WestJet
TSX : WJA

WestJet

November 03, 2005 08:30 ET

WestJet Announces Third Quarter Results: Net Earnings Increase 43%

CALGARY, ALBERTA--(CCNMatthews - Nov. 3, 2005) - WestJet (TSX:WJA) today announced its 2005 third quarter results with net earnings up 43.6% to $30.3 million compared to $21.1 million achieved during the same period last year. In the first nine months of 2005, the airline achieved net earnings of $23.0 million compared to $29.1 million during the first nine months of 2004.

Operating revenue increased 30.9% this quarter to $406.1 million from $310.3 million attained in the third quarter last year. Year to date, operating revenue grew to $1.0 billion, an increase from $784.3 million during the same period in 2004.

WestJet reported diluted earnings per share of $0.23 during the third quarter of 2005, compared with $0.17 during the third quarter of 2004. Year to date, the airline reported diluted earnings per share of $0.18 compared to $0.23 during the same nine-month period in 2004. The number of common shares outstanding increased to 129,240,797 at the quarter's end compared to 125,447,836 on September 30, 2004.

WestJet's capacity, measured in available seat miles (ASMs), grew this quarter by 17.0% to 2.82 billion from last year's 2.41 billion ASMs. Year to date, ASMs increased 23.5% to 7.99 billion from 6.47 billion ASMs during the first nine months of 2004. Revenue passenger miles (RPMs) increased 20.0% to 2.22 billion RPMs this quarter, up from 1.85 billion RPMs in the same quarter last year. For the first nine months of 2005, RPMs increased 29.4% to 5.95 billion RPMs from 4.60 billion RPMs during the first three quarters of 2004.

WestJet's load factor for the quarter was 78.6% compared with 76.6% in the third quarter of 2004. The airline's year-to-date load factor was 74.5% compared with 71.0% during the first nine months of 2004.

Yield (revenue per revenue passenger mile) increased 8.9% this quarter to 18.3 cents from 16.8 cents during third quarter 2004. Year to date, yield was up 1.2% to 17.3 cents from 17.1 cents during the first nine months of 2004. WestJet's average stage length increased 4.9% from 788 miles in the third quarter of 2004 to 827 miles this quarter.

Clive Beddoe, WestJet's President and CEO, commented, "We are very pleased to report that our third quarter earnings grew 43.6% over the same period last year to $30.3 million. Pre-tax earnings grew to $48.5 million, a 36.2% increase over the $35.6 million earned in the third quarter of 2004. This is a significant achievement given the high cost of energy and the difficulty associated with predicting future prices of jet fuel.

"Although the high price of crude oil is well known, what has not generally been recognized is the disproportionately higher cost of jet fuel. This has been created by the refinery damage caused by hurricane Katrina and the resulting reduced refining capacity.

"To mitigate the volatility in the price of jet fuel, we have entered into a series of short-term hedging agreements; however, we believe this situation will ease once the affected refineries in the U.S. return to normal levels of production.

"Our initiative to replace our older, fuel-thirsty 737-200 aircraft with Next-Generation 737 aircraft remains on track. Since 2001, we have effectively been operating a fleet comprised of two distinct aircraft types -- older 737-200s and new Next-Generation 737 aircraft. By early 2006, we will have retired all of our older 737-200 models in favour of a fleet comprised entirely of more fuel-efficient Next-Generation aircraft.

"The costs associated with operating the Next-Generation 600-, 700- and 800-series 737s are relatively low as all can be operated by the same crews, and are virtually the same from a maintenance standpoint. The uniformity of our fleet going forward will offer many advantages from a cost and customer service perspective as well as benefits that will come from increased utilization and flexible scheduling.

"The implementation of our new reservation system in early 2006 will further strengthen our competitive edge and raise our levels of customer service. This system will open many opportunities for us to improve our product and we expect to see increased load factors and improved yields as a result.

"Based on our strong load factor this quarter in the face of our 17% increase in available seat miles, it is clearly apparent that the market can absorb the increased capacity we continue to add to our existing network and our new routes. However, our overall load factor was dampened by weaker performance on our transborder routes.

"Our transborder flights during the winter have generally done well as the predominant traffic flow has been southbound, but to maintain strong year-round transborder service, we still need to improve upon our distribution from within the U.S. We are nevertheless seeing constant improvement from our efforts in this area and with our first year's experience of operating transborder service now behind us, we are better equipped to adjust our schedules and capacity accordingly.

"The challenges facing airlines throughout North America and the world have received considerable media attention in recent years. Through these difficult times, however, the people of WestJet have worked diligently to improve our airline and the level of service we offer our guests. I would like to thank all WestJetters for their efforts in maintaining and improving our world-class airline, and for their work at creating these strong third quarter results. I would also like to thank our shareholders for their ongoing support as we continue to navigate through a difficult operating environment."

WestJet is Canada's leading low-fare airline offering scheduled service throughout its 35-city North American network. Named Canada's most respected corporation for customer service in 2005, WestJet pioneered low-cost high-value flying in Canada. With increased legroom and leather seats on its modern fleet of Boeing Next-Generation 737 aircraft, and live seatback television provided by Bell ExpressVu on its 737-700 fleet, WestJet strives to be the number one choice for travellers.

Third Quarter 2005 Management's Discussion and Analysis

Forward-looking Information

Certain information set forth in this document, including management's assessment of WestJet's future plans and operations, contains forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond WestJet's control, including the impact of general economic conditions, changing domestic and international industry conditions, volatility of fuel prices, terrorism, currency fluctuations, interest rates, competition from other industry participants (including new entrants, and generally as to capacity fluctuations and pricing environment), labour matters, government regulation, stock-market volatility and the ability to access sufficient capital from internal and external sources. Readers are cautioned that management's expectations, estimates, projections and assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. WestJet's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements or if any of them do so, the benefits that WestJet will derive there from.

Additional information relating to WestJet, including Annual Information Forms and financial statements, is available on SEDAR's website at www.sedar.com.

To supplement its consolidated financial statements presented in accordance with Canadian generally accepted accounting principles ("GAAP"), the Company uses various non-GAAP performance measures, including cost per available seat mile ("CASM"), revenue per available seat mile ("RASM") and revenue per revenue passenger mile ("yield"). These measures are provided to enhance the user's overall understanding of WestJet's current financial performance and are included to provide investors and management with an alternative method for assessing the Company's operating results in a manner that is focused on the performance of the Company's ongoing operations and to provide a more consistent basis for comparison between quarters. These measures are not in accordance with or an alternative for GAAP and may be different from measures used by other companies.



