WestJet
TSX : WJA

WestJet

April 29, 2008 08:31 ET

WestJet Reports Record First Quarter Results

Airline increases first quarter net earnings 75.9 per cent

CALGARY, ALBERTA--(Marketwire - April 29, 2008) - WestJet (TSX:WJA) today announced record first quarter net earnings of $52.5 million, a 75.9 per cent increase over the $29.9 million in the first quarter of 2007. The airline's diluted earnings per share (EPS) for the first quarter was 40 cents compared to 23 cents in the same period last year, an increase of 73.9 per cent.

First quarter revenue was $599.3 million compared to $470.7 million in the first quarter of 2007, an improvement of 27.3 per cent. Operating margin for the quarter was 13.8 per cent.

"Our strong start to 2008 is a direct reflection of the efforts of our people," commented Sean Durfy, WestJet President and CEO. "These results once again demonstrate our ability to deliver on our strategic plan. In this quarter, our capacity deployment strategy, which sees a portion of our fleet repositioned to sun destinations, benefited from our expansion into six new international destinations. Our performance was further improved by the first quarter strength of both the Canadian economy and exchange rate."



Operational Highlights

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Q1 2008 Q1 2007 Change
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Load Factor 81.9% 81.1% 0.8 pts.
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ASM (available seat miles) billions 4.065 3.449 17.9%
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RPM (revenue passenger miles) billions 3.331 2.797 19.1%
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RASM (revenue per available seat mile) cents 14.74 13.65 8.0%
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Yield (revenue per passenger mile) cents 17.99 16.83 6.9%
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CASM (cost per available seat mile) cents 12.71 11.89 6.9%
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CASM excluding fuel cents 8.58 8.69 (1.3%)
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Sean Durfy continued, "Oil and refining costs for jet fuel were substantially higher in the first quarter of 2008 compared to this time last year. We saw the price of fuel increase 30 per cent to 83 cents per litre. The impact to our costs resulted in an overall CASM increase of 6.9 per cent. Fuel prices will continue to be one of the airline industry's greatest concerns. Our low-cost structure, fuel-efficient fleet and the strength of the Canadian dollar throughout the first quarter improved our ability to cope with rising fuel prices.

"For the quarter, CASM excluding fuel was down 1.3 per cent to 8.58 cents, demonstrating our commitment to our low-cost, high-efficiency operating model. With our continued capacity growth, we were able to dilute our fixed costs over a larger asset base and achieved cost efficiencies through our increased block-time utilization that improved to 12.4 hours in the period.

"In the second quarter, we will take delivery of two additional aircraft bringing our fleet size to 75. Our second quarter capacity will increase 20 per cent compared to the same period in 2007. We will once again use this period to transition a portion of our capacity out of transborder and international and into our domestic schedule, as we prepare for the busy summer demand period and begin service to Quebec City in May and New York, via Newark, in June."

WestJet also reported first quarter operational performance. The airline calculates operational performance based on the US Department of Transportation's standards of measurement for the U.S. airline industry.



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Q1 2008 Q1 2007 Change
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On-time performance 69.0% 75.3% (6.3 pts.)
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Completion rate 98.1% 98.4% (0.3 pts.)
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Lost baggage ratio 5.15 5.33 (3.4%)
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On-time performance represents the percentage of flights that arrived within 15 minutes of their scheduled time. Completion rate represents the percentage of flights completed from what was originally scheduled. Baggage ratio represents the number of delayed or lost baggage claims made per 1,000 guests.

Sean Durfy commented, "On-time performance is a key indicator in measuring our guest experience. During the first three months of 2008, harsh winter weather in Eastern Canada contributed to the decline of our on-time performance. The hard work and dedication of our people allowed us to operate 98.1 per cent of our scheduled flights with only 5.15 reports of lost luggage per 1,000 bags.

"Thanks to our unrivaled guest experience, the strength of our brand and the collaborative commitment of our entire WestJet team, we feel we can continue to achieve the strong results that have made us an industry leader. We are confident in our business strategy and the commitment of our over 7,000 WestJetters."

Management's Discussion and Analysis of Financial Results

Advisories

The following Management's Discussion and Analysis of Financial Results (MD&A), dated April 28, 2008, should be read in conjunction with the unaudited consolidated financial statements and notes thereto as at and for the three months ended March 31, 2008 and 2007, as well as the audited consolidated financial statements, notes thereto and MD&A included in the Annual Report as at and for the year ended December 31, 2007. For a detailed description of risks, uncertainties and critical accounting estimates, please refer to the "Risks and Uncertainties" and "Accounting" sections in the 2007 annual MD&A dated February 22, 2008. The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP). Certain prior-period balances in the consolidated financial statements have been reclassified to conform to current period's presentation. Additional information relating to WestJet Airlines Ltd. (WestJet, we, us or our), including Annual Information Forms and financial statements, is located on SEDAR at www.sedar.com. An additional advisory with respect to forward-looking information is set out below, and the use of non-GAAP measures is set out at the end of this MD&A under "Non-GAAP Measures".

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. These forward looking statements typically contain the words "anticipate", "believe", "estimate", "intend", "expect", "may", "will", "should" or other similar terms. 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.

Definition of key operating indicators

Our key operating indicators are airline industry metrics and are useful in assessing the operating performance of an airline.

Available seat miles (ASM): A measure of total passenger capacity, calculated by multiplying the total number of seats available for sale by the total distance flown.

Revenue passenger miles (RPM): A measure of passenger traffic, calculated as the number of revenue passengers, multiplied by the total distance flown.

Load factor: A measure of total capacity utilization, calculated as the proportion of total available seat miles occupied by revenue passengers.

Yield (revenue per revenue passenger mile): A measure of unit revenue, calculated as the gross revenue generated per revenue passenger mile.

Revenue per available seat mile (RASM): Total revenue divided by available seat miles.

Cost per available seat mile (CASM): Operating expenses divided by available seat miles.

OVERVIEW

In the first quarter of 2008, we continued the momentum gained in 2007 with strong financial results and our most successful January to March period to date. Our record net earnings and improved margins were driven by significant RASM increases, increased fleet utilization and strong cost control (ex-fuel); offset somewhat by record jet fuel prices.

Financial Highlights

- Increased total revenues to $599.3 million, an increase of 27.3 per cent over the same period in 2007.

- Notwithstanding capacity growth of 17.9 per cent in the quarter, we recorded RASM of 14.74 cents, up 8.0 per cent over our 2007 first quarter.

- Increased load factor by 0.8 points to 81.9 per cent compared to 81.1 per cent in the first quarter of 2007.

- Decreased CASM, excluding fuel and employee profit share, by 2.9 per cent to 8.26 cents compared to 8.51 cents in the first three months of 2007.

- Recorded an earnings before tax margin of 12.4 per cent, up 2.6 points from the first quarter of 2007.

- Realized net earnings of $52.5 million, an increase of 75.9 per cent compared to the same quarter in 2007.

- Increased diluted earnings per share by 73.9 per cent to $0.40 from $0.23 in our 2007 first quarter.

- Assumed delivery of three new aircraft, increasing our total registered fleet to 73.

- Generated cash flows from operations of $189.8 million.

The dedication, drive and actions of every WestJetter contribute to the success of our airline. Through our people, we continue to thrive. As we continue to grow, our brand remains strong and is synonymous with exemplary guest service and experience.



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Operational Highlights Three Months Ended
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Mar. 31 Mar. 31 Change
2008 2007
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ASMs 4,064,991,801 3,449,047,814 17.9%
RPMs 3,330,813,443 2,797,170,289 19.1%
Load factor 81.9% 81.1% 0.8 pts
Yield (cents) 17.99 16.83 6.9%
RASM (cents) 14.74 13.65 8.0%
CASM (cents) 12.71 11.89 6.9%
CASM, excluding fuel and employee
profit share (cents) 8.26 8.51 (2.9%)
Fuel consumption (litres) 202,155,666 172,158,303 17.4%
Fuel costs/litre (cents) 82.96 64.02 29.6%
Segment guests 3,469,405 3,040,589 14.1%
Average stage length (miles) 917 858 6.9%
Number of full-time equivalent
employees at period end 5,939 5,134 15.7%
Fleet size at period end 73 65 12.3%
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Our continued strong financial results are reflected in net earnings of $52.5 million and diluted earnings per share of $0.40, both record results.

Revenue grew this quarter by 27.3 per cent over the first quarter of 2007 to $599.3 million. This increase was driven by improved yield, increased load factors and additional capacity. Our RASM for the first quarter of 2008 was 14.74 cents, up 8.0 per cent when compared to the same period in 2007, which was particularly impressive given the 17.9 per cent capacity increase in the quarter.

Our capacity increase in the first quarter of 2008 was matched with a corresponding increase in demand for our service. This was demonstrated by a load factor of 81.9 per cent, up 0.8 points from 81.1 per cent in the same quarter of 2007. Similarly, yield improved this quarter by 6.9 per cent to 17.99 cents from 16.83 cents in the first quarter of 2007. This increase in demand was due to our successful seasonal deployment strategy and the continued commercialization of our domestic and transborder schedule.

To see the Quarterly Load Factor chart, click here: http://media3.marketwire.com/docs/429wja_quarterlyloadfactor.pdf.

The first quarter of 2008 was the first full season for our new transborder and international routes into Montego Bay, Puerto Plata, Punta Cana, St. Lucia, Mazatlan, Cabo San Lucas and Kona. Our ability to optimize load factor and yield through diligent network management during peak demand periods has directly contributed to our operating margin performance during the period ended March 31, 2008.

During the first quarter of 2008, we announced two additional routes to New York City (via Newark) and Quebec City. Service to these destinations will commence in the second quarter of 2008. As well, we received permission to fly to Barbados during the first quarter; however, there is no confirmed service commencement date for this destination.

With fuel prices reaching record highs during the first quarter of 2008, cost control remains a key priority for us. For the first quarter of 2008, CASM increased by 6.9 per cent to 12.71 cents from 11.89 cents in the same quarter of 2007 due almost entirely to increased fuel costs. However, we continue to drive down our CASM, excluding fuel and employee profit share, as demonstrated by a decrease of 2.9 per cent from the first quarter of 2007 to 8.26 cents. This decrease is attributed to a longer average stage length, increased aircraft utilization, dilution of costs over a greater number of available seat miles and a strong Canadian dollar.

We continued to maintain a strong financial position in the first quarter of 2008. Our cash and cash equivalents balance grew by 20.0 per cent to $784.4 million as at March 31, 2008. Our current ratio improved to 1.25, compared to 1.22 as at December 31, 2007, and our adjusted debt-to-equity ratio was reduced to 1.99 from 2.07 as at December 31, 2007. Our healthy balance sheet will assist us to weather potential downturns in the airline industry.

During the quarter, we assumed delivery of two 737-700s and one 737-800, increasing our total fleet to 73 aircraft. WestJet's fleet remains one of the youngest operated by any large North American commercial airline at an average age of 3.4 years.



