U of L Global IRC Presentation

UNIVERSITYOF LETHBRIDGE

Soaring into the Yield Space

WJA: from Growth to GARP


WJA-T in 2011Target Price: $17.51

Rating: BUY

Rising Free Cash Flow Dividend Introduction Attracts Yield Investors Lower than Historical Growth Rates


Industry Overview Internal/External Analysis Financial Forecast Growth to GARP Dividend Yield Valuation• Questions

OUTLINE


INDUSTRY OVERVIEW


REVENUE-PASSENGER MILES

INDUSTRY OVERVIEW SWOT GROWTH TO GARP DIVIDEND YIELD VALUATIONFINANCIAL FORECAST


Canadian Market Business Travel International Market Employee Efficiency / Profit Sharing Codesharing / Interline Agreements

INDUSTRY OVERVIEW



INDUSTRY BREAKEVEN LOAD FACTORS

Porter WestJet Southwest JetBlue AirTran Air Canada Delta

49%

71% 74% 73% 74%

83% 83%



Canadian Market Business Travel International Market Employee Efficiency / Profit Sharing Codesharing / Interline Agreements

INDUSTRY OVERVIEW



D/E OF SELECT FIRMS

Wes

tJet

Sout

hwes

t

JetB

lue

AirT

ran

Air C

anad

a

Delta

Airl

ines

US Ai

rway

s

AMR C

orp.

1.36 1.48 3.06 3.04 5.06

59.35

92.08

-7.96



INTERNAL/EXTERNAL ANALYSIS


Low Cost Carrier Customer Service Fleet• New• Efficient• Flexibility in delivery• Maintenance

Lack of Business Class• Flight Availability• Business Perks

Strengths

INTERNAL ANALYSISWeaknesses



Recovering Economy Leisure demand

follows Competition

Grounded Planes WestJet New Planes

Dependence on Economic Activity

Competition Going Green Trend Oil prices and

hedging

Opportunities

EXTERNAL ANALYSISThreats



FINANCIAL FORECAST


WJA REVENUE FORECAST

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

E

2012

E

2013

E

2014

E0.0000

0.0004

0.0008

0.0012

0.0016

0.0020

Revenues to GDP Ratio Growth

WJA

Reven

ue /

Can

ad

ian

GD

P



2007 2008 2009 2010 2011E 2012E0

2

4

6

8

10

12

14

16

Aircraft Fuel Total Expenses

Cen

ts /

AS

M

WJA EXPENSE FORECAST



FINANCIAL FORECAST


(‘000) 2007 2008 2009 2010 2011E 2012E

Revenue 2,127,156 2,549,506 2,281,120 2,609,261 2,975,475 3,382,516

RASM 14.62 14.88 12.97 13.44 14.22 15.53

CASM 12.08 13.17 11.77 12.16 12.71 13.48

EBITDAR 505,592 514,709 454,636 522,871 629,739 805,319

EPS 1.47 1.37 0.75 0.94 1.38 2.19

Cash Flow 428,996 376,432 299,311 345,061 459,253 653,414


BALANCE SHEET RATIOS


(‘000) 2008 2009 2010 2011E 2012E

Net Debt 1,010,179 685,107 426,958 73,865 0

Net Debt to Cash Flow 0.7x 0.6x 0.3x 0.0x 0x

Debt to Total Capital

2.0x 1.5x 0.8x 0.1x 0x

Strong Free Cash Flow Generation Supports Dividend Growth While Maintaining Strong Leverage Ratios


GROWTH TO GARP


DE

CLIN

E

MATU

RIT

Y

GR

OW

TH

INTR

OD

UC

TIO

N

BUSINESS LIFE CYCLE



PRICE / EARNINGS MULTIPLE

2006

0x

5x

10x

15x

20x

25x

30x

0x

5x

10x

15x

20x

25x

30x

Growth

RecessionGARPDividend attracts large Canadian yield investors.



PRICE / EBITDAR MULTIPLE

2006 2007 2008 2009 20100x

1x

2x

3x

4x

5x

6x

7x

0x

1x

2x

3x

4x

5x

6x

7x

Growth

Recession

GARP



DIVIDEND YIELD


Substantial free cash flow generation Effectively managing capital spending with timing

of new aircraft deliveries Returning cash to shareholders via higher dividend

and/or share buybacks should sustain valuation multiple

Room for rising dividend stream over medium term

FREE CASH FLOW ENGINE



SOURCES & USES OF FUNDS

2007 2008 2009 2010 2011E 2012E0

100,000

200,000

300,000

400,000

500,000

600,000

Cash Flow CAPEX Dividend

Th

ou

san

ds

of

Can

ad

ian

Dol-

lars

Room for further dividend increases



VALUATION


P/EBITDAR per Share

P/EARNINGS per Share

EBITDAR/EARNINGS 629,739,252 192,793,258 Price Multiple 3.8x 16.0x

Enterprise Value 2,393,009,159 3,084,692,127

Net Adjustments (61,865,400) (61,865,400)

Adjusted Enterprise Value 2,331,143,759 3,022,826,727

Shares Outstanding 144,958,414 144,958,414

EV per Share $16.08 $20.85

Factor Weight 70% 30%

Target Price $17.51

2011 PRICE TARGET DERIVATION



Price Target $17.51

Price at Close Mar 3, 2011 $15.48

Price Appreciation 13.12%

Dividend Yield 1.29%

Total Upside 14.41%

RECOMMENDATION BUY

UPSIDE POTENTIAL



QUESTIONS

Documents

U of L Global IRC Presentation