Quarterly unaudited financial information

(In millions except per share data)

---------------------------------------------
---------------------------------------------
9/30/2005 6/30/2005 3/31/2005 12/31/2004
---------------------------------------------
---------------------------------------------
Total revenues $ 406 $ 326 $ 295 $ 274
Net earnings (loss) $ 30 $ 2 $ (10) $ (46)
Basic earnings (loss)
per share $ 0.24 $ 0.02 $ (0.08) $ (0.37)
Diluted earnings (loss)
per share $ 0.23 $ 0.02 $ (0.08) $ (0.37)

---------------------------------------------
---------------------------------------------
9/30/2004 6/30/2004 3/31/2004 12/31/2003
---------------------------------------------
---------------------------------------------

Total revenues $ 310 $ 257 $ 217 $ 230
Net earnings $ 21 $ 7 $ 1 $ 13
Basic earnings per share $ 0.17 $ 0.06 $ - $ 0.10
Diluted earnings per share $ 0.17 $ 0.06 $ - $ 0.10


HIGHLIGHTS

The third quarter of 2005 was another exciting time for our airline in terms of the expansion of our route network and our return to stronger profitability. In addition to adding flights to our existing network, we commenced scheduled service to Las Vegas, Nevada, extended our service to Charlottetown, Prince Edward Island, and announced service to Honolulu and Maui, Hawaii beginning in December of this year. The addition of these destinations to our network strengthens our current routes while the added frequencies and increased connectivity between existing destinations improves the attractiveness of our product to the travelling public.

The evolution of our route network into more markets and the continued expansion of our fleet has coincided with a period of relentlessly high fuel prices. The high-fuel-cost environment was a catalyst for our decision to retire our remaining 737-200 aircraft. The last of these aircraft will be removed from scheduled service in January 2006 and depart our fleet in March 2006.

With the agreement to retire our last less-efficient 737-200 signed in July, we were especially pleased to accept delivery of our first new Next-Generation 737-600 aircraft in August. Beginning in January 2006, we will operate a fleet comprised exclusively of state-of-the-art Boeing Next-Generation 737 aircraft equipped with more legroom and leather seats. Furthermore, our 600-, 700- and 800-series aircraft will all eventually be furnished with live seatback television provided by Bell ExpressVu.

This will bring to fruition our long awaited goal of operating a fleet comprised entirely of Next-Generation aircraft, from which we will realize improved efficiencies and savings as they relate to training, crewing and maintenance. Furthermore, by operating three different sizes of one aircraft type, we will ensure we are operating the best-suited aircraft for the varied and changing demands of each route.

Improving efficiencies and stimulating demand with expanded low-cost service are fundamental elements of our business philosophy; however, of all the business decisions we made this quarter, many WestJetters are most proud of our role in airlifting evacuees away from the path of hurricane Rita in September.

We were first contacted by American relief officials at approximately noon MDT on September 22. We had an aircraft crewed with pilots, flight attendants and maintenance personnel in the air and on its way to Houston four hours later. It was a great pleasure and honour for our people to participate in easing the fear and discomfort of the many Texans we helped during that important rescue and evacuation operation. We would like to thank all WestJet shareholders, as owners of our company, for their support of this operation.

OPERATIONAL GROWTH

As anticipated, in the third quarter we experienced the benefits of a more rational competitive environment, which allowed us to price our product more in line with our costs. The third quarter saw our guest revenue increase by 29.7% to $368.3 million versus $283.9 million for the same period a year ago. Our load factor increased to 78.6% this quarter from 76.6% during the third quarter of 2004, and our yield increased from 16.8 cents per revenue passenger mile to 18.3 cents over the same time period. The ability for our airline to increase capacity by 17%, while also increasing both our load factor and yield, is a clear indication of the market's acceptance of our product and the improving competitive environment in Canada.

As has been the case throughout the year, our charter revenue continued to increase on a year-over-year basis with gross revenue from charter and other income climbing $10.9 million to $36.0 million, representing an increase of 43.4%. Charter flying, as a component of our business, continues to increase in importance as it allows us to increase the utilization of our aircraft during times of weaker demand, which improves our return on these assets.

COSTS

Our cost per available seat mile ("CASM") this quarter increased by 11.7% over the same quarter last year, from 11.1 cents to 12.4 cents. As has been the case throughout the year, the largest single contributor to this increase has been fuel, which represented 52% of the increase in total CASM. This pressure is expected to continue throughout the remainder of the year as damage caused by hurricanes Rita and Katrina have strained refining capacity in the U.S., driving up the cost of jet fuel as a refined product and in relation to crude oil. In this environment of continually increasing fuel costs, the completion of our transition to a fleet comprised entirely of more fuel-efficient Next-Generation aircraft in March 2006 becomes all the more important.

Our average stage length for the quarter was 827 miles, an increase of 39 miles over the same quarter in the prior year when our stage length was 788 miles. The impact of this increase lowered our costs by approximately 2.6% on an ASM basis, as our fixed costs are spread out over longer flight lengths. Ignoring the impact of stage length, we estimate that our CASM would have increased by 14.3% rather than the 11.7% we actually achieved.

Increasing airport costs and navigational charges, both of which are largely uncontrollable by WestJet, were also significant drivers of our CASM increase this quarter. Airport costs were up due to an increase in our average cost per departure of 8.9%. This increase is the result of increased rates and fees charged by Canadian airports, as well as by a 20% increase in capacity into Toronto, one of the most expensive airports in our network. Navigational charges have increased in the quarter due to a 7.9% rate increase by NAV Canada in September 2004. Our continued transition to Next-Generation aircraft, which are heavier than our 737-200 fleet, has also increased this cost as navigational charges are based on weight.

The launch of a new advertising campaign during the quarter was the largest contributor to the increase in Sales and Marketing costs, which increased on a CASM basis by 41.9% over the same period last year. This advertising campaign targeted newspaper, radio and television audiences to increase awareness of the WestJet brand and the extraordinary customer service WestJet people provide. The campaign, called "Owners," focuses on WestJetters going above and beyond every day because they have a vested interest in creating an exceptional travel experience. At quarter's end, 86% percent of eligible employees contributed to WestJet's employee share purchase plan at an average rate of 12% of base pay.

Aircraft leasing costs, on a CASM basis, increased 60.5% compared to the third quarter of 2004 as eight aircraft delivered in the first and second quarter of 2005 were financed through operating leases. Five of these leases were for 737-800 aircraft leased over 10-year terms, with the remaining three leases for 737-700 aircraft leased over eight-year terms.

Maintenance costs continue to benefit from our fleet renewal program, which has resulted in the retirement of eight 737-200 aircraft between January and September 2005. Replacing our older 200-series aircraft with new Next-Generation aircraft has resulted in maintenance costs declining 19.5% in the quarter on a CASM basis as compared to the third quarter of 2004. These retirements have been offset by the addition of five 737-800 aircraft, five 737-700 aircraft and one 737-600 aircraft over that same time period.

BALANCE SHEET, LIQUIDITY & CAPITAL RESOURCES

The financial strength and flexibility of our balance sheet continues to be a fundamental component of our long-term success. Our cash balance at the end of this quarter stood at $257 million, up from $149 million at the beginning of the year despite having taken delivery of 11 new aircraft over that same time period. We ended the quarter with a working capital ratio of 0.86 to 1 as compared to 0.92 to 1 for the same quarter of the previous year. Our debt-to-equity ratio, which includes $495 million of off-balance sheet financing in the form of operating leases at present value, was 2.39 to 1 at the end of the quarter.