SELECTED QUARTERLY UNAUDITED FINANCIAL INFORMATION

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Three Months Ended
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($ in thousands, except per share Mar. 31 Dec. 31 Sept. 30 Jun. 30
data) 2008 2007 2007 2007
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Total revenues $ 599,348 $ 552,004 $ 606,242 $ 498,200
Net earnings $ 52,506 $ 75,360 $ 76,070 $ 11,549
Basic earnings per share $ 0.40 $ 0.58 $ 0.59 $ 0.09
Diluted earnings per share $ 0.40 $ 0.57 $ 0.58 $ 0.09
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Three Months Ended
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Mar. 31 Dec. 31 Sept. 30 Jun. 30
2007 2006 2006 2006
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Total revenues $ 470,710 $ 446,720 $ 497,339 $ 419,709
Net earnings $ 29,855 $ 26,651 $ 52,810 $ 22,355
Basic earnings per share $ 0.23 $ 0.21 $ 0.41 $ 0.17
Diluted earnings per share $ 0.23 $ 0.21 $ 0.41 $ 0.17
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Our business is seasonal in nature with varying levels of activity throughout the year. We experience increased domestic travel in the summer months (second and third quarters) and more demand for sun destinations over the winter period (fourth and first quarters). With the introduction of transborder and international destinations, we have been able to alleviate some of the effects of seasonality on our net earnings.

In the quarter ended December 31, 2007, our reported net earnings of $75.4 million were positively impacted by a non-cash adjustment in the amount of $33.7 million, or 25 cents per share, to future income tax expense as a result of the enactment of income tax rate reductions.

In the quarter ended June 30, 2007, our reported net earnings of $11.5 million were negatively impacted by a non-cash write-down of $31.9 million ($22.2 million after tax or 17 cents per share) for the capitalized costs associated with WestJet's aiRES reservation system project.



RESULTS OF OPERATIONS

Revenue
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Three Months Ended
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Mar. 31 Mar. 31 Change
($ in thousands) 2008 2007
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Guest revenues 525,700 390,732 34.5%
Charter and other revenues 73,648 79,978 (7.9%)
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599,348 470,710 27.3%
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RASM (cents) 14.74 13.65 8.0%
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The first quarter of 2008 saw total revenues, which include guest revenues, charter, ancillary and WestJet Vacations non-air revenue, increase by 27.3 per cent as compared to the same quarter in 2007, from $470.7 million to $599.3 million. This increase was driven by increased load factor and yield. Our first quarter RASM increased by 8.0 per cent to 14.74 cents, from 13.65 cents in the same quarter of 2007. In the quarter, capacity grew by 17.9 per cent over the first quarter of 2007.

Guest revenues from our scheduled flight operations increased in the first quarter by 34.5 per cent as compared to the same quarter in 2007, from $390.7 million to $525.7 million. We saw strong demand for our service in both the domestic and transborder markets. We continued our effective seasonal deployment strategy, allocating almost 40 per cent of our capacity to higher-demand transborder and international routes during the Canadian winter months without sacrificing our strong domestic schedule. Approximately 50 per cent of our 17.9 per cent increase in capacity in the first quarter of 2008 was allocated to charter and scheduled transborder and international routes. This allowed us to better match domestic capacity to demand while growing total capacity. In addition, our first quarter results benefited from the fact that the Easter holiday in 2008 fell in the month of March versus April in 2007 and there was an additional day in February 2008 versus 2007 due to the leap year.

Our charter and other revenues decreased by 7.9 per cent to $73.6 million in the first quarter of 2008 from $80.0 million in the same quarter of 2007. This decrease was mainly due to a reduction of flying for third party carriers in favour of our own scheduled flights to sun destinations. As a result, available seat miles related to charter flights decreased by 26.3 per cent in the first quarter of 2008 compared to the same quarter of 2007. This was partially offset by an increase in WestJet Vacations non-air revenue.

To see the Charter and Scheduled Transborder and International as a Percentage of Total ASMs chart, click here: http://media3.marketwire.com/docs/429wja_charter.pdf.

Other revenue sources in this section are from ancillary and miscellaneous sources including service fees, onboard sales, partner and program revenue and ad-hoc revenue. On a total basis, ancillary revenue and fees increased to $23.6 million in the first quarter of 2008 from $21.9 million for the same period of 2007. Compared to the first quarter of 2007, ancillary revenue declined $0.64 per guest to $7.16. The majority of the decline can be attributed to lower revenue from partner programs and foreign exchange adjustments.



Expenses
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Three Months Ended
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Mar. 31 Mar. 31
CASM (cents) 2008 2007 Change
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Aircraft fuel 4.13 3.20 29.1%
Airport operations 2.06 2.17 (5.1%)
Flight operations and navigational charges 1.66 1.81 (8.3%)
Marketing, general and administration 1.17 1.12 4.5%
Sales and distribution 0.99 0.88 12.5%
Depreciation and amortization 0.81 0.90 (10.0%)
Inflight 0.62 0.56 10.7%
Maintenance 0.48 0.53 (9.4%)
Aircraft leasing 0.47 0.54 (13.0%)
Employee profit share 0.32 0.18 77.8%
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12.71 11.89 6.9%
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CASM, excluding fuel and employee profit share 8.26 8.51 (2.9%)
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The first quarter of 2008 saw significant cost pressure related primarily to substantial increases in jet fuel prices. Our low-cost focus and high efficiency operational model are critical in helping us mitigate the impact of fuel price increases. CASM, excluding fuel and employee profit share, dropped by 2.9 per cent for the first three months of 2008 as compared to the same period in 2007.

One of the key drivers in improving our CASM, excluding fuel and employee profit share, in the first quarter of 2008 was a longer average stage length, which increased by 6.9 per cent to 917 miles from 858 miles in the same period of 2007. Average stage length, defined as the average distance of a flight between take-off and landing, has a significant impact on our unit costs. As average stage length increases, cost efficiencies are gained, and we achieve a lower cost per mile because our fixed costs of operations are allocated over an increasing number of miles flown. Likewise, longer-haul routes typically achieve higher fuel economy, as we are able to absorb the higher costs of fuel for take-offs and landings over a longer trip length.

We continued to optimize our fleet in the first quarter of 2008 to increase productivity of our airline. We increased our aircraft utilization by 24 minutes in the first three months of 2008 to 12.4 operating hours per day from 12.0 operating hours per day in the same period of 2007. Due to the increased utilization of our aircraft, cost efficiencies were gained.

Capacity, measured in available seat miles, increased this quarter to 4.1 billion ASMs compared to 3.4 billion in the same period of 2007. The dilution of costs over a greater number of available seat miles, as well as the strengthening Canadian dollar, drove down our CASM, excluding fuel and employee profit share, in the first quarter of 2008 compared to the same period in 2007.

Aircraft fuel

Fuel remains the most significant cost to WestJet, representing approximately 32 per cent of total operating expenses, up from 27 per cent in the first quarter of 2007. During the month of March 2008, jet fuel prices reached US $146 per barrel. The average market price for jet fuel during the first quarter of 2008 was US $119.85 per barrel compared to US $74.89 per barrel in the same quarter of 2007, an increase of 60.0 per cent, as depicted in the graph below. The dramatic increase in fuel prices raised our fuel cost per ASM to 4.13 cents from 3.20 cents, or 29.1 per cent when compared to the same period of 2007. On a per litre basis, WestJet fuel costs increased by 29.6 per cent, to 82.96 cents per litre in the first quarter of 2008 from 64.02 cents per litre in the same period of 2007. The increase in our fuel costs per litre was offset by approximately 35 per cent due to the strong Canadian dollar relative to the first quarter of 2007.

To mitigate our exposure to fluctuations in jet fuel prices, we periodically use short-term financial and physical derivatives and account for these derivatives as cash flow hedges and as normal purchase and sale agreements. As at, and for the period ended March 31, 2008, we had no outstanding fuel hedges.

To see the Average Market Price of Jet Fuel chart, click here: http://media3.marketwire.com/docs/429wja_jetfuel.pdf.

Airport operations

Airport operations expense consists primarily of airport landing and terminal fees and ground handling costs for our scheduled service and charter operations. These expenditures typically fluctuate depending on the destinations, aircraft weights, inclement weather conditions and number of guests. Transborder flights are more expensive than domestic flights due to increased charges from domestic airports for higher terminal and pre-clearance fees from inbound transborder flights. Also included in airport operations are costs relating to flight cancellations and accommodations for displaced guests for situations beyond our control, such as inclement weather conditions. Because the majority of expenses are levied on a per flight basis, the cost per departure is also a relevant performance driver for airport operations.

For the three months ended March 31, 2008, our cost per available seat mile for airport operations decreased by 5.1 per cent to 2.06 cents from 2.17 cents in the same quarter of 2007. The decrease was mainly due to the increased average stage length of 6.9 per cent and our average airports rates and fees decreasing on a per departure basis, partially offset by an increase in our average ground handling rates and fees. This increase was caused by the higher percentage of transborder and international departures this quarter as a result of the strong demand for our sun destinations. In addition, due to annual merit increases, our employee expenses are higher on a per departure basis in the first quarter of 2008 compared to the first quarter of 2007.

Flight operations and navigational charges

Our flight operations and navigational charge per ASM was 1.66 cents for the first quarter of 2008, a decrease of 8.3 per cent, from 1.81 cents in the same period of 2007. This was due mainly to lower NAV CANADA fees and pilot stock-based compensation, as well as the dilutive impact of our increased capacity.

Flight operations expenses consist primarily of pilot compensation, including salaries, training and stock-based compensation, as well as salaries and benefits for operations control centre staff. Pursuant to the 2006 pilot agreement, pilots may elect to receive a certain amount of cash in lieu of a selected portion of their stock options. In the first quarter of 2008, stock-based compensation expense relating to pilots' stock options decreased by 31.4 per cent, from $5.1 million in the first quarter of 2007 to $3.5 million in the first quarter of 2008 as more pilots elected to receive cash in lieu of stock options. This decrease was partially offset by an increase in salary costs due to this cash payout in the first quarter of 2008 compared to the same period in 2007.

Domestic air navigational charges relating to air traffic control are administered by NAV CANADA on a per-flight basis. These fees are predominantly driven by the size of aircraft and distance flown. Navigational charges for the first quarter of 2008 have decreased on a cost per ASM basis by 10.0 per cent to 0.71 cents from 0.79 cents in the same period of 2007. Contributing to the decrease in NAV fees was the increase in transborder and international traffic in the first quarter of 2008. Transborder and international departures comprised 21.1 per cent of total departures in the first three months of 2008 compared to 18.6 per cent in the same period of 2007, an increase of 2.5 points. As we fly to more destinations outside Canadian air space, our NAV CANADA charges decrease.

Sales and distribution

Sales and distribution encompasses a wide variety of expenses, including travel agency commissions, corporate incentive programs, credit card fees, global distribution system and WestJet Vacations costs.

Cost per available seat mile for sales and distribution increased from 0.88 cents in the first quarter of 2007 to 0.99 cents in the first three months of 2008. This change was driven primarily by increased employee expenses, higher credit card fees as a result of higher sales and higher commissions resulting from increased WestJet Vacations non-air sales in the first quarter of 2008.

Inflight

Our inflight expense consists mainly of flight attendant salaries, benefits, travel costs and training. During the first quarter of 2008, our inflight cost per ASM increased by 10.7 per cent to 0.62 cents compared to the cost per ASM of 0.56 cents in the same period in the prior year. This variance was mainly due to an increase in salary expenses related to a five per cent band shift in salaries as compared to the prior period of 2007. Additionally, we incurred higher hotel costs relating to additional transborder and international routes, which is in line with our seasonal deployment strategy.

Maintenance

Our unit maintenance costs decreased 9.4 per cent to 0.48 cents per ASM in the first three months of 2008, from 0.53 cents per ASM in the same period of 2007 due to the strengthening Canadian dollar and the dilutive effect of our increased capacity of 17.9 per cent.

