed 13% in 2020.
From 2018 to 2020, WestJet expects to deliver cumulative free cash flow of $775 to $875 million, with capital expenditures of approximately $780 million in 2018, peaking in 2019 at approximately $1 billion and dropping to approximately $870 million in 2020.
In terms of its key credit metric, WestJet estimates by the end of 2020 to be at 1.2 as measured by adjusted net debt over EBITDAR, and it expects to see its number of unencumbered (fully paid for) aircraft to rise from 51 at the end of Q3 2017 to 96 in 2020.
"We continue to invest in strategic initiatives that will support our transition from a low-cost point-to-point model into a high value-based network airline with a global footprint," said WestJet President and CEO Gregg Saretsky.
"We have been laying the foundation for this transition by investing in our network and schedule, while deepening our airline partnerships and broadening our fare products to not only defend and grow our leisure business but also to attract and retain premium travellers."
WestJet believes its strategy to attract and retain premium travellers, combined with an enhanced revenue management system, with broadened fare products and growth in ancillary, represent an annual revenue opportunity of between $300-$500 million through to 2022.
In addition, WestJet has identified annual cost savings opportunities of $140 million to $200 million through 2022. These are spread over several initiatives that include fleet reconfigurations, airport operations cost savings, optimized maintenance plans, digital self-service, and sales & distribution channel efficiencies.
"The expansion of WestJet Encore, our growing WestJet Rewards program and co-branded credit card, our penetration into the business traveller segment, combined with the launching of Swoop in the summer of 2018, and Boeing Dreamliner service commencing in 2019, give us great confidence in our ability to continue to deliver sustainable profitable growth and an improving annual return on invested capital that is expected to exceed 13% per cent in 2020,” Saretsky said.
“This exciting transition is all underpinned by the dedication and energy of our over 13,000 WestJetters who deliver our award-winning brand of friendly, caring service," he added.