WestJet
TSX : WJA

WestJet

October 26, 2006 08:30 ET

WestJet Reports Record Third Quarter Earnings

Company's Year-to-date Net Earnings Increase 283 Per Cent to $88 Million

CALGARY, ALBERTA--(CCNMatthews - Oct. 26, 2006) - WestJet (TSX:WJA) today announced its best quarter in history, reporting record net earnings of $52.8 million, an increase of 74.5 per cent compared to $30.3 million in the third quarter 2005. The first nine months of 2006 resulted in net earnings of $88.0 million, an increase of 283.3 per cent over $23.0 million in 2005.

Earnings per share was also record-breaking at 41 cents, as compared to 24 cents in the three months ended September 30, 2005; while record year-to-date earnings per share increased to 68 cents from 18 cents in the same period 2005.

This is the fifth-consecutive quarter we concurrently increased capacity, yield and load factor from the respective prior-year quarter. Increases in these three areas, once again illustrate our ability to grow our network while attracting guests.

Revenues grew this quarter to $502.6 million, an increase of 23.8 per cent, compared to $406.1 million in the same period in 2005. Year-to-date revenue grew to $1.3 billion, an increase of 28.1 per cent, compared to $1.0 billion in 2005.

Results for this quarter were outstanding across several key measures. Some highlights include:

- Revenue per available seat mile (RASM) grew 5.6 per cent for the quarter from 14.4 cents to 15.2 cents; and 10.9 per cent for the year to 14.3 cents from 12.9 cents in 2005

- Load factor for the quarter increased to 80.5 per cent from 78.6 per cent, an increase of 1.9 points. These gains occurred while capacity, measured in ASMs, increased to 3.31 billion from 2.82 billion, a 17.3 per cent increase

- Year-to-date load factor increased to 79.2 per cent, compared to 74.5 per cent in the same nine-month period in 2005, an increase of 4.7 points. September 2006 represented the twelfth consecutive month of growth in load factor

- Cost per available seat mile (CASM), including fuel, increased to 12.5 cents from 12.4 cents in 2005, an increase of less than one per cent. Excluding fuel, CASM for the third quarter, at an average stage length of 850 miles, decreased by 1.1 per cent to 8.9 cents from 9.0 cents, as a result of a continued company-wide focus on cost control

- Although average trip length for the quarter increased to 1,154 miles compared to 1,128 miles for third quarter 2005, yield (measured as revenue per revenue passenger mile) increased to 18.9 cents, up from 18.3 cents in same period 2005. Year to date, yield increased to 18.0 cents from 17.3 cents in 2005

- Fleet grew to 62 registered aircraft, operating a total of 63 charter and scheduled destinations in Canada, the United States and the Caribbean

- Ancillary revenue, including buy-on-board food, liquor, headsets, service fees and pay-per-view grew by 65 per cent from $13.4 million in 2005 to $22.1 million for the third quarter 2006

- Industry-leading performance this quarter included on-time performance of 87.7 per cent and a near perfect completion rate of 99.7 per cent

- The total number of common and variable voting shares outstanding as at September 30, 2006 was 129,578,305, compared to 129,240,797 on September 30, 2005

Sean Durfy, President of WestJet, commented today on the results, "It is with great pride that I represent the WestJet executive team and deliver the positive news that WestJet finished the third quarter with solid financial and operational performance.

"The results are a record for WestJet. We reported net earnings of $52.8 million, an increase of 74.5 per cent compared to $30.3 million in the third quarter of 2005. When combined with the strong results from the first two quarters of the year, our year-to-date net earnings grew to $88.0 million, a strong increase of 283.3 per cent from 2005's $23.0 million.

"A significant accomplishment for this quarter was our ability to control costs. CASM, excluding fuel, was down 1.1 per cent this quarter. This was a result of prudent cost management in all areas of the organization; the cost efficiency of operating and maintaining our fleet of Boeing Next-Generation 737 aircraft; and our use of technology, including self-serve kiosks and web check-in.

"In addition to growing our financial numbers and controlling costs, we continue to experience a significant increase in our brand health and our guest loyalty measures, which continue to be key drivers in our growth equation and something each WestJet employee works towards increasing.

"It is never one person that builds the spirit and strength of a company and we are grateful for our more than 5,000 people who continue to commit their time and energy to making this airline a success. As we accept the honour of being named Canada's most admired corporate culture for the second year in a row, we are all pleased to recognize the hard work and enthusiasm of our entire organization.

"WestJet is a solid and established company with an entrepreneurial spirit which has shaped the success WestJet enjoys today. As we move forward, we have both the leadership and experience of the founding team, as well as new executives who bring with them a fresh energy and vision that will carry this company to the next level."

Marking its tenth anniversary this year, WestJet is Canada's leading low-fare airline offering scheduled service throughout its 35-city North American and Caribbean network. Named Canada's most admired corporate culture in 2006, WestJet pioneered low-cost high-value flying in Canada.
Third Quarter 2006 Management's Discussion and Analysis of Financial Results

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.

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

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



Quarterly unaudited financial information

(In millions except per share data)

Three Months Ended
----------------------------------------------
Sep. 30 Jun. 30 Mar. 31 Dec. 31
2006 2006 2006 2005
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Total revenues $ 503 $ 425 $ 388 $ 368
Net earnings $ 53 $ 22 $ 13 $ 1
Basic earnings per share $ 0.41 $ 0.17 $ 0.10 $ 0.01
Diluted earnings per share $ 0.41 $ 0.17 $ 0.10 $ 0.01


Three Months Ended
----------------------------------------------
Sept. 30 