These decreases were partially offset by an increase in the number of aircraft that came off warranty in the first quarter of 2008 as compared to the same period in 2007. At March 31, 2008, 28 out of 73 aircraft or 38.4 per cent were off warranty compared to 17 out of 65 aircraft or 26.2 per cent at March 31, 2007. We anticipate our unit maintenance costs will increase as more aircraft come off warranty.

Aircraft leasing

During the first quarter of 2008, we assumed delivery of one new leased 737-800 aircraft to our registered fleet. This brings our total leased aircraft to 22 as at March 31, 2008, which represents 30.1 per cent of our total fleet. At the end of the first quarter of 2007, we leased a total of 20 aircraft, representing 30.8 per cent of our total fleet.

On a CASM basis, aircraft leasing costs decreased 13.0 per cent in the first quarter of 2008 compared to the same period in 2007. This change relates primarily to the dilution of these costs over a greater number of available seat miles, as well as the favourable Canadian dollar relative to the US dollar. This decrease was partially offset by incremental lease costs on the new leased 737-800 aircraft delivered during the period ended March 31, 2008.

Compensation

Our compensation philosophy is designed to align corporate and personal success. We have designed a compensation plan whereby a portion of our expenses are variable and are tied to our financial results. Our compensation strategy encourages employees to become owners in WestJet, which inherently creates a personal vested interest for our employees in our accomplishments.

Salaries and benefits

Salaries and benefits are determined via a framework of job levels based on internal experience and external market data. For the quarter ended March 31, 2008, salaries and benefits increased by 21.7 per cent to $87.6 million from $72.0 million in the same period of 2007. The increase is due to market and merit increases in base salaries and benefits, as well as the greater number of WestJetters employed versus a year ago, which is directly tied to our capacity growth. Salaries and benefits expense for each department is included in the respective department's operating expense line item.

Employee profit share

All employees are eligible to participate in the employee profit sharing plan. The profit share system is a variable cost that is reduced and adjusted in less profitable times. Conversely, in good years, profit share will generously reward employees. Our profit share expense for the period ended March 31, 2008 was $13.1 million, a 111.3 per cent increase from $6.2 million for the same quarter of 2007. This variance is directly attributable to the increased earnings eligible for profit share generated in the first quarter of 2008.

Employee share purchase plan

Our employee share purchase plan (ESPP) allows employees to participate in WestJet's success. WestJetters may contribute up to 20 per cent of their base salaries in the ESPP, and during the first quarter of 2008, contributed an average of 14 per cent. We match contributions for every dollar contributed by employees. Our matching expense for the period ended March 31, 2008 was $9.9 million, a 28.6 per cent increase from $7.7 million for the same quarter of 2007. Of our eligible employees, 84 per cent participated in the ESPP during the first quarter of 2008. The additional expense was driven by an increase in employees in the first quarter of 2008 as compared to the same period of 2007.

Stock options

Pilots, executives and certain non-executive employees participate in stock option plans. The fair value of these options, as determined by the Black-Scholes option pricing model, is expensed over the vesting period. Stock-based compensation expense for the quarter ended March 31, 2008 includes $3.5 million for pilots' options and $0.6 million for executives' and non-executives' options as compared to $5.1 million for pilots' options and $0.3 million for executives' and non-executives' options in the same period of 2007. The primary reason for the decrease in stock option expense relates to pilots electing to receive a certain amount of cash in lieu of a selected portion of their stock options, which is partially offset by an increase to salary costs.

2008 Executive Share Unit Plan

During the three months ended March 31, 2008, the Board of Directors approved the 2008 Executive Share Unit Plan whereby up to a maximum of 200,000 Restricted Share Units (RSU) and Performance Share Units (PSU) combined may be issued to executive officers. The 2008 Executive Share Unit Plan is also subject to shareholder approval, which is expected to occur at the Annual General Meeting on April 29, 2008.

Each RSU entitles the executive to receive payment upon vesting in the form of voting shares. We determine compensation expense for the 2008 RSUs based on the market value of our voting shares on the date of grant. Compensation expense is recognized in earnings on a straight-line basis over the three year vesting period.

Each PSU entitles the executive to receive payment upon vesting in the form of voting shares. The value of the PSUs is based on the fair market value of our voting shares on the date of grant. PSUs time vest at the end of a three-year term and incorporate performance criteria based upon achieving the compounded average diluted earnings per share growth rate targets established at the time of grant.

For the three months ended March 31, 2008, a total of $0.4 million of compensation expense is included in marketing, general and administration expense related to the 2008 Executive Share Unit Plan.

Foreign exchange

The foreign exchange gains and losses that we realize are largely attributable to the effect of the changes in the value of the Canadian dollar, relative to the US dollar, on our US denominated net monetary assets over the respective periods. These assets, totalling approximately US $73.2 million at March 31, 2008 (December 31, 2007 - $103.4 million), consist of US dollar cash and cash equivalents and security deposits on various leased and financed aircraft. We hold US denominated cash and short-term investments to reduce the foreign currency risk inherent in our US dollar expenditures. We reported a foreign exchange gain of $3.9 million in the first quarter of 2008 compared to a loss of $0.3 million for the same period in 2007 on the revaluation of our US dollar net monetary assets.

Income taxes

The effective consolidated income tax rate for the three months ended March 31, 2008 was 29.2 per cent, as compared to 35.6 per cent for the same period in 2007. The variance from 2007 is driven by corporate income tax rate reductions enacted by the federal government in June and December 2007 and a reduced British Columbia corporate income tax rate enacted in the first quarter of 2008.

Guest experience

Our airline is focused on meeting the needs of our guests while maintaining the highest of safety standards. We are committed to delivering a positive guest experience during every aspect of our service, from the time the flight is booked to completion of the flight.



Key Performance Indicators

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Three Months Ended
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Mar. 31 Mar. 31
2008 2007 Change
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On-time performance 69.0% 75.3% (6.3 pts)
Completion rate 98.1% 98.4% (0.3 pts)
Bag ratio 5.15 5.33 (3.4%)
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Key performance indicators are calculated based on the U.S. Department of Transportation's standards of measurement for the U.S. airline industry.

On-time performance is a key factor in measuring our guest experience. During the first three months of 2008, we encountered more severe winter weather which contributed to the decline of our on-time performance when compared to the same period of 2007. In the first quarter of 2008, 69.0 per cent of all our flights arrived within 15 minutes of their scheduled time, compared to 75.3 per cent for the same quarter in 2007.

During the first quarter of 2008, we remained committed to improving our on-time performance and continued with several initiatives to do so, such as mobile check-in, flow-through check-in, transborder and international web check-in and electronic boarding passes. In order to continually enhance our guest experience, we commenced testing of our self-tag baggage pilot project at our Vancouver base on April 9, 2008. This initiative will offer guests a complete self-serve check-in product. Upon successful completion of the trial, self-serve baggage tagging will be expanded to additional Canadian airports.

Our completion rate remained relatively flat quarter over quarter at 98.1 per cent in the first quarter of 2008 versus 98.4 per cent in the same period of 2007. This rate represents the percentage of flights completed from what was originally scheduled.

Our first quarter bag ratio for 2008 was 5.15 and represents the number of delayed or lost baggage claims made per 1,000 guests. This was an improvement of 3.4 per cent over the same quarter of 2007.

On April 3, 2008, we announced a mutual decision between BMO Bank of Montreal and WestJet to end our BMO Mosaik MasterCard partnership as of July 31, 2008. Although both our guests and WestJet benefited initially from this relationship, we believe we can exploit greater opportunities to leverage our brand in the future.

LIQUIDITY AND CAPITAL RESOURCES

WestJet has continued to maintain a strong financial position as at March 31, 2008. Our healthy balance sheet positions us favourably to weather potential economic downturns in the industry and combat unpredictable external pressures. Our balance sheet has remained one of the strongest balance sheets in the airline industry.

Our cash position continues to grow, as total cash and cash equivalents were $784.4 million at March 31, 2008 compared to $653.6 million at December 31, 2007. Part of this cash balance relates to cash collected with respect to advance ticket sales for which the balance at March 31, 2008 was $241.0 million. An increase to our working capital ratio to 1.25 from 1.22 as at December 31, 2007 further demonstrates our strong financial position and liquidity. As at, and for the three months ended March 31, 2008, WestJet did not have any investments in asset-backed commercial paper.

We monitor capital on a number of measures, such as adjusted debt-to-equity and adjusted net debt to EBITDAR. Our adjusted debt-to-equity ratio at March 31, 2008 was 1.99 to 1.0, including $568.6 million in off-balance sheet aircraft operating leases. This compared favourably to our adjusted debt-to-equity ratio at December 31, 2007 of 2.07 to 1. Our adjusted net debt to EBITDAR ratio was 2.22 as at March 31, 2008 as compared to 2.51 as at December 31, 2007. Both of these ratios met our targets for March 31, 2008 and December 31, 2007 of an adjusted debt-to-equity measure of no more than 3.00 and an adjusted net debt to EBITDAR ratio of no more than 3.00. As at March 31, 2008, our adjusted debt-to-equity ratio improved by 3.9 per cent, attributable to the increase in net earnings more than offsetting the addition of new aircraft financing during the quarter. As at March 31, 2008, our adjusted net debt to EBITDAR ratio improved by 11.6 per cent as a result of increased EBITDAR and cash and cash equivalents. These ratios demonstrate our strong balance sheet position to execute our business plan.

To see the Adjusted Net Debt to EBITDAR chart, click here: http://media3.marketwire.com/docs/429wja_EBITDAR.pdf.

Operating cash flow

Due to our strong financial results, we have been able to generate sufficient funds from operations to meet our working capital requirements. In the first quarter of 2008, cash flow from operations increased by 31.3 per cent to $189.8 million from $144.6 million for the same period in 2007 due to growth in earnings from operations and improved working capital.

Financing cash flow

Our total cash flow from financing activities was $24.4 million, consisting mainly of $67.9 million in long-term debt issued to finance two of our newly purchased aircraft, partially offset by $41.4 million in long-term debt repayments. In the previous year's quarter, cash flow used in financing activities was $52.2 million, comprised largely of a cash outflow of $43.1 million in long-term debt repayments primarily related to our aircraft.

In addition to having strong cash liquidity, we have been successful in financing our growth through aircraft acquisitions financed by low-interest rate debt supported by the Export-Import Bank of the United States (Ex-Im Bank). As at March 31, 2008, we have a final commitment of up to US $40.0 million from Ex-Im Bank for one aircraft to be delivered in July 2008.

These loan guarantees from the US government represent approximately 85 per cent of the purchase price of these aircraft. This financing activity brings the cumulative number of aircraft financed with loan guarantees to 51, with an outstanding debt balance of $1.4 billion associated with those aircraft. All of this debt has been financed in Canadian dollars at fixed interest rates, thus eliminating all future foreign exchange and interest rate exposure on these US dollar aircraft purchases.

To facilitate the financing of our Ex-Im Bank supported aircraft, we utilize five special-purpose entities. We have no equity ownership in the special-purpose entities; however, we are the beneficiary of the special-purpose entities' operations. The accounts of the special-purpose entities have been consolidated in the financial statements.

Investing cash flow

Cash used in investing activities for the first quarter of 2008 totalled $85.2 million compared to $0.9 million in the same quarter of 2007. In the first three months of 2008, our investing activities included the addition of two new owned 737-700 aircraft totalling $71.3 million, as well as $13.9 million in expenditures relating to the construction of our new office space, the Calgary "Campus". In the first quarter of 2007, we paid an additional $10.4 million on deposits towards owned aircraft deliveries. This outflow was partially offset by $13.8 million in proceeds received on the sale of two engines.