The third quarter was an important period for securing the future financial strength and flexibility of our balance sheet. During the quarter, we received Final Commitment from the Export-Import Bank of the United States (Ex-Im) to support the financing of 13 aircraft, consisting of five Boeing 737-700s and eight Boeing 737-600s, which are scheduled to be delivered between July 2005 and June 2006. With the support of the Ex-Im guarantee, we have completed financing arrangements for US $386 million for delivery of all 13 aircraft covered by the Ex-Im loan guarantees. This facility will be drawn in Canadian dollars in separate instalments with 12-year terms for each new aircraft. During the quarter, we took delivery of the first three aircraft under this facility, consisting of two Boeing 737-700s and one Boeing 737-600 and have to date drawn a total of CAD $112 million at an average fixed rate of 4.69%.

The Ex-Im guaranteed loan facility provides the ability to enter into forward-starting interest-rate agreements to fix the interest rate on the remaining 10 aircraft to be delivered under the facility. In order to take advantage of the current low-interest-rate environment, we have entered into forward-starting interest-rate agreements at rates between 4.78% and 4.99% on all 10 remaining aircraft deliveries. In addition to the ability to forward fix the interest rates on the future aircraft deliveries, we also have the ability to reduce our foreign exchange exposure on these same deliveries by locking in the exchange rate in advance of delivery. As at September 30, 2005, we have entered into foreign exchange contracts in the amount of US $28 million at a rate of 1.22, effective until November 30, 2005 for the delivery of one aircraft under this facility. The estimated fair value of the contract as at September 30, 2005 is a loss of CAD $1,690,000.

In addition to the Final Commitment described above, the corporation also received a Preliminary Commitment in the amount of US $324 million to cover an additional six aircraft to be delivered between July 2006 and January 2007, as well as an additional four aircraft currently under option.

FUEL-RISK MANAGEMENT

Fuel price volatility not only continued in the third quarter of 2005, but intensified due to the impact that hurricanes Katrina and Rita had on jet-fuel refineries in the U.S. In response to the continued unpredictability in the price of jet fuel, we implemented a fuel-hedging strategy to help mitigate the effects of volatile fuel prices. The challenge WestJet faces with respect to fuel costs relates to the length of time between a guest booking a flight and the date at which the guest actually travels. As airline travellers typically purchase seats for travel weeks or months in advance of their planned travel date, the price paid for those seats may not reflect the actual cost to fly that passenger as fuel prices may have increased over that time period.

To reduce our exposure to this uncertainty, we have locked in a portion of our exposure to fluctuations in the price of jet fuel over a term and quantity that relates to our advanced ticket sales. For the months of October, November, December and January we locked in approximately 50%, 50%, 25% and 12.5% respectively of our anticipated exposure to fluctuations in the price of jet fuel. The estimated fair market value of these contracts as at September 30, 2005 was a gain of $1,722,000.

IMPROVED SHARE STRUCTURE

On August 30, 2005, WestJet shareholders voted in favour of the creation of two new classes of shares to replace our common shares in order to address non-Canadian ownership limits. Under Canadian law, non-Canadian ownership (as defined by the Canada Transportation Act) of airline voting shares is limited to 25% of outstanding shares. The amended capital structure ensures our continued compliance with the 25% maximum on the number of voting rights attached to shares held by non-Canadians by having all shares held by non-Canadians automatically converted to variable voting shares. Variable voting shares, held by non-Canadians, carry one vote per share unless non-Canadians collectively hold in excess of 25% of all outstanding voting shares or if the total number of votes cast by or on behalf of non-Canadians at any meeting upon which a vote is to be taken exceeds 25% of the total number of votes that may be cast at such meeting. In these circumstances, the voting rights of the non-Canadians is reduced on a pro-rata basis such that the variable voting shares would never collectively carry more than 25% of the vote at any shareholder meeting. The common voting shares are owned and controlled by Canadians and always carry one vote per share. As at October 27, 2005, the Corporation had a total of 129,399,673 shares outstanding, which was made up of 118,387,496 common voting shares and 11,012,177 variable voting shares.

THE FUTURE

With more destinations, new aircraft and a disciplined approach to operating our business, we are extremely well positioned in the Canadian marketplace to continue our growth strategy. As well, the distinct competitive advantage afforded by our dedicated team of people, superb product offering and solid financial footing places WestJet in a unique and enviable place among other airlines.

We are committed to being the lowest-cost provider of safe air transportation to, from and within Canada by:

- Constantly enriching our strong corporate culture, which is dedicated and committed to providing the best customer service in the industry

- Progressively developing new markets in both Canada and beyond which can be serviced by the Boeing 737 in its various forms

- Continually increasing the frequency of our routes to provide a variety of scheduling options to the travelling public

- Continuously building our service model of providing low-fare air transportation to both leisure and business travellers

With the continued support of our shareholders, people and guests, we will leverage the advantages of our business to the best of our ability to ensure we optimize our returns, offer an unbeatable low-fare experience and continue to be a great place to work.



Cost per Available Seat Mile (Cents):
-------------------------------------

Three months ended Nine months ended
September 30, September 30,
------------------------------------------------------------------------
% Change % Change
2005 2004 over 2004 2005 2004 over 2004
------------------------------------------------------------------------

Aircraft fuel 3.41 2.72 (25.4%) 3.20 2.56 (25.0%)
Airport operations 1.92 1.88 (2.1%) 2.04 1.91 (6.8%)
Flight operations
and navigational
charges 1.76 1.63 (8.0%) 1.70 1.66 (2.4%)
Sales and
marketing 1.22 0.86 (41.9%) 1.09 0.98 (11.2%)
Amortization 0.96 0.82 (17.1%) 0.99 0.88 (12.5%)
Maintenance 0.66 0.82 19.5% 0.73 0.89 18.0%
General and
administration 0.57 0.70 18.6% 0.63 0.67 6.0%
Aircraft leasing 0.69 0.43 (60.5%) 0.58 0.49 (18.4%)
Interest expense 0.49 0.48 (2.1%) 0.51 0.48 (6.3%)
Inflight 0.48 0.48 0.0% 0.49 0.49 0.0%
Customer Service 0.26 0.27 3.7% 0.25 0.26 3.8%
------ ------- ----------- ------ ------- ------------
------ ------- ----------- ------ ------- ------------
12.42 11.09 (12.0%) 12.21 11.27 (8.3%)

------------------------------------------------------------------------
------------------------------------------------------------------------


WestJet Airlines Ltd.
Consolidated Financial Statements
September 30, 2005
(Unaudited)


WestJet Airlines Ltd.
Consolidated Balance Sheets
September 30, 2005, December 31, 2004 and September 30, 2004
(Stated in Thousands of Dollars)
------------------------------------------------------------------------
------------------------------------------------------------------------
September 30 December 31 September 30
2005 2004 2004
(unaudited) (unaudited)
------------------------------------------------------------------------
Assets
Current assets:
Cash and cash
equivalents $ 256,961 $ 148,532 $ 227,887
Accounts receivable 18,692 12,814 12,935
Income taxes
recoverable 6,698 2,854 3,423
Prepaid expenses
and deposits 33,034 25,493 24,612
Inventory 3,570 5,382 5,369
------------------------------------------------------------------------
318,955 195,075 274,226

Property and equipment
(note 1) 1,675,187 1,601,546 1,573,785

Other assets 86,489 80,733 79,398
------------------------------------------------------------------------

$ 2,080,631 $ 1,877,354 $ 1,927,409
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and
Shareholders' Equity
Current liabilities:
Accounts payable and
accrued liabilities $ 93,775 $ 91,885 $ 82,434
Advance ticket sales 140,353 81,991 95,724
Non-refundable guest
credits 27,754 26,704 23,386
Current portion of
long-term debt (note 2) 104,308 97,305 92,190
Current portion of
obligations under
capital lease (note 6) 2,769 6,564 5,211
------------------------------------------------------------------------
368,959 304,449 298,945

Long-term debt (note 2) 938,865 905,631 892,780

Obligations under capital
lease (note 6) 878 - 5,894

Long-term liabilities
(note 3) 16,092 10,000 10,000

Future income tax 94,768 67,382 87,068
------------------------------------------------------------------------
1,419,562 1,287,462 1,294,687
Shareholders' equity:
Share capital (note 5) 426,172 390,469 390,465
Contributed surplus
(note 5(f)) 34,487 21,977 18,542
Retained earnings 200,410 177,446 223,715
------------------------------------------------------------------------
661,069 589,892 632,722
------------------------------------------------------------------------

Commitments and
contingencies (note 6)
------------------------------------------------------------------------
$ 2,080,631 $ 1,877,354 $ 1,927,409
------------------------------------------------------------------------
------------------------------------------------------------------------


WestJet Airlines Ltd.
Consolidated Statements of Earnings and Retained Earnings
For the periods ended September 30, 2005 and 2004
(Unaudited)
(Stated in Thousands of Dollars, Except Per Share Data)
------------------------------------------------------------------------


------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2005 2004 2005 2004
------------------------------------------------------------------------
Revenues:
Guest revenues $ 368,349 $ 283,949 $ 879,650 $ 693,054
Charter and other 35,963 25,059 143,391 87,074
Interest income 1,823 1,265 4,114 4,128
------------------------------------------------------------------------
406,135 310,273 1,027,155 784,256

Expenses:
Aircraft fuel 96,117 65,601 255,144 165,532
Airport operations 54,155 45,413 162,573 123,658
Flight operations
and navigational
charges 49,661 39,370 136,010 107,546
Sales and
marketing 34,492 20,832 87,083 63,208
Amortization 27,109 19,890 78,985 56,762
Maintenance 18,621 19,668 58,253 57,528
General and
administration 16,185 16,934 50,222 43,349
Aircraft leasing 19,412 10,487 46,426 31,538
Interest expense 13,866 11,682 40,679 31,036
Inflight 13,469 11,559 39,180 31,590
Customer service 7,256 6,432 19,863 16,630
------------------------------------------------------------------------
350,343 267,868 974,418 728,377

------------------------------------------------------------------------
Earnings from
operations 55,792 42,405 52,737 55,879

Non-operating income
(expense):
Loss on foreign
exchange (2,378) (2,668) (2,483) (637)
Gain (loss) on
disposal of
property and
equipment 392 32 475 (23)
------------------------------------------------------------------------
(1,986) (2,636) (2,008) (660)

Employee profit
share (note 7) 5,276 4,135 5,276 5,839

------------------------------------------------------------------------
Earnings before
income taxes 48,530 35,634 45,453 49,380

Income tax expense
(recovery):
Current (1,206) 1,479 (4,958) (5,366)
Future 19,476 13,032 27,447 25,645
------------------------------------------------------------------------
18,270 14,511 22,489 20,279

------------------------------------------------------------------------

Net earnings 30,260 21,123 22,964 29,101

Retained earnings,
beginning of period 170,150 202,592 177,446 204,731

Change in accounting
policy (note 5(e)) - - - (10,117)

------------------------------------------------------------------------
Retained earnings,
end of period $ 200,410 $ 223,715 $ 200,410 $ 223,715
------------------------------------------------------------------------
------------------------------------------------------------------------

Earnings per share
(note 5(d)):
Basic $ 0.24 $ 0.17 $ 0.18 $ 0.23
Diluted $ 0.23 $ 0.17 $ 0.18 $ 0.23


------------------------------------------------------------------------
Operating highlights:

Available
seat miles 2,821,051,988 2,411,184,997 7,985,225,263 6,474,433,930
Revenue
passenger
miles 2,217,846,200 1,847,831,718 5,950,820,464 4,597,575,973
Load factor 78.6% 76.6% 74.5% 71.0%
Revenue per
passenger mile
(cents) 18.3 16.8 17.3 17.1
Revenue per
available seat
mile (cents) 14.4 12.9 12.9 12.1
Cost per
passenger mile
(cents) 15.8 14.5 16.4 15.8
Cost per
available seat
mile (cents) 12.4 11.1 12.2 11.3
Fuel consumption
(litres) 144,380,341 131,666,890 418,470,602 356,121,880
Fuel cost/litre
(cents) 66.6 49.8 61.0 46.5
Segment guests 2,522,782 2,174,582 6,974,081 5,742,767
Average stage
length 827 788 805 750
Number of full
time equivalent
employees at
quarter end 4,208 3,923 4,208 3,923
Fleet size at
quarter end 57 53 57 53
------------------------------------------------------------------------
------------------------------------------------------------------------


WestJet Airlines Ltd.
Consolidated Statements of Cash Flows
For the periods ended September 30, 2005 and 2004
(Unaudited)
(Stated in Thousands of Dollars)
------------------------------------------------------------------------
------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2005 2004 2005 2004
------------------------------------------------------------------------
Cash flows from
(used in):

Operations:
Net earnings $ 30,260 $ 21,123 $ 22,964 $ 29,101
Items not
involving cash:
Amortization 27,109 19,890 78,985 56,762
Amortization of
long- term
liabilities (217) - (387) -
(Gain) loss on
disposal of
property and
equipment (392) (32) (475) 23
Stock-based
compensation
expense 4,875 3,411 12,960 8,869
Issued from
treasury stock 5,780 - 15,993 -
Future income
tax expense 19,476 13,032 27,447 25,645
------------------------------------------------------------------------
86,891 57,424 157,487 120,400

(Increase) Decrease
in non-cash working
capital (28,062) (30,439) 50,475 18,103
------------------------------------------------------------------------
58,829 26,985 207,962 138,503
------------------------------------------------------------------------

Financing:
Repayment of
long-term debt (23,950) (20,395) (71,779) (52,830)
Increase in
long-term debt 112,016 121,376 112,016 388,935
Decrease in
obligations under
capital lease (2,429) (1,590) (5,317) (4,826)
Increase (decrease)
in long-term
liabilities (50) - 8,480 10,000
Share issuance costs (150) - (183) (10)
Increase in other
assets (5,392) (5,122) (12,898) (21,562)
Issuance of common
shares 5,886 142 19,382 13,950
------------------------------------------------------------------------
85,931 94,411 49,701 333,657
Increase in
non-cash working
capital (264) - (837) -
------------------------------------------------------------------------
85,667 94,411 48,864 333,657
Investing:
Aircraft additions (123,016) (149,689) (514,134) (455,275)
Aircraft disposals 4,523 401,201 -
Other property
and equipment
additions (10,355) (7,956) (35,968) (33,224)
Other property
and equipment
disposals 433 237 504 2,842
------------------------------------------------------------------------
(128,415) (157,408) (148,397) (485,657)
------------------------------------------------------------------------

Net change in cash 16,081 (36,012) 108,429 (13,497)

Cash, beginning of
period 240,880 263,899 148,532 241,384
------------------------------------------------------------------------
Cash, end of
period $ 256,961 $ 227,887 $ 256,961 $ 227,887
------------------------------------------------------------------------
------------------------------------------------------------------------

Cash is defined as cash and cash equivelants

Cash interest and taxes paid during the nine months ended September 30,
2005 were $40,416,000 (September 30,2004 - $21,321,000) and $5,005,000
(September 30, 2004 -$7,878,000) respectively.

As at September 30, 2005 cash and cash equivalents include US $2,665,654
(September 30,2004 - $8,237,991) of restricted cash and CAD $1,500,000
of restricted cash (September 30,2004 -CAD $nil).

WestJet Airlines Ltd.
Notes to Consolidated Financial Statements,
For the periods ended September 30, 2005 and 2004 (Unaudited)
(Tabular Dollar Amounts are Stated in Thousands, Except Per Share Data)
------------------------------------------------------------------------
------------------------------------------------------------------------

The interim consolidated financial statements of WestJet Airlines Ltd.
("WestJet" or "the Corporation") have been prepared by management in
accordance with accounting principles generally accepted in Canada. The
interim consolidated financial statements have been prepared following
the same accounting policies and methods of computation as the
consolidated financial statements for the fiscal year ended December 31,
2004. The disclosures provided below are incremental to those included
with the annual consolidated financial statements. The interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto in the
Corporation's annual report for the year ended December 31, 2004.

The Corporation's business is seasonal in nature, with the highest
activity in the summer (third quarter) and the lowest activity in the
winter (first quarter) due to the high number of leisure travelers and
their preference to travel during the summer months.

1. Property and equipment:

------------------------------------------------------------------------
Accumulated
September 30, 2005 Cost Depreciation Net book value
------------------------------------------------------------------------

Aircraft - 700 series $ 1,405,035 $ 84,941 $ 1,320,094
Ground property and
equipment 133,372 48,144 85,228
Spare engines and parts
- Next Generation 65,797 7,226 58,571
Aircraft - 200 series 62,776 58,664 4,112
Aircraft - 600 series 43,760 120 43,640
Buildings 39,636 3,579 36,057
Aircraft under capital
lease 31,755 30,848 907
Spare engines and parts
- 200 series 15,375 12,577 2,798
Leasehold improvements 6,451 3,825 2,626
------------------------------------------------------------------------
1,803,957 249,924 1,554,033
Deposits on aircraft 96,829 - 96,829
Assets under construction 24,325 - 24,325
------------------------------------------------------------------------
$ 1,925,111 $ 249,924 $ 1,675,187
------------------------------------------------------------------------
------------------------------------------------------------------------


------------------------------------------------------------------------
Accumulated
December 31, 2004 Cost Depreciation Net book value
------------------------------------------------------------------------

Aircraft - 700 series $ 1,282,308 $ 46,180 $ 1,236,128
Ground property and equipment 109,334 34,586 74,748
Spare engines and parts
- Next Generation 52,641 4,777 47,864
Aircraft - 200 series 142,657 121,182 21,475
Buildings 39,636 2,840 36,796
Aircraft under capital lease 31,304 26,781 4,523
Spare engines and parts
- 200 series 24,397 16,523 7,874
Leasehold improvements 5,655 3,104 2,551
------------------------------------------------------------------------
1,687,932 255,973 1,431,959
Deposits on aircraft 156,943 - 156,943
Assets under construction 12,644 - 12,644
------------------------------------------------------------------------
$ 1,857,519 $ 255,973 $ 1,601,546
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
Accumulated
September 30, 2004 Cost Depreciation Net book value
------------------------------------------------------------------------

Aircraft - 700 series $ 1,210,274 $ 37,263 $ 1,173,011
Ground property and equipment 105,766 32,419 73,347
Spare engines and parts
- Next Generation series 52,556 4,167 48,389
Aircraft - 200 series 144,424 76,627 67,797
Buildings 39,401 2,593 36,808
Aircraft under capital lease 29,442 18,046 11,396
Spare engines and parts
- 200 series 25,370 13,833 11,537
Leasehold improvements 5,422 2,949 2,473
------------------------------------------------------------------------
1,612,655 187,897 1,424,758
Deposits on aircraft 140,882 - 140,882
Assets under construction 8,145 - 8,145
------------------------------------------------------------------------
$ 1,761,682 $ 187,897 $ 1,573,785
------------------------------------------------------------------------
------------------------------------------------------------------------

During the nine months ended September 30, 2005 property and equipment
was acquired at an aggregate cost of $1,117,000 ( 2004- $nil) by means
of capital leases.

2. Long-term debt:
------------------------------------------------------------------------
------------------------------------------------------------------------
September 30 December 31 September 30
2005 2004 2004
------------------------------------------------------------------------

$1,162,929,000 in 29 individual
term loans, amortized on a
straight-line basis over a
12-year term, repayable in
quarterly principal instalments
ranging from $732,000 to
$955,000, guaranteed by the
Ex-Im Bank and secured by 28
700-series aircraft and 1
600-series aircraft, and maturing
between 2014 and 2017. 28 of
these facilities include fixed
rate weighted average interest at
5.43%. The remaining facility,
totalling $37,068,000, includes
weighted average floating interest
at the Canadian LIBOR rate plus
0.08% (effective interest rate of
2.88% as at September 30, 2005)
until after the first scheduled
repayment date in November 2005,
after such time the interest rate
will be fixed at a rate of 4.73%
for the remaining period the loan
is outstanding. $ 998,226 $ 954,674 $ 935,410

$26,000,000 in two individual term
loans, repayable in monthly
instalments of $106,000 and $156,000
including floating interest at the
bank's prime plus 0.88% with an
effective interest rate of 5.38% as
at September 30, 2005, maturing in
July 2008 and July 2013, secured by
two Next-Generation flight simulators
and cross-collateralized by one
200-series aircraft, and cash of
$1,500,000. 20,125 21,684 22,188

$12,000,000 term loan repayable in
monthly instalments of $108,000
including interest at 9.03%, maturing
April 2011, secured by the Calgary
hangar facility. 10,830 11,075 11,147

$22,073,000 in six individual term
loans, repayable in monthly
instalments ranging from $25,000 to
$87,000 including fixed rate weighted
average interest at 8.43% all maturing
in October 2005, secured by three
200-series aircraft 2,527 5,301 6,188

$4,550,000 term loan repayable in
monthly instalments of $50,000,
including floating interest at the
bank's prime plus 0.50%, with an
effective interest rate of 5.00% as
at September 30, 2005, maturing April
2013, secured by the Calgary hangar
facility. 3,585 3,899 4,000

$9,556,000 in 14 individual term
loans, amortized on a straight-line
basis over a five year term, repayable
in quarterly principal instalments
ranging from $29,000 to $47,000
including floating interest at the
Canadian LIBOR rate plus 0.08%, with
a weighted average effective interest
rate of 2.89%, as at September 30, 2005
maturing in 2009 and 2010, guaranteed
by the Ex-Im Bank and secured by
certain 700-series and 600-series
aircraft. 7,880 6,303 6,037
------------------------------------------------------------------------
1,043,173 1,002,936 984,970
Less current portion 104,308 97,305 92,190
------------------------------------------------------------------------
$ 938,865 $ 905,631 $ 892,780
------------------------------------------------------------------------
------------------------------------------------------------------------

Future scheduled repayments of long-term debt are as follows:

----------------------------------------------
2005 $ 27,952
2006 101,823
2007 101,993
2008 107,287
2009 100,691
2010 and thereafter 603,427
----------------------------------------------
$ 1,043,173
----------------------------------------------
----------------------------------------------

During the quarter, the Corporation converted US $402 million of
preliminary commitments with the Export-Import Bank of the United States
("Ex-Im Bank") into a final commitment to support the acquisition of 5
Boeing Next Generation 737-700 aircraft and 8 Boeing Next Generation
737-600 aircraft and their related Live TV systems to be delivered in
2005 and 2006. In addition, Ex-Im bank has provided a preliminary
commitment of US $324 million to cover an additional 6 aircraft to be
delivered between July 2006 and January 2007 and for the purchase of 4
additional aircraft currently under option.

The Corporation will be charged a commitment fee of 0.125% per annum on
the unutilized and uncancelled balance of the Ex-Im bank facility,
payable at specified dates and upon delivery of an aircraft, and is
charged a 3% exposure fee on the financed portion of the aircraft price,
payable upon delivery of an aircraft.

During the quarter, the Corporation completed financing arrangements for
US $386 million (the "Facility") supported by loan guarantees from the
Ex-Im Bank on 13 aircraft to be delivered in 2005 and 2006. This
facility will be drawn in Canadian dollars in separate installments with
12-year terms for each new aircraft. Each loan will be amortized on a
straight-line basis over the 12-year term in quarterly principal
installments, with interest calculated on the outstanding balance. As at
September 30, 2005 the Corporation has taken delivery of the first three
aircraft under this facility and has drawn a total of $112.0 million (US
$91.6 million). Three special-purpose entities are used as the financial
intermediaries to facilitate the financing of the Ex-Im Bank supported
aircraft. The accounts of these financial intermediaries are
consolidated in the financial statements.

The Corporation has the ability to enter into forward starting interest
rate agreements to fix the interest rate on the next 10 aircraft to be
delivered in 2005 and 2006. The Corporation has entered into forward
starting interest rate agreements at rates between 4.78% and 4.99% on
all 10 aircraft future aircraft deliveries, effective for the period
November 2005 to July 2006.

3. Long-term liabilities

The Corporation has $8,000,000 (December 31, 2004 - $10,000,000,
September 30, 2004 - $10,000,000) of unearned revenue related to the BMO
Mosaik® AIR MILES® Mastercard® credit card for future net retail
sales and for newly activated credit cards. Commencing in May 2005, the
second year of the agreement, the Corporation began to recognize this
revenue, with $2,000,000 to be recognized in each of contract years two
and three, and $3,000,000 in years four and five. During the three and
nine month periods ended September 30, 2005 the Corporation has
recognized $264,000 and $2,000,000 respectively.

Included in long-term liabilities at September 30, 2005 are net deferred
gains totalling $8,092,022, net of amortization. These net gains on the
sale and leaseback of aircraft will be deferred and amortized over the
lease term with the amortization included in aircraft leasing. During
the three and nine months ended September 30, 2005 the Corporation
recognized amortization of $217,430 (2004 - $nil) and $386,946 (2004 -
$nil), respectively.

4. Financial instruments:

At September 30, 2005, the Corporation had U.S. dollar cash and cash
equivalents totaling US $34,022,330 (December 31, 2004 - US $28,440,000,
September 30, 2004-US $38,065,000).

The Corporation has entered into a contract to fix the foreign exchange
rate on a future debt facility in the amount of US $28 million at a rate
of 1.22, for the purchase of an aircraft scheduled for delivery in
October 2005. The estimated fair market value of the contract as at
September 30, 2005 is a loss of CAD $1,690,000.

The Corporation has entered into a contract to purchase US $2.5 million
per month at a forward rate of 1.22 for the payment period from March
2005 to February 2006 to hedge a portion of the Corporation's committed
US dollar lease payments during the same period. The estimated fair
market value of the contract as at September 30, 2005 is a loss of CAD
$781,000. (September 30, 2004- $nil.)

The Corporation has entered into contracts to fix the price on a portion
of the Corporations fuel purchases for the periods October, November and
December of 2005 and January of 2006. As at September 30, 2005 the
Corporation has locked in approximately 50% of October and November
anticipated fuel purchases, 25% of December and 12.5% of January at
rates of $0.696, $0.661, $0.663 and $0.630 CAD / litre respectively. The
total estimated fair market value of the contracts as at September 30,
2005, is a gain of CAD $1,722,154.

5. Share capital:

(a) Authorized:

Unlimited number of Variable Voting Shares
Unlimited number of Common Voting Shares
Unlimited number of Non-voting shares
Unlimited number of Non-voting first, second and third preferred
shares

Variable Voting Shares

An unlimited number of Variable Voting Shares which may be owned and
controlled only by persons who are not Canadians and are entitled to one
vote per Variable Voting Share unless (i) the number of issued and
outstanding Variable Voting Shares exceed 25% of the total number of all
issued and outstanding Variable Voting Shares and Common Voting Shares
(or any greater percentage the Governor in Council may specify pursuant
to the Canada Transportation Act ), or (ii) the total number of votes
cast by or on behalf of the holders of Variable Voting Shares at any
meeting on any matter on which a vote is to be taken exceeds 25% (or any
greater percentage the Governor in Council may specify pursuant to the
Canada Transportation Act ) of the total number of votes that may be
cast at such meeting.

If either of the above-noted thresholds are surpassed at any time, the
vote attached to each Variable Voting Share will decrease automatically
without further act of formality. Under the circumstances described in
paragraph (i) above, the Variable Voting Shares as a class cannot carry
more than 25% (or any greater percentage the Governor in Council may
specify pursuant to the Canada Transportation Act ) of the total voting
rights attached to the aggregate number of issued and outstanding
Variable Voting Shares and Common Voting Shares of WestJet. Under the
circumstances described in paragraph (ii) above, the Variable Voting
Shares as a class cannot, for a given shareholders' meeting, carry more
than 25% (or any greater percentage the Governor in Council may specify
pursuant to the Canada Transportation Act ) of the total number of votes
that may be cast at the meeting.

Each issued and outstanding Variable Voting Share shall be automatically
converted into one Common Voting Share without any further intervention
on the part of the Corporation or of the holder if (i) the Variable
Voting Share is or becomes owned and controlled by a Canadian; or if
(ii) the provisions contained in the Canada Transportation Act relating
to foreign ownership restrictions are repealed and not replaced with
other similar provisions in applicable legislation.

Common Voting Shares

An unlimited number of Common Voting Shares which may be owned and
controlled by Canadians only and shall confer the right to one vote per
Common Voting Share at all meetings of shareholders of the Corporation.

Each issued and outstanding Common Voting Share shall be converted into
one Variable Voting Share automatically and without any further act of
WestJet or the holder, if such Common Voting Share becomes owned or
controlled by a person who is not a Canadian.

(b) Issued and Outstanding:

On August 30, 2005, the Corporation's Common Shares were restructured
into two classes of shares: Variable Voting Shares and Common Voting
Shares. Each issued and outstanding Common Share which was not owned and
controlled by a Canadian within the meaning of the Canada Transportation
Act was converted into one Variable Voting Share and the Common Share
was cancelled. Each issued and outstanding Common Share which was owned
and controlled by a Canadian within the meaning of the Canada
Transportation Act was converted into one Common Voting Share and the
Common Share was cancelled. The changes affecting the common voting
shares and the variable voting shares were as follows:


------------------------------------------------------------------------
------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30,2005 September 30,2005
------------------------------------------------------------------------
Number Amount Number Amount
------------------------------------------------------------------------

Common and variable
voting shares:

Balance, beginning
of period 128,255,922 $ 414,542 125,497,407 $ 390,469
Exercise of options 16,552 105 1,332,682 3,389
Stock-based compensation
expense - 64 - 450
Issued from treasury 968,323 11,561 2,410,708 31,986
Issued on rounding
of stock split - - - -
Share issuance costs - (150) - (183)
Tax benefit of issue costs - 50 - 61

------------------------------------------------------------------------
Balance, end of period 129,240,797 $ 426,172 129,240,797 $ 426,172
------------------------------------------------------------------------
------------------------------------------------------------------------


------------------------------------------------------------------------
------------------------------------------------------------------------
Year Ended
December 31,2004
------------------------------------------------------------------------
Number Amount
------------------------------------------------------------------------

Common and variable voting shares:

Balance, beginning of period 123,882,490 $ 376,081
Exercise of options 1,611,721 13,949
Stock-based compensation expense - 445
Issued from treasury - -
Issued on rounding of stock split 3,196 -
Share issuance costs - (10)
Tax benefit of issue costs - 4

------------------------------------------------------------------------
Balance, end of period 125,497,407 $ 390,469
------------------------------------------------------------------------
------------------------------------------------------------------------

As at September 30, 2005, the number of common voting shares and
variable voting shares amounted to 117,157,756 and 12,083,041
respectively.


------------------------------------------------------------------------
------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, 2004 September 30, 2004
------------------------------------------------------------------------
Number Amount Number Amount
------------------------------------------------------------------------

Common shares:

Balance, beginning
of period 125,409,291 $ 390,206 123,882,489 $ 376,081
Exercise of options 38,545 142 1,562,151 13,949
Stock-based compensation
expense - 117 - 445
Issued on rounding
of stock split - - 3,196 -
Share issuance costs - - - (10)

------------------------------------------------------------------------
Balance, end of period 125,447,836 $ 390,465 125,447,836 $ 390,465
------------------------------------------------------------------------
------------------------------------------------------------------------


The Corporation has an Employee Share Purchase Plan ("ESPP") whereby the
Corporation matches every dollar contributed by each employee. Under the
terms of the ESPP the Corporation has the option to acquire common
shares on behalf of employees through open market purchases or to issue
new shares from treasury at the current market price. During the period
ended September 30, 2005, shares under the ESPP were issued from
treasury at the current market price. For the three and nine months
ended September 30, 2005 $5,780,606 and $15,993,063 of common shares
were issued from treasury, respectively (three months ended September
30, 2004 - $nil, nine months ended September 30, 2004- $nil)
representing the Corporation's matching contribution from treasury for
employee contributions, for which no cash was exchanged. Current market
price for common shares issued from treasury is determined based on the
weighted average trading price of the common shares on the Toronto Stock
Exchange for the five trading days preceding the issuance.

(c) Stock option plan:

Changes in the number of options, with their weighted average exercise
prices, are summarized below:

------------------------------------------------------------------------
Three Months Ended Nine Months Ended Year Ended
September 30, 2005 September 30, 2005 December 31, 2004
------------------------------------------------------------------------
Weighted Weighted Weighted
Number average Number average Number average
of exercise of exercise of exercise
Options price Options price Options price
------------------------------------------------------------------------

Stock options
outstanding,
beginning
of
period 11,588,470 $ 13.92 10,682,082 $ 12.37 9,809,753 $ 10.78
Issued 38,344 $ 11.97 4,470,078 $ 14.46 2,927,875 $ 15.73
Exercised (30,986) $ 9.44 (3,498,890) $ 9.82 (1,959,002) $ 9.42
Cancelled (63,091) $ 14.52 (120,533) $ 14.67 (96,544) $ 12.83

------------------------------------------------------------------------

Stock options
outstanding,
end of
period 11,532,737 $ 13.93 11,532,737 $ 13.93 10,682,082 $ 12.37
------------------------------------------------------------------------
------------------------------------------------------------------------

Exercisable,
end of
period 3,933,056 $ 12.23 3,933,056 $ 12.23 4,694,357 $ 10.88
------------------------------------------------------------------------
------------------------------------------------------------------------


------------------------------------------------------------------------
------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, 2004 September 30, 2004
------------------------------------------------------------------------
Weighted Weighted
Number average Number average
of exercise of exercise
Options price Options price
------------------------------------------------------------------------

Stock options outstanding,
beginning of period 11,053,974 $ 12.29 9,809,753 $ 10.78
Issued 13,637 $ 12.96 2,904,677 $ 15.77
Exercised (114,378) $ 10.12 (1,707,320) $ 9.36
Cancelled (34,344) $ 13.78 (88,221) $ 12.53

------------------------------------------------------------------------
Stock options outstanding,
end of period 10,918,889 $ 12.32 10,918,889 $ 12.32
------------------------------------------------------------------------
------------------------------------------------------------------------

Exercisable, end of period 4,946,039 $ 10.84 4,946,039 $ 10.84
------------------------------------------------------------------------
------------------------------------------------------------------------

Under the terms of the Corporation's stock option plans, a cashless
settlement alternative is available whereby option holders can either
(a) elect to receive shares by delivering cash to the Corporation in the
amount of the options or (b) elect to receive a number of shares
equivalent to the market value of the options over the exercise price.
For the three and nine months ended September 30, 2005, option holders
exercised 16,763 and 3,144,188 options, respectively (three months ended
September 30, 2004 - 99,987, nine months ended September 30, 2004 -
197,953) on a cashless settlement basis and received 2,329 and 977,980
shares respectively (three months ended September 30, 2004 - 24,154
shares, nine months ended September 30, 2004 - 52,784 shares).

(d) Per share amounts:

The following table summarizes the shares used in calculating net
earnings per share:

------------------------------------------------------------------------
------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2005 2004 2005 2004
------------------------------------------------------------------------

Weighted average number
of shares outstanding
- basic 128,621,232 125,423,627 127,539,066 124,938,868
Effect of dilutive
employee stock options 192,029 1,207,202 474,121 2,147,020

------------------------------------------------------------------------
Weighted average number
of shares outstanding
- diluted 128,813,261 126,630,829 128,013,187 127,085,888
------------------------------------------------------------------------
------------------------------------------------------------------------

For the three and nine month periods ended September 30, 2005, 8,827,355
and 8,681,409 options, respectively, were not included in the
calculation of dilutive potential shares as the result would be anti-
dilutive.

(e) Stock-based compensation:

On January 1, 2004 the Corporation changed its accounting policy related
to stock options granted on or after January 1, 2002. Under the new
policy, the Corporation determines the fair value of stock options on
their grant date and records this amount as compensation expense over
the period that the stock options vest, with a corresponding increase to
contributed surplus. The Corporation has retroactively adopted the
changes without restatement of prior periods on January 1, 2004 which
resulted in retained earnings decreasing by $10,117,000 and an
offsetting entry to contributed surplus.

As new options are granted, the fair value of these options will be
expensed over the vesting period, with an offsetting entry to
contributed surplus. The fair value of each option grant is estimated on
the date of grant using the Black-Scholes option-pricing model. Upon the
exercise of stock options, consideration received together with amounts
previously recorded in contributed surplus is recorded as an increase in
share capital.

Employee compensation expense included in flight operations and general
and administration expenses totalled $4,875,000 and $12,960,000 for the
three and nine months ended September 30, 2005 (three months ended
September 30, 2004- $3,412,000, nine months ended September 30, 2004 -
$8,870,000) respectively related to the vesting of the outstanding stock
options issued on or after January 1, 2002 to officers and certain
employees of the Corporation.

The fair market value of options granted during the three and nine
months ended September 30, 2005 and 2004 and the assumptions used in
their determination are as follows:

------------------------------------------------------------------------
------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Weighted average fair market
value per option $ 4.21 $ 4.41 $ 5.26 $ 4.41
Average risk free interest
rate 3.37% 3.86% 3.41% 3.86%
Average volatility 42% 40% 43% 40%
Expected life (years) 3.7 years 3.5 years 3.7 years 3.5 years
Dividends per share $ - $ - $ - $ -
------------------------------------------------------------------------
------------------------------------------------------------------------

(f) Contributed surplus:

Changes to contributed surplus were as follows:

------------------------------------------------------------------------
------------------------------------------------------------------------
Three months Nine months Year
ended ended ended
September 30 September 30 December
2005 2004 2005 2004 31 2004
------------------------------------------------------------------------

Balance, beginning
of period $29,676 $15,248 $21,977 $ - $ -
Stock-based compensation
- adoption - - - 10,117 10,117
Stock-based compensation
expense 4,875 3,412 12,960 8,870 12,305
Stock options exercised (64) (118) (450) (445) (445)

------------------------------------------------------------------------
Balance, end of period $34,487 $18,542 $34,487 $18,542 $21,977
------------------------------------------------------------------------
------------------------------------------------------------------------

6. Commitments and contingencies:

(a) Aircraft:

The Corporation has committed to purchase 12 737-600s and four 737-700s
for delivery between October 2005 and December 2006.

The remaining estimated amounts to be paid in deposits and purchase
prices in US dollars relating to the purchases of the remaining
aircraft, Live satellite television systems and winglets are as follows:

-----------------------------------
2005 $ 129,633
2006 365,271
2007 1,550
-----------------------------------
$ 496,454
-----------------------------------
-----------------------------------

The Corporation has an agreement to purchase a Next-Generation flight
simulator. The obligation in Canadian dollars is as follows:

-----------------------------------
2006 $ 1,456
-----------------------------------
-----------------------------------

(b) Leasehold commitments:

The Corporation has entered into operating leases and agreements for
aircraft, buildings, computer hardware and software licenses, satellite
programming, and capital leases relating to aircraft and ground handling
equipment. The obligations are as follows:

---------------------
---------------------
Capital Operating
Leases Leases
---------------------

2005 $ 1,242 $ 23,512
2006 1,687 89,396
2007 211 86,408
2008 211 85,617
2009 510 83,066
2010 and thereafter - 406,018
---------------------
Total lease payments 3,861 $774,017
Less imputed interest at 7.38% (214) ----------
----------- ----------
Net minimum lease payments 3,647
Less current portion of obligations
under capital lease (2,769)
-----------
Obligations under capital lease $ 878
-----------
-----------

The Corporation has capital leases denominated in US dollars. These
obligations in US dollars are 2005 - $1,015,000, 2006 - $1,260,000

Included in operating leases are US dollar operating leases primarily
related to aircraft. The obligations of these operating leases in US
dollars are 2005 - $17,010,000; 2006 - $68,222,000; 2007 - $68,055,000;
2008 - $68,116,000, 2009 - $68,116,000; 2010 and thereafter -
$330,214,000

(c) Contingencies:

An Amended Fresh as Amended Statement of Claim was filed by Air Canada
and ZIP Air Inc. in the Ontario Superior Court on March 11, 2005 against
the Corporation, two officers, two employees, two former officers and
one former employee (the "Defendants"). The principal allegations are
that the Defendants unlawfully obtained confidential flight load and
load factor information from Air Canada's employee travel website and,
as a result, the Plaintiffs are seeking disgorgement of any incremental
revenue, profits and other benefits acquired by the Defendants as a
result of having access to the alleged confidential information. The
Plaintiffs are claiming disgorgement, damages for the tort of spoliation
and punitive damages in the aggregate amount of $220 million, but the
Plaintiffs have provided no details or evidence to substantiate their
claim for disgorgement and damages.

A Statement of Claim was also filed by Jetsgo Corporation in the Ontario
Superior Court on October 15, 2004 against the Corporation, an officer,
and a former officer (the "defendants"). The principal allegations are
that the defendants conspired together to unlawfully obtain Jetsgo's
proprietary information and to use this proprietary information to harm
Jetsgo and benefit WestJet. The Plaintiff is seeking damages, in an
amount to be determined plus $50 million, but the Plaintiff has provided
no details or evidence to substantiate its claim. On May 13, 2005 Jetsgo
Corporation declared Bankruptcy. As a result, this action has been
stayed and no further steps can be taken in the litigation unless a
court order is obtained.

Based on the results to date of (i) an internal investigation, (ii)
advice from independent industry experts, (iii) cross-examinations of
witnesses in the Air Canada proceedings, and (iv) evidence filed by the
Plaintiffs in support of various court applications, management believes
the amounts claimed are substantially without merit. The amount of loss,
if any, to the Corporation as a result of these two claims cannot be
reasonably estimated. The defense and investigation of these claims are
continuing.

The Corporation is party to other legal proceedings and claims that
arise during the ordinary course of business. It is the opinion of
management that the ultimate outcome of these matters will not have a
material effect upon the Corporation's financial position, results of
operations or cash flows.

7. Employee profit share provision:

The provision for employee profit share is estimated based on actual
year-to-date earnings results. The actual employee profit share amount
is to be determined by the Board of Directors based on audited financial
results at the completion of the financial year.

8. Comparative figures:

Certain prior period balances have been reclassified to conform to
current period's presentation.


Contact Information

  • WestJet
    Media Relations
    Gillian Bentley
    (403) 444-2615
    Website: www.westjet.com