Capital resources

In the quarter ended March 31, 2008, we took delivery of two additional purchased aircraft and one leased aircraft for a total committed fleet of 116 by 2013. At March 31, 2008, we had existing commitments to take delivery of an additional 43 aircraft as summarized below:



At March 31, 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Series
----------------------------------------------------------------------------
600s 700s
----------------------------------------------------------------------------
Leased Owned Total Leased Owned Total
----------------------------------------------------------------------------
Fleet at December 31, 2007 - 13 13 16 35 51
----------------------------------------------------------------------------
Fleet at March 31, 2008 - 13 13 16 37 53
Commitments:
2008 - - - 2 1 3
2009 - - - 7 - 7
2010 - - - 4 - 4
2011 - - - 4 - 4
2012 - - - - 14(1) 14
2013 - - - - 6(1) 6
----------------------------------------------------------------------------
Total Commitments - - - 17 21 38
----------------------------------------------------------------------------
Committed fleet as of 2013 - 13 13 33 58 91
----------------------------------------------------------------------------

----------------------------------------------------------------------------
800s Total Fleet
----------------------------------------------------------------------------
Leased Owned Total Leased Owned Total
----------------------------------------------------------------------------
Fleet at December 31, 2007 5 1 6 21 49 70
----------------------------------------------------------------------------
Fleet at March 31, 2008 6 1 7 22 51 73
Commitments:
2008 1 - 1 3 1 4
2009 3 - 3 10 - 10
2010 1 - 1 5 - 5
2011 - - - 4 - 4
2012 - - - - 14 14
2013 - - - - 6 6
----------------------------------------------------------------------------
Total Commitments 5 - 5 22 21 43
----------------------------------------------------------------------------
Committed fleet as of 2013 11 1 12 44 72 116
----------------------------------------------------------------------------
(1) We have an option to convert any of these future aircraft to 737-800s.
----------------------------------------------------------------------------
----------------------------------------------------------------------------


On February 29, 2008, we signed a Letter of Intent to lease an additional 737-800 aircraft scheduled for delivery in 2011. This has not been reflected as a commitment in the table above as the lease has not yet been signed. As at March 31, 2008, our total purchased aircraft commitment, including amounts to be paid for live satellite television systems on purchased and leased aircraft, was $923.9 million, or US $902.7 million. Additionally, our commitment relating to aircraft operating leases was $1,430.3 million, or US $1,397.4 million as at March 31, 2008.

The construction of the Calgary Campus, our new office space adjacent to the Calgary hangar, was well under way in the first quarter of 2008. The Campus is expected to cost approximately $100 million and will be financed through operating cash flow. During the first quarter of 2008, we incurred a total of $13.9 million relating to the Campus for a total spend of $25.8 million as at March 31, 2008. Expected completion of our new office space is late 2008 with occupancy projected for early 2009.

Contractual obligations, off-balance sheet arrangements and commitments

We currently have 22 aircraft under operating leases. We have entered into agreements with independent third parties to lease 17 additional 737-700 aircraft and five 737-800 aircraft over eight-and 10-year terms in US dollars, to be delivered throughout 2008 to 2011. Although the current obligations related to our aircraft operating lease agreements are not recognized on our balance sheet, we include these commitments in assessing our leverage through our adjusted debt-to-equity and net debt to EBITDAR ratios.

Contingencies

We are party to certain 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 our financial position, results of operations or cash flows.

On January 10, 2008, the Canadian Transportation Agency rendered Decision No. 6-AT-A-2008 under the Canada Transportation Act, S.C., 1996, c. 10, as amended, as a result of an application pursuant to subsection 172(1) of the Act. The decision against WestJet, and other Canadian air carriers and parties concerns the fares to be paid by persons with disabilities who require additional seating to accommodate their disabilities when travelling domestically by air. We are appealing the decision and it is not possible at the present time to predict with any degree of certainty the outcome of the appeal of the decision or the final effects thereof.

Normal course issuer bid

On March 13, 2008, we filed a notice with the Toronto Stock Exchange (TSX) to make a normal course issuer bid to purchase outstanding shares on the open market. As approved by the TSX, we are authorized to purchase up to 2,500,000 shares (representing approximately 1.9 per cent of our issued and outstanding shares at the time of the bid) during the period of March 17, 2008 to March 16, 2009, or until such earlier time as the bid is completed or terminated at our option. Any shares we purchase under this bid will be purchased on the open market through the facilities of the TSX at the prevailing market price at the time of the transaction. Shares acquired under this bid will be cancelled. As at March 31, 2008, we had not purchased any shares pursuant to this bid.

Share capital

As at April 25, 2008, the number of common voting shares and variable voting shares amounted to 125,627,224 and 4,143,155 respectively.

Related party transactions

We have debt financing and investments in short-term deposits with a financial institution which is related through two common directors, one of which is also the president of the financial institution. As at March 31, 2008, total long-term debt includes an amount of $22.6 million (December 31, 2007 - $23.3 million) due to the financial institution. Included in cash and cash equivalents as at March 31, 2008 are short-term investments of $197.8 million (December 31, 2007 - $189.4 million) owing from the financial institution. These transactions occurred in the normal course of operations with terms consistent with those offered to arm's length parties and are measured at the exchange amount.

ACCOUNTING

Changes in accounting policies

Effective January 1, 2008, we adopted CICA Section 3031, Inventories, which replaces Section 3030, Inventories, and harmonizes the Canadian standards related to inventories with International Financial Reporting Standards (IFRS). This section provides more extensive guidance on the determination of cost, narrows the permitted cost formulas, requires impairment testing and expands the disclosure requirements to increase transparency. There was no impact on our financial results from the adoption of Section 3031.

Effective January 1, 2008, we adopted CICA Section 1535, Capital Disclosures, which establishes guidelines for the disclosure of information on an entity's capital and how it is managed. This enhanced disclosure enables users to evaluate the entity's objectives, policies and processes for managing capital. This new requirement is for disclosure purposes only and upon adoption did not impact our financial results for the three months ended March 31, 2008. See note 3 to the consolidated financial statements for further disclosure.

Effective January 1, 2008, we adopted CICA Section 3862, Financial Instruments - Disclosure, and Section 3863, Financial Instruments - Presentation, which replace the existing Section 3861, Financial Instruments - Disclosure and Presentation. Section 3862 requires enhanced disclosure on the nature and extent of financial instrument risks and how an entity manages those risks. Section 3863 carries forward the existing presentation requirements and provides additional guidance for the classification of financial instruments. This new requirement is for disclosure purposes only and upon adoption did not impact our financial results for the three months ended March 31, 2008. See note 10 to the consolidated financial statements for further disclosure.

Future accounting policy changes

In January 2006, the Canadian Accounting Standards Board (AcSB) announced its decision to replace Canadian GAAP with IFRS for all Canadian Publicly Accountable Enterprises (PAE). On February 13, 2008 the AcSB confirmed January 1, 2011 as the official changeover date for PAEs to commence reporting under IFRS. Although IFRS is principles-based and uses a conceptual framework similar to Canadian GAAP, there are significant differences and choices in accounting policies, as well as increased disclosure requirements under IFRS. We are currently in the process of assessing the impact of IFRS on our financial statements.

CONTROLS AND PROCEDURES

Management is responsible for the establishment and maintenance of a system of disclosure controls and procedures. The Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) have evaluated the effectiveness of our disclosure controls and procedures (DC&P) as of March 31, 2008, as defined under the rules of the Canadian Securities Administrators (CSA), and have concluded that our disclosure controls and procedures are effective. Management is also responsible for the establishment and maintenance of a system of internal controls over financial reporting (ICFR). Management has designed internal controls over financial reporting effectively to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with Canadian GAAP. There were no changes in our internal controls over financial reporting during the most recent interim period that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Changes in CSA requirements over certification of disclosure

On April 18, 2008, the CSA released a revised proposal to repeal and replace Multilateral Instrument 52-109 with a revised version of National Instrument 52-109.

Based on this new proposal, there is a requirement to evaluate the operating effectiveness of ICFR in addition to design effectiveness. Furthermore, the CEO and CFO will have a requirement to certify over the design and operating effectiveness of DC&P and ICFR for the year ended December 31, 2008. We expect the proposal to be finalized by the CSA and become effective in the third quarter of 2008 and have therefore incorporated the revisions into the current annual certification process.

OUTLOOK

The continued strong financial results in the first quarter of 2008 represent our people's dedication and loyalty to our airline. With an unrivalled spirit and commitment to guest experience, the commitment of each and every WestJetter has contributed to our financial success. Each passing quarter provides more evidence that our business model and strategies are proven and working well. Our brand, driven by our WestJetters' service delivery, is enviable. We will continue to focus on enabling our people to help execute these strategies.

Unprecedented fuel prices will continue to impact margins during 2008. As such, our low-cost strategy has never been more critical to our financial growth. Our continued focus will be on reducing CASM and executing our proven seasonal deployment strategy. In addition to fuel price increases, there remains some uncertainty regarding the overall economic outlook for Canada and the impact this may have on air travel demand. Our strong balance sheet positions us well to weather economic uncertainties and potential downturns in 2008.

In the second quarter of 2008, we will take delivery of two more aircraft, bringing our total fleet to 75. Our capacity is expected to increase by 20 per cent in the second quarter versus the same period in 2007. In addition, the second quarter is a period where we transition a large part of our transborder capacity back into Canada. As a result, we expect our RASM to be comparable to the second quarter of 2007. Based on jet fuel pricing at the end of April 2008, we expect our fuel cost per litre to be approximately $1.01, which represents an increase of approximately 45 per cent from the same quarter of 2007.

For 2008, we estimate the sensitivity to changes in crude oil and fuel pricing to be approximately $5 million annually to our fuel costs for every US dollar change per barrel of crude oil and $8 million for every one-cent change per litre of fuel. We also estimate that every one-cent change in the value of the Canadian dollar versus the US dollar will have an approximate $8 million impact on our annual costs (approximately $6 million for fuel and $2 million for remaining costs).

NON-GAAP MEASURES

To supplement our consolidated financial statements presented in accordance with Canadian GAAP, we use various non-GAAP performance measures. These measures are provided to enhance the user's overall understanding of our current financial performance and are included to provide investors and management with an alternative method for assessing our operating results in a manner that is focused on the performance of our 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 entities.

The following non-GAAP measures are used to monitor our financial performance:

Adjusted debt: Long-term debt and obligations under capital lease adjusted to include off-balance sheet aircraft operating leases. Our practice, consistent with common industry practice, is to multiply the trailing twelve months of aircraft leasing expense by 7.5 to derive a present value debt equivalent.

Adjusted equity: The sum of share capital, contributed surplus and retained earnings, excluding accumulated other comprehensive loss.

Adjusted net debt: Adjusted total debt less cash and cash equivalents.

Earnings before tax margin: Earnings before income taxes divided by total revenues.

EBITDAR: Earnings before interest, taxes, depreciation, aircraft leasing and other items, such as asset write-downs and foreign exchange gains or losses. EBITDAR is a non-GAAP measure commonly used in the airline industry to evaluate results by excluding differences in the method in which an airline finances its aircraft.

Operating margin: Earnings from operations divided by total revenues.

Operating revenues: The total of guest revenues and charter and other revenues.



Reconciliation of non-GAAP measures to GAAP
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Mar. 31 Dec. 31 Change
($ in thousands, except ratio amounts) 2008 2007
----------------------------------------------------------------------------
Adjusted debt-to-equity:
Long-term debt (i) $1,456,038 $1,429,518 $26,520
Obligations under capital lease (ii) 1,391 1,483 (92)
Off-balance sheet aircraft leases (iii) 568,568 564,008 4,560
----------------------------------------------------------------------------
Adjusted debt $2,025,997 $1,995,009 $30,988
----------------------------------------------------------------------------
Total shareholders' equity 1,007,651 949,908 57,743
Add back accumulated other comprehensive
loss 11,200 11,914 (714)
----------------------------------------------------------------------------
Adjusted equity $1,018,851 $961,822 57,029
----------------------------------------------------------------------------
Adjusted debt-to-equity 1.99 2.07 (3.9%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Net debt to EBITDAR: (iv)
Net earnings $215,484 $192,833 $22,651
Add back:
Net interest (v) 49,302 51,448 (2,146)
Taxes 49,130 43,925 5,205
Depreciation and amortization 129,050 127,223 1,827
Aircraft leasing 75,809 75,201 608
Other (vi) 40,372 44,631 (4,259)
----------------------------------------------------------------------------
EBITDAR $559,147 $535,261 $23,886
----------------------------------------------------------------------------
Adjusted debt (as per above) 2,025,997 1,995,009 30,988
Less: Cash and cash equivalents 784,352 653,558 130,794
----------------------------------------------------------------------------
Adjusted net debt $1,241,645 $1,341,451 ($99,806)
----------------------------------------------------------------------------
Adjusted net debt to EBITDAR 2.22 2.51 (11.6%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(i) At March 31, 2008, long-term debt includes the current portion of
long-term debt of $178,115 (December 31, 2007 - $172,992) and long-
term debt of $1,277,923 (December 31, 2007 - $1,256,526).
(ii) At March 31, 2008, obligations under capital lease includes the
current portion of obligations under capital lease of $380 (December
31, 2007 - $375) and obligations under capital lease of $1,011
(December 31, 2007 - $1,108).
(iii) Off-balance-sheet aircraft leases is calculated by multiplying the
trailing twelve months of aircraft leasing expense by 7.5. At March
31, 2008, the trailing twelve months of aircraft leasing costs
totalled $75,809 (December 31, 2007 - $75,201).
(iv) The trailing twelve months are used in the calculation of EBITDAR.
(v) For the twelve months ended March 31, 2008, net interest includes
interest income of $27,208 (December 31, 2007 - $24,301) and interest
expense of $76,510 (December 31, 2007 - $75,749).
(vi) For the twelve months ended March 31, 2008, other includes aiRES
write-down of $31,881 and foreign exchange loss of $8,491 (December
31, 2007 - aiRES write down of $31,881 and foreign exchange loss of
$12,750).


Consolidated Financial Statements and Notes

For the Three Months Ended March 31, 2008 and 2007


Consolidated Statement of Earnings
(Stated in thousands of Canadian dollars, except per share amounts)
(Unaudited)

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

Three months ended March 31, 2008 2007
----------------------------------------------------------------------------

Revenues:
Guest revenues $ 525,700 $ 390,732
Charter and other revenues 73,648 79,978
----------------------------------------------------------------------------
599,348 470,710

Expenses:
Aircraft fuel 167,717 110,211
Airport operations 83,928 74,722
Flight operations and navigational charges 67,575 62,569
Marketing, general and administration 47,406 38,548
Sales and distribution 40,278 30,505
Depreciation and amortization 32,849 31,022
Inflight 25,399 19,485
Maintenance 19,406 18,414
Aircraft leasing 19,083 18,475
Employee profit share 13,146 6,223
----------------------------------------------------------------------------
516,787 410,174
----------------------------------------------------------------------------
Earnings from operations 82,561 60,536

Non-operating income (expense):
Interest income 7,306 4,399
Interest expense (19,533) (18,772)
Gain (loss) on foreign exchange 3,937 (322)
Gain (loss) on disposal of property and equipment (70) 503
----------------------------------------------------------------------------
(8,360) (14,192)
----------------------------------------------------------------------------
Earnings before income taxes 74,201 46,344

Income tax expense:
Current 991 441
Future 20,704 16,048
----------------------------------------------------------------------------
21,695 16,489
----------------------------------------------------------------------------
Net earnings $ 52,506 $ 29,855
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Earnings per share:
Basic $ 0.40 $ 0.23
Diluted $ 0.40 $ 0.23
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The accompanying notes are an integral part of the consolidated financial
statements.


Consolidated Balance Sheet
(Stated in thousands of Canadian dollars)
(Unaudited)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, December 31,
2008 2007
----------------------------------------------------------------------------

Assets
Current assets:
Cash and cash equivalents (note 4) $ 784,352 $ 653,558
Accounts receivable 22,381 15,009
Prepaid expenses, deposits and other 39,405 39,019
Inventory 11,091 10,202
----------------------------------------------------------------------------
857,229 717,788

Property and equipment (note 5) 2,264,650 2,213,063

Other assets 57,946 53,371
----------------------------------------------------------------------------
$3,179,825 $2,984,222
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued liabilities $ 210,572 $ 168,171
Advance ticket sales 241,024 194,929
Non-refundable guest credits 56,297 54,139
Current portion of long-term debt (note 6) 178,115 172,992
Current portion of obligations under capital lease 380 375
----------------------------------------------------------------------------
686,388 590,606

Long-term debt (note 6) 1,277,923 1,256,526

Obligations under capital lease 1,011 1,108

Other liabilities 11,203 11,337

Future income tax 195,649 174,737
----------------------------------------------------------------------------
2,172,174 2,034,314

Shareholders' equity:
Share capital (note 7) 453,192 448,568
Contributed surplus 57,788 57,889
Accumulated other comprehensive loss (11,200) (11,914)
Retained earnings 507,871 455,365
----------------------------------------------------------------------------
1,007,651 949,908

Commitments and contingencies (note 9)
----------------------------------------------------------------------------
$3,179,825 $2,984,222
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The accompanying notes are an integral part of the consolidated financial
statements.


Consolidated Statement of Shareholders' Equity
(Stated in thousands of Canadian dollars)
(Unaudited)

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

Three months ended March 31, 2008 2007
----------------------------------------------------------------------------

Share capital:
Balance, beginning of period $ 448,568 $ 431,248
Issuance of shares pursuant to stock option
plans (note 7) - 124
Stock-based compensation on stock options
exercised (note 7) 4,624 3,644
----------------------------------------------------------------------------
453,192 435,016

Contributed surplus:
Balance, beginning of period 57,889 58,656
Stock-based compensation expense (note 7) 4,523 5,450
Stock-based compensation on stock options
exercised (note 7) (4,624) (3,644)
----------------------------------------------------------------------------
57,788 60,462

Accumulated other comprehensive loss:
Balance, beginning of period (11,914) -
Change in accounting policy - (13,420)
Other comprehensive income 714 350
----------------------------------------------------------------------------
(11,200) (13,070)

Retained earnings:
Balance, beginning of period 455,365 316,123
Change in accounting policy - (36,612)
Net earnings 52,506 29,855
----------------------------------------------------------------------------
507,871 309,366

Total accumulated other comprehensive loss and
retained earnings 496,671 296,296

----------------------------------------------------------------------------
Total shareholders' equity $1,007,651 $ 791,774
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The accompanying notes are an integral part of the consolidated financial
statements.


Consolidated Statement of Comprehensive Income
(Stated in thousands of Canadian dollars)
(Unaudited)

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

Three months ended March 31, 2008 2007
----------------------------------------------------------------------------

Net earnings $ 52,506 $ 29,855

Other comprehensive income, net of tax:
Amortization of hedge settlements to aircraft
leasing 350 350
Unrealized change in fair value on cash flow
hedges (net of tax of $208) 592 -
Reclassification of net realized gains on cash
flow hedges to net earnings (228) -
----------------------------------------------------------------------------
714 350

----------------------------------------------------------------------------
Total comprehensive income $ 53,220 $ 30,205
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The accompanying notes are an integral part of the consolidated financial
statements.


Consolidated Statement of Cash Flows
(Stated in thousands of Canadian dollars)
(Unaudited)

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

Three months ended March 31, 2008 2007
----------------------------------------------------------------------------

Operating activities

Net earnings $ 52,506 $ 29,855
Items not involving cash:
Depreciation and amortization 32,849 31,022
Amortization of other liabilities (235) (217)
Amortization of hedge settlements 350 350
Loss (gain) on disposal of property, equipment
and aircraft parts 877 (420)
Stock-based compensation expense 4,521 5,450
Future income tax expense 20,704 16,048
Unrealized foreign exchange loss (gain) (4,301) 299
Change in non-cash working capital 82,530 62,241
----------------------------------------------------------------------------
189,801 144,628
----------------------------------------------------------------------------

Financing activities
Increase in long-term debt 67,948 -
Repayment of long-term debt (41,428) (43,058)
Decrease in obligations under capital lease (92) (88)
Increase in other assets (2,072) (9,131)
Issuance of common shares - 124
----------------------------------------------------------------------------
24,356 (52,153)
----------------------------------------------------------------------------

Investing activities
Aircraft additions (71,310) (12,105)
Aircraft disposals 2,131 -
Other property and equipment additions (16,137) (2,548)
Other property and equipment disposals 155 13,760
----------------------------------------------------------------------------
(85,161) (893)
----------------------------------------------------------------------------
Cash flow from operating, financing and investing
activities 128,996 91,582
Effect of exchange rate on cash and cash
equivalents 1,798 (55)
----------------------------------------------------------------------------
Net change in cash and cash equivalents 130,794 91,527

Cash and cash equivalents, beginning of period 653,558 377,517

----------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 784,352 $ 469,044
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash interest paid $ 19,633 $ 19,336
Cash taxes received (paid) $ (768) $ 10,520
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The accompanying notes are an integral part of the consolidated financial
statements.


Notes to Consolidated Financial Statements
For the three months ended March 31, 2008 and 2007
(Amounts are stated in thousands of dollars, except share and per share
data)
(Unaudited)
----------------------------------------------------------------------------


1. Basis of presentation

The interim consolidated financial statements of WestJet Airlines Ltd. (WestJet or the Corporation) have been prepared by management in accordance with Canadian generally accepted accounting principles (GAAP). The interim consolidated financial statements have been prepared following the same accounting policies and methods of computation as the consolidated financial statements for the year ended December 31, 2007, except as described below. 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, 2007.

The Corporation's business is seasonal in nature with varying levels of activity throughout the year. The Corporation experiences increased domestic travel in the summer months and more demand for transborder and sun destinations over the winter period.

Amounts presented in the Corporation's interim consolidated financial statements and the notes thereto are in Canadian dollars unless otherwise stated.

Certain prior-period balances have been reclassified to conform to current period's presentation, including the reclassification of interest income and interest expense as non-operating items and the reclassification of the Corporation's employee profit share expense as operating.

2. Recent accounting pronouncements

(a) Change in accounting policies

Effective January 1, 2008, the Corporation adopted the following new accounting standards issued by the Canadian Institute of Chartered Accountants (CICA):

(i) Inventory

CICA Section 3031, Inventories, replaces Section 3030, Inventories and harmonizes the Canadian standards related to inventories with International Financial Reporting Standards (IFRS). This section provides more extensive guidance on the determination of cost, narrows the permitted cost formulas, requires impairment testing and expands the disclosure requirements to increase transparency. There was no impact on the financial results of the Corporation from the adoption of Section 3031.

(ii) Capital disclosures

CICA Section 1535, Capital Disclosures, establishes guidelines for the disclosure of information on an entity's capital and how it is managed. This enhanced disclosure enables users to evaluate the entity's objectives, policies and processes for managing capital. This new requirement is for disclosure purposes only and upon adoption did not impact the financial results of the Corporation. See note 3, capital management, for further disclosure.

(iii) Financial instruments - disclosure and presentation

CICA Section 3862, Financial Instruments - Disclosure, and Section 3863, Financial Instruments - Presentation replace the existing Section 3861 Financial Instruments - Disclosure and Presentation. Section 3862 requires enhanced disclosure on the nature and extent of financial instrument risks and how an entity manages those risks. Section 3863 carries forward the existing presentation requirements and provides additional guidance for the classification of financial instruments. This new requirement is for disclosure purposes only and upon adoption did not impact the financial results of the Corporation. See note 10, financial instruments and risk management, for further disclosure.

(b) Future accounting policies

International Financial Reporting Standards

In January 2006, the Canadian Accounting Standards Board (AcSB) announced its decision to replace Canadian GAAP with IFRS for all Canadian Publicly Accountable Enterprises (PAE). On February 13, 2008, the AcSB confirmed January 1, 2011 as the official changeover date for PAEs to commence reporting under IFRS. Although IFRS is principles-based and uses a conceptual framework similar to Canadian GAAP, there are significant differences and choices in accounting policies, as well as increased disclosure requirements under IFRS. The Corporation is currently in the process of assessing the impact of IFRS on its financial statements.

3. Capital management

The Corporation's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the airline. The Corporation manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets.

In order to maintain or adjust the capital structure, the Corporation may from time to time purchase shares for cancellation pursuant to normal course issuer bids to offset dilution caused by stock option exercises, issue new shares, and to adjust current and projected debt levels.

In the management of capital, the Corporation includes shareholders' equity (excluding accumulated other comprehensive loss), long-tem debt, capital leases, cash and cash equivalents and the Corporation's off-balance sheet obligations related to its aircraft operating leases.

The Corporation monitors capital on a number of bases, including: adjusted debt-to-equity and adjusted net debt to Earnings Before Interest, Taxes, Depreciation and Aircraft Rent (EBITDAR). EBITDAR is a non-GAAP financial measure commonly used in the airline industry to evaluate results by excluding differences in the method by which an airline finances its aircraft. In addition, the Corporation will adjust EBITDAR for one-time special items and for gains and losses on foreign exchange. The Corporation adjusts debt to include its off-balance-sheet aircraft operating leases. Common industry practice is to multiply the trailing twelve months of aircraft leasing expense by 7.5 to derive a present value debt equivalent. The Corporation defines adjusted net debt as adjusted total debt less cash and cash equivalents. The Corporation defines equity as the sum of share capital, contributed surplus and retained earnings and excludes accumulated other comprehensive loss (AOCL).



----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, December 31,
2008 2007 Change
----------------------------------------------------------------------------

Adjusted debt-to-equity:
Long-term debt (i) $1,456,038 $1,429,518 $ 26,520
Obligations under capital lease (ii) 1,391 1,483 (92)
Off-balance-sheet aircraft leases (iii) 568,568 564,008 4,560
----------------------------------------------------------------------------
Adjusted debt $2,025,997 $1,995,009 $ 30,988
----------------------------------------------------------------------------
Total shareholders' equity 1,007,651 949,908 57,743
Add: AOCL 11,200 11,914 (714)
----------------------------------------------------------------------------
Adjusted equity $1,018,851 $ 961,822 $ 57,029
----------------------------------------------------------------------------
Adjusted debt-to-equity 1.99 2.07 (3.9%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Adjusted net debt to EBITDAR (iv):
Net earnings $ 215,484 $ 192,833 $ 22,651
Add back:
Net interest (v) 49,302 51,448 (2,146)
Taxes 49,130 43,925 5,205
Depreciation and amortization 129,050 127,223 1,827
Aircraft leasing 75,809 75,201 608
Other (vi) 40,372 44,631 (4,259)
----------------------------------------------------------------------------
EBITDAR $ 559,147 $ 535,261 $ 23,886
----------------------------------------------------------------------------
Adjusted total debt (as per above) 2,025,997 1,995,009 30,988
Less: Cash and cash equivalents 784,352 653,558 130,794
----------------------------------------------------------------------------
Adjusted net debt $1,241,645 $1,341,451 $(99,806)
----------------------------------------------------------------------------
Adjusted net debt to EBITDAR 2.22 2.51 (11.6%)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) At March 31, 2008, long-term debt includes the current portion of
long-term debt of $178,115 (December 31, 2007 - $172,992) and
long-term debt of $1,277,923 (December 31, 2007 - $1,256,526).
(ii) At March 31, 2008, obligations under capital lease includes the
current portion of obligations under capital lease of $380 (December
31, 2007 - $375) and obligations under capital lease of $1,011
(December 31, 2007 - $1,108).
(iii) Off-balance-sheet aircraft leases is calculated by multiplying the
trailing twelve months of aircraft leasing expense by 7.5. At March
31, 2008, the trailing twelve months of aircraft leasing costs
totalled $75,809 (December 31, 2007 - $75,201).
(iv) The trailing twelve months are used in the calculation of EBITDAR.
(v) For the twelve months ended March 31, 2008, net interest includes
interest income of $27,208 (December 31, 2007 - $24,301) and interest
expense of $76,510 (December 31, 2007 - $75,749).
(vi) For the twelve months ended March 31, 2008, other includes aiRES
write-down of $31,881 and foreign exchange loss of $8,491 (December
31, 2007 - aiRES write-down of $31,881 and foreign exchange loss of
$12,750).


For March 31, 2008 and December 31, 2007, the Corporation's targets were an adjusted debt-to-equity measure of no more than 3.00 and an adjusted net debt to EBITDAR of no more than 3.00. As at March 31, 2008, the Corporation's adjusted debt-to-equity ratio improved by 3.9%, attributable to the increase in shareholders' equity (mainly net earnings) more than offsetting the addition of new aircraft financing in the quarter. As at March 31, 2008, the Corporation's net debt to EBITDAR improved by 11.6% as a result of increased EBITDAR and cash and cash equivalents.

No dividends have been paid or declared on any of the Corporation's shares since the date of incorporation. This policy is based on operational results, financial policy and financing requirements for future growth and is continuously reviewed by the Corporation.

The Corporation is subject to an externally imposed capital requirement under the provisions of the Canada Transportation Act. Under the Act, the Corporation must, as a corporation which indirectly wholly owns the holder of a domestic licence, a scheduled international licence and a non-scheduled international licence, be Canadian, that is, be controlled, in fact, by Canadians with at least 75% of its voting interest be owned and controlled by Canadians. To monitor this external requirement, the Corporation has structured its voting shares into two classes: common voting and variable voting. The variable voting shares may be owned and controlled only by persons who are not Canadian and, as a class, cannot exceed more than 25% of the total number of votes cast on any matter on which a vote is to be taken. The common voting shares may be owned and controlled by Canadians only. As at March 31, 2008, the Corporation is in compliance with this requirement.

There were no changes in the Corporation's approach to capital management during the three months ended March 31, 2008.

4. Cash and cash equivalents

As at March 31, 2008, cash and cash equivalents included bank balances of $48,977 (December 31, 2007 - $37,395) and short-term investments of $735,375 (December 31, 2007 - $616,163). Included in these balances, as at March 31, 2008, the Corporation has US-dollar cash and cash equivalents of US $24,650 (December 31, 2007 - US $59,843).

As at March 31, 2008, cash and cash equivalents included restricted cash of $2,647 (December 31, 2007 -$2,069) for security on the Corporation's facilities for letters of guarantee. In accordance with regulatory requirements, the Corporation has US $271 (December 31, 2007 - US $295) in restricted cash representing cash not yet remitted for passenger facility charges.



5. Property and equipment

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated
March 31, 2008 Cost depreciation Net book value
----------------------------------------------------------------------------
Aircraft $ 2,356,464 $ 316,018 $ 2,040,446
Ground property and equipment 155,528 81,109 74,419
Spare engines and parts 76,358 14,276 62,082
Buildings 40,028 6,076 33,952
Leasehold improvements 7,021 5,249 1,772
Assets under capital lease 2,481 1,316 1,165
----------------------------------------------------------------------------
2,637,880 424,044 2,213,836
Deposits on aircraft 23,691 - 23,691
Assets under development 27,123 - 27,123
----------------------------------------------------------------------------
$ 2,688,694 $ 424,044 $ 2,264,650
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated
December 31, 2007 Cost depreciation Net book value
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Aircraft $ 2,273,509 $ 288,909 $ 1,984,600
Ground property and equipment 158,477 81,345 77,132
Spare engines and parts 76,862 13,610 63,252
Buildings 40,028 5,825 34,203
Leasehold improvements 7,039 5,112 1,927
Assets under capital lease 2,481 1,191 1,290
----------------------------------------------------------------------------
2,558,396 395,992 2,162,404
Deposits on aircraft 38,795 - 38,795
Assets under development 11,864 - 11,864
----------------------------------------------------------------------------
$ 2,609,055 $ 395,992 $ 2,213,063
----------------------------------------------------------------------------
----------------------------------------------------------------------------


As at March 31, 2008, assets under development include $25,751 (December 31, 2007 - $11,850) in amounts capitalized in conjunction with the Corporation's new Campus facility.



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

6. Long-term debt

----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, December 31,
2008 2007
----------------------------------------------------------------------------
Term loans - purchased aircraft (i) $ 1,417,865 $ 1,389,888
Term loans - flight simulators (ii) 22,554 23,325
Term loans - live satellite television (iii)
equipment 3,151 3,621
Term loan - Calgary hangar facility (iv) 9,952 10,054
Term loan - Calgary hangar facility (v) 2,516 2,630
----------------------------------------------------------------------------
1,456,038 1,429,518
Current portion 178,115 172,992
----------------------------------------------------------------------------
$ 1,277,923 $ 1,256,526
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(i) 51 individual term loans, amortized on a straight-line basis over a 12-
year term, each repayable in quarterly principal instalments ranging
from $668 to $955, including fixed interest at a weighted average rate
of 5.33%, maturing between 2014 and 2019. These facilities are
guaranteed by the Export-Import Bank of the United States (Ex-Im Bank)
and secured by one 800-series aircraft, 37 700-series aircraft and 13
600-series aircraft.

(ii) Three individual term loans, repayable in monthly instalments ranging
from $104 to $168, including floating interest at the bank's prime
rate plus 0.88%, with an effective interest rate of 6.13% as at March
31, 2008, maturing in 2008 and 2011, secured by three flight
simulators.

(iii) 14 individual term loans, amortized on a straight-line basis over a
five-year term, repayable in quarterly principal instalments ranging
from $29 to $42, including floating interest at the Canadian LIBOR
rate plus 0.08%, with a weighted average effective interest rate of
4.21% as at March 31, 2008, maturing between 2009 and 2011. These
facilities are for the purchase of live satellite television
equipment and are guaranteed by the Ex-Im Bank and secured by certain
700-series and 600-series aircraft.

(iv) Term loan repayable in monthly instalments of $108, including interest
at 9.03%, maturing April 2011, secured by the Calgary hangar facility.

(v) Term loan repayable in monthly instalments of $50, including floating
interest at the bank's prime rate plus 0.50%, with an effective interest
rate of 5.75% as at March 31, 2008, maturing April 2013, secured by the
Calgary hangar facility.


The net book value of the property and equipment pledged as collateral for the Corporation's secured borrowings was $2,003,259 as at March 31, 2008 (December 31, 2007 - $2,028,548).



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

----------------------------------------------------------------------------
2008 $ 137,245
2009 162,854
2010 162,180
2011 174,839
2012 160,460
2013 and thereafter 658,460
----------------------------------------------------------------------------
$ 1,456,038
----------------------------------------------------------------------------
----------------------------------------------------------------------------



As at March 31, 2008, the Corporation has a final commitment of US $40.0 million from Ex-Im Bank for one 737-700 aircraft to be delivered in July 2008. 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 each aircraft, and will be charged a 3% exposure fee on the financed portion of the aircraft price, payable upon delivery of an aircraft. Upon final delivery of the aircraft, any unused portion of the final commitment will be cancelled.



7. Share capital

(a) Issued and outstanding

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Three months ended
March 31, 2008 March 31, 2007
----------------------------------------------------------------------------
Number Amount Number Amount
----------------------------------------------------------------------------
Common and variable voting shares:

Balance, beginning of period 129,571,570 $ 448,568 129,648,688 $ 431,248
Issuance of shares pursuant to
stock option plans 193,925 - 253,634 124
Stock-based compensation expense
on stock options exercised - 4,624 - 3,644
----------------------------------------------------------------------------
Balance, end of period 129,765,495 $ 453,192 129,902,322 $ 435,016
----------------------------------------------------------------------------
----------------------------------------------------------------------------


As at March 31, 2008, the number of common voting shares outstanding was 125,725,013 (March 31, 2007 - 125,003,722) and the number of variable voting shares was 4,040,482 (March 31, 2007 - 4,898,600).

On March 13, 2008, WestJet filed a notice with the Toronto Stock Exchange (TSX) to make a normal course issuer bid to purchase outstanding shares on the open market. As approved by the TSX, WestJet is authorized to purchase up to 2,500,000 shares (representing approximately 1.9% of its issued and outstanding shares at the time of the bid) during the period of March 17, 2008 to March 16, 2009, or until such earlier time as the bid is completed or terminated at the option of WestJet. Any shares WestJet purchases under this bid will be purchased on the open market through the facilities of the TSX at the prevailing market price at the time of the transaction. Shares acquired under this bid will be cancelled. As at March 31, 2008, the Corporation has not purchased any shares pursuant to this bid.

During 2007, the Corporation purchased 1,263,500 shares under its previous normal course issuer bid, which expired on February 27, 2008, for total consideration of $21,250. The average book value for the shares repurchased of $4,271 was charged to share capital with the $16,979 excess of the market price over the average book value charged to retained earnings.



(b) Per share amounts

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

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended March 31, 2008 2007
----------------------------------------------------------------------------
Weighted average number of
shares outstanding - basic 129,694,432 129,783,267
Effect of dilutive employee stock options
and unit plans 2,752,634 597,646
----------------------------------------------------------------------------
Weighted average number of shares
outstanding - diluted 132,447,066 130,380,913
----------------------------------------------------------------------------
----------------------------------------------------------------------------


For the three months ended March 31, 2008, 1,537,273 employee stock options and 48,300 restricted share units (three months ended March 31, 2007 - 3,274,549 employee stock options) were not included in the calculation of dilutive potential shares as the result would be anti-dilutive.



(c) Stock option plan

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

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Three months ended
March 31, 2008 March 31, 2007
----------------------------------------------------------------------------
Weighted Weighted
Number of average Number of average
options exercise price options exercise price
----------------------------------------------------------------------------
Stock options
outstanding,
beginning of period 12,226,232 $ 13.66 15,046,201 $ 13.21
Issued 8,156 19.45 10,959 15.28
Exercised (813,827) 15.43 (961,552) 11.21
Forfeited (26,791) 13.06 (131,063) 12.82
----------------------------------------------------------------------------
Stock options
outstanding,
end of period 11,393,770 $ 13.54 13,964,545 $ 13.35
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Exercisable,
end of period 3,694,816 $ 14.78 3,884,684 $ 14.23
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Under the terms of the Corporation's stock option plan, a cashless settlement alternative is available, whereby option holders can either (i) elect to receive shares by delivering cash to the Corporation in the amount of the options, or (ii) elect to receive a number of shares equivalent to the market value of the options over the exercise price. For the three months ended March 31, 2008, option holders exercised 813,827 (three months ended March 31, 2007 - 950,523) on a cashless settlement basis and received 193,925 shares (three months ended March 31, 2007 - 242,605). During the three months ended March 31, 2008, nil options were exercised on a cash basis (three months ended March 31, 2007 - 11,029).

(d) Stock option compensation

As new options are granted, the fair value of the options is 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 to share capital.

Stock-based compensation expense related to stock options included in flight operations and navigational charges and marketing, general and administration expenses totalled $4,147 for the three months ended March 31, 2008 (three months ended March 31, 2007 - $5,450).

The fair market value of options granted during the three months ended March 31, 2008 and 2007 and the assumptions used in their determination are as follows:



----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended March 31 2008 2007
----------------------------------------------------------------------------
Weighted average fair market value per option $ 6.11 $ 5.32
Average risk-free interest rate 3.3% 4.0%
Average volatility 36.0% 39.0%
Expected life (years) 3.6 3.8
Dividends per share $ - $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(e) Executive share unit plan

During the three months ended March 31, 2008, the Board of Directors approved the 2008 Executive Share Unit Plan whereby up to a maximum of 200,000 Restricted Share Units (RSU) and Performance Share Units (PSU) combined may be issued to executive officers of the Corporation. The 2008 Executive Share Unit Plan is also subject to shareholder approval, which is expected to occur at the Annual General Meeting on April 29, 2008.

2008 Restricted share units

Each RSU entitles the executive to receive payment upon vesting in the form of voting shares of the Corporation. The Corporation determines compensation expense for the 2008 RSUs based on the market value of the Corporation's voting shares on the date of grant. The 2008 RSUs vest at the end of a three year period, with compensation expense being recognized in earnings on a straight-line basis over the vesting period. For the three months ended March 31, 2008, 54,277 RSUs were granted under this plan at a weighted average fair value of $19.45 per unit, with $149 of compensation expense included in marketing, general and administration expense.

Performance share units

Each PSU entitles the executive to receive payment upon vesting in the form of voting shares of the Corporation. The value of the PSUs is based on the fair market value of the Corporation's voting shares on the date of grant. PSUs time vest at the end of a three-year term and incorporate performance criteria based upon achieving the compounded average diluted earnings per share growth rate targets established at the time of grant. For the three months ended March 31, 2008, 72,369 PSUs were granted under this plan at a weighted average fair value of $19.45 per unit, with $227 of compensation expense included in marketing, general and administration expense.

8. Related party transactions

The Corporation has debt financing and investments in short-term deposits with a financial institution which is related through two common directors, one of which is also the president of the financial institution. As at March 31, 2008, total long-term debt includes an amount of $22,554 (December 31, 2007 - $23,325) due to the financial institution. See note 6, long-term debt for further disclosure. Included in cash and cash equivalents as at March 31, 2008 are short-term investments of $197,769 (December 31, 2007 - $189,389) owing from the financial institution. See note 4, cash and cash equivalents for further disclosure. These transactions occurred in the normal course of operations with terms consistent with those offered to arm's length parties and are measured at the exchange amount.

9. Commitments and contingencies

(a) Aircraft

At March 31, 2008, the Corporation is committed to purchase 21 737-700 aircraft for delivery between 2008 and 2013. The remaining estimated amounts to be paid in deposits and purchase prices for the 21 aircraft, as well as amounts to be paid for live satellite television systems on purchased and leased aircraft in Canadian dollars and the US-dollar equivalent, are as follows:



----------------------------------------------------------------------------
----------------------------------------------------------------------------
US dollar CAD dollar
----------------------------------------------------------------------------
2008 $ 36,195 $ 37,046
2009 7,614 7,793
2010 37,488 38,369
2011 81,533 83,449
2012 521,168 533,415
2013 218,700 223,839
----------------------------------------------------------------------------
$ 902,698 $ 923,911
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(b) Operating leases

The Corporation has entered into operating leases and agreements for aircraft, buildings, computer hardware, software licences and satellite programming. As at March 31, 2008, the future payments, in Canadian dollars and when applicable in the US-dollar equivalent, under operating leases are as follows:



----------------------------------------------------------------------------
----------------------------------------------------------------------------
US dollar CAD dollar
----------------------------------------------------------------------------
2008 $ 74,323 $ 89,292
2009 125,246 139,028
2010 151,137 161,194
2011 168,608 175,451
2012 174,502 180,273
2013 and thereafter 722,196 756,890
----------------------------------------------------------------------------
$ 1,416,012 $ 1,502,128
----------------------------------------------------------------------------
----------------------------------------------------------------------------


At March 31, 2008, the Corporation is committed to lease an additional 17 737-700 aircraft and five 737-800 aircraft to be delivered between 2008 and 2011 for terms ranging between eight and 10 years in US dollars. These aircraft have been included in the above totals.

(c) Contingencies

On February 29, 2008, the Corporation signed a letter of intent to lease one 737-800 aircraft over a term of eight years commencing in March 2011 for an estimated total commitment of $39 million.

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

10. Financial instruments and risk management

(a) Fair value of financial assets and financial liabilities

The Corporation's financial assets and liabilities consist primarily of cash and cash equivalents, accounts receivable, cash flow hedges, US-dollar deposits, accounts payable and accrued liabilities and long-term debt. The following table sets out the Corporation's classification based on the measurement categories set out in CICA Handbook Section 3855, Financial Instruments - Recognition and Measurement, and the carrying amount for each of its financial assets and liabilities as at March 31, 2008:



----------------------------------------------------------------------------
----------------------------------------------------------------------------
Held Loans Other Total
for and financial carrying
trading receivables liabilities value
----------------------------------------------------------------------------

Asset (liability)

Cash and cash equivalents $ 784,352 $ - $ - $ 784,352
Accounts receivable - 22,381 - 22,381
Cash flow hedges (i) 678 - - 678
US-dollar deposits (ii) 23,979 - - 23,979
Accounts payable and
accrued liabilities - - (210,572) (210,572)
Long-term debt (iii) - - (1,456,038) (1,456,038)
----------------------------------------------------------------------------
$ 809,009 $ 22,381 $ (1,666,610) $ (835,220)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(i) Forward exchange contracts used for hedging included in prepaid
expenses, deposits and other.

(ii) Includes $2,047 classified in prepaid expenses, deposits and other and
$21,932 classified in other assets.

(iii) Includes current portion of long-term debt of $178,115 and long-term
portion of $1,277,923.


The fair values of financial assets and liabilities, together with carrying
amounts, shown in the balance sheet as at March 31, 2008 and December 31,
2007, are as follows:

----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, 2008 December 31, 2007
Carrying Fair Carrying Fair
amount value amount value
----------------------------------------------------------------------------

Asset (liability)

Cash and cash
equivalents (i) $ 784,352 $ 784,352 $ 653,558 $ 653,558
Accounts receivable (i) 22,381 22,381 15,009 15,009
Forward exchange
contracts used
for hedging (ii) 678 678 106 106
US-dollar deposits (iii) 23,979 23,979 22,748 22,748
Accounts payable and
accrued liabilities (iv) (210,572) (210,572) (168,171) (168,171)
Long-term debt (v) (1,456,038) (1,546,504) (1,429,518) (1,473,997)
----------------------------------------------------------------------------
$ (835,220) $ (925,686) $ (906,268) $ (950,747)
----------------------------------------------------------------------------
Unrecognized loss $ (90,466) $ (44,479)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The fair values of financial instruments are calculated on the basis of information available on the balance sheet date using the following methods:

(i) The fair value of cash and cash equivalents and accounts receivable approximates their carrying amounts due to the short term nature of the instruments.

(ii) The fair value of the forward exchange contracts is measured based on the difference between the contracted rate and the forward rate obtained from the counterparty at the balance sheet date. Due to the short-term nature of the outstanding contracts, no discount rate has been applied. Forward rates at March 31, 2008 range between 1.0270 and 1.0289 (December 31, 2007 - between 0.9906 and 0.9909) for US dollars to Canadian dollars.

(iii) The fair value of the US-dollar deposits, which relate to purchased aircraft, approximates their carrying amounts as they are at a floating market rate of interest.

(iv) The fair value of accounts payable and accrued liabilities approximates their carrying amounts due to the short-term nature of the instruments.

(v) The fair value of the Corporation's fixed rate long-term debt is determined by discounting the future contractual cash flows under current financing arrangements at discount rates obtained from the lender, which represents borrowing rates presently available to the Corporation for loans with similar terms and remaining maturities. At March 31, 2008, rates used in determining the fair value ranged from 3.62% to 3.92% (December 31, 2007 - from 4.52% to 4.61%). The fair value of the Corporation's variable rate long-term debt approximates its carrying value as it is at a floating market rate of interest.

(b) Risk management

The Corporation is exposed to market, credit and liquidity risks associated with its financial instruments. The Corporation will from time to time use various financial instruments to reduce market risk exposures from changes in foreign currency exchange rates, interest rates and aircraft fuel prices. The Corporation does not hold or use any derivative instruments for trading or speculative purposes.

Overall, the Corporation's Board of Directors has responsibility for the establishment and approval of the Corporation's risk management policies. Management performs a risk assessment on a continual basis to ensure that all significant risks related to the Corporation and its operations have been reviewed and assessed to reflect changes in market conditions and the Corporation's operating activities.

Fuel risk

The airline industry is inherently dependent upon jet fuel to operate, and is therefore impacted by changes in jet fuel prices. Aircraft fuel expense during the three months ended March 31, 2008 represented approximately 32% (three months ended March 31, 2007 - 27%) of the Corporation's total operating expenses. A significant change in the price of jet fuel could significantly impact the Corporation's financial results. For the three months ended March 31, 2008, the Corporation's average jet fuel cost per litre was $0.83 (for the three months ended March 31, 2007 - $0.64).

For the three months ended March 31, 2008, WestJet estimates that a one-cent-per-litre change in the price of jet fuel would have increased or decreased the Corporation's net earnings by approximately $1.4 million (three months ended March 31, 2007 - $1.1 million). This is assuming that all other variables, in particular, currency rates, remain constant. The increase in sensitivity from the first quarter of 2007 is a result of the overall increase in the Corporation's capacity and fuel consumption during the period.

Fuel prices will continue to be susceptible to political events, weather conditions, refinery capacity, worldwide demand and other factors that can affect the supply of jet fuel. To mitigate exposure to fluctuations in jet fuel prices, the Corporation periodically uses short-term financial and physical derivatives, and accounts for these as cash flow hedges and as normal purchase and sale agreements. As at, and for the period ending March 31, 2008, the Corporation has no outstanding fuel hedges.

Foreign currency exchange risk

Foreign currency exchange risk is the risk that the fair value of recognized assets and liabilities or future cash flows will fluctuate as a result of changes in foreign exchange rates. The Corporation is exposed to foreign currency exchange risks arising from fluctuations in exchange rates on its US-dollar denominated operating expenditures, mainly aircraft fuel, aircraft leasing expense, certain maintenance costs and a portion of airport operation costs. During the three month period ending March 31, 2008 the average US-dollar rate was 1.0036 (three months ended March 31, 2007 - 1.1720), with the period end exchange rate at 1.0235 (three months ended March 31, 2007 - 1.1567).

For the three months ended March 31, 2008, WestJet estimates that a one cent change in the value of the US dollar versus the Canadian dollar would have increased or decreased net earnings by $1.4 million (three months ended March 31, 2007 - $0.8 million), that is, $1.1 million as a result of fuel (three months ended March 31, 2007 - $0.5 million) and $0.3 million for all remaining costs (three months ended March 31, 2007 - $0.3 million). This is assuming that all other variables remain constant. The increase in sensitivity from the first quarter of 2007 is mainly a result of the increase in the price of jet fuel valued in US dollars.

The foreign exchange gains and losses realized are mainly attributable to the effect of the changes in the value of our US-dollar denominated net monetary assets. At March 31, 2008, US-dollar denominated net monetary assets totalled approximately US $73.2 million (March 31, 2007 - US $72.6 million). For the three months ended March 31, 2008, WestJet estimates that a one cent change in the value of the US dollar versus the Canadian dollar would have increased or decreased net earnings by $0.6 million (three months ended March 31, 2007 - $0.4 million)as a result of the Corporation's US-dollar denominated net monetary assets.

To manage its exposure, the Corporation periodically uses financial derivatives, including US-dollar forward contracts. Upon proper qualification, the forward contracts are designated as cash flow hedges and qualify for hedge accounting. As at March 31, 2008, to offset its US-dollar denominated aircraft lease payments, the Corporation entered into forward contracts to purchase US $5.9 million per month for four months for a total of US $23.6 million at an average forward rate of 0.9992 per US dollar. Maturity dates for all contracts are within 2008. For the three months ended March 31, 2008, the Corporation realized a total gain on the contracts of $320, included in aircraft leasing costs. As at March 31, 2008, the estimated fair market value of the remaining contracts recorded in prepaid expenses, deposits and other is a gain of $678 ($470 net of tax) to be realized in 2008. Due to the immaterial balance of the forward contracts, a change in the US-dollar exchange rate for the three months ended March 31, 2008 would not have significantly impacted the Corporation's net earnings and other comprehensive income.

Interest rate risk

Interest rate risk is the risk that earnings will fluctuate as a result of changes in market interest rates.

(i) Long-term debt

The fixed-rate nature of the majority of the Corporation's long-term debt reduces the risk of interest rate fluctuations over the term of the outstanding debt. The Corporation accounts for its long-term fixed-rate debt at amortized cost, and therefore, a change in interest rates at March 31, 2008 would not affect net earnings.

The Corporation is exposed to interest rate fluctuations on its variable interest rate long-term debt, which at March 31, 2008 totalled $28,221 (March 31, 2007 - $33,642) or 1.9% (March 31, 2007 - 2.4%) of the Corporation's total long-term debt. Due to the immaterial balance of the variable interest rate debt, a change in market interest rates for the three months ended March 31, 2008 would not have significantly impacted the Corporation's net earnings.

(ii) Cash and cash equivalents

The Corporation is exposed to interest rate fluctuations on its cash and cash equivalents balance, which at March 31, 2008 totalled $784,352 (March 31, 2007 - $469,044). A change of 50 basis points in the market interest rate would have had, for the three months ended March 31, 2008, an approximate impact on net earnings of $0.6 million (three months ended March 31, 2007 - $0.3 million). The increase in sensitivity from the first quarter of 2007 is a direct result of the increase in the balance of the Corporation's cash and cash equivalents balance.

Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Corporation does not believe it is subject to significant concentration of credit risk on its accounts receivable and cash and cash equivalents balances. The carrying amount of accounts receivable and cash and cash equivalent balances represents the maximum credit exposure.

(i) Cash and cash equivalents

Cash and cash equivalents consist of cash bank balances and short-term investments with terms of up to 91 days. It is the Corporation's policy to hold investments with maturities of no more than 91 days with the majority between 30 and 60 days. The Corporation purchases short-term investments through Schedule I and selected Schedule II banks, as defined by the Canadian Bankers Association. As at March 31, 2008, the Corporation had a total principal amount invested of $712,208 in Canadian dollar short-term investments with terms ranging between four and 91 days and a total of US $24,979 invested in US-dollar short-term investments with terms ranging between two and 90 days.

As at, and for the three months ended March 31, 2008, the Corporation did not have any investments in asset-backed commercial paper.

The Corporation does not expect any counterparties to fail to meet their obligations.

(ii) Accounts receivable

Generally, the Corporation's accounts receivable result from tickets sold to individual guests through the use of travel agents. Purchase limits are established for each agent and in some cases, when deemed necessary, a letter of credit is required. At March 31, 2008, the Corporation's accounts receivable were $22,381 (December 31, 2007 - $15,009), approximately 60% (December 31, 2007 - 30%) being due from travel agents. These receivables are short-term in nature, generally being settled within four weeks from the date of booking. As at March 31, 2008, the Corporation has a total of $2,539 (December 31, 2007 - $2,309) in letters of credit from travel agents.

Liquidity risk

Liquidity risk is the risk that the Corporation will encounter difficulty in meeting obligations associated with financial liabilities. The Corporation maintains a strong liquidity position and maintains sufficient financial resources to meet its obligations as they fall due.

Inherent in the airline industry is the high cost of capital and the volatility of aircraft fuel prices. To mitigate exposure to this challenge, the Corporation has secured low-interest-rate fixed debt supported by Ex-Im Bank commitments on its aircraft acquisitions. See note 6, long-term debt, for further detail.

The Corporation's total accounts payable and accrued liabilities are classified as current and as such will be settled within one year. For detailed information on the Corporation's long-term contractual financial liabilities, including a schedule of future repayments, see note 6, long-term debt. Refer to note 9, commitments and contingencies, for a commitment schedule of the Corporation's off-balance-sheet operating commitments, including its aircraft operating leases.

A portion of the Corporation's cash and cash equivalents balance relates to cash collected with respect to advance ticket sales, for which the balance at March 31, 2008 was $241,024 (December 31, 2007 - $194,929). Typically, the Corporation has cash and cash equivalents on hand to have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions. At March 31, 2008, the Corporation had cash on hand of 3.25 times (December 31, 2007 - 3.35 times) the advance ticket sales balance.

The Corporation aims to maintain a current ratio, defined as current assets over current liabilities, of at least 1.00. At March 31, 2008, the Corporation's current ratio was 1.25 (December 31, 2007 - 1.22).

Conference Call

WestJet will hold a live analysts' conference call today at 9 a.m. MT (11 a.m. ET). Sean Durfy, President and CEO, and Vito Culmone, Executive Vice-President, Finance and CFO will discuss WestJet's first quarter 2008 results and answer questions from financial analysts. The conference call is available through the toll-free telephone number 1-800-926-7748. Participants are encouraged to join the call 10 minutes prior to the scheduled start, at 8:50 a.m. MT (10:50 a.m. ET). The call can also be heard live through an Internet webcast in the Investor Relations section of westjet.com.

Annual General Meeting

WestJet will hold its annual general meeting on April 29, 2008, at 2 p.m. MT (4 p.m. ET) at its Calgary Hangar, located at 21 Aerial Place NE. Shareholders, media and members of the public are invited to attend. The formal presentations can be heard live through an Internet webcast in the Investor Relations section of westjet.com.

About WestJet

WestJet is Canada's leading high-value, low-cost airline offering scheduled service throughout its 47-city North American and Caribbean network. Named Canada's most admired corporate culture in 2005, 2006 and 2007, WestJet pioneered low-cost flying in Canada. With increased legroom and leather seats on its modern fleet of 74 Boeing Next-Generation 737 aircraft, and live seatback television provided by Bell ExpressVu, WestJet strives to be the number one choice for travellers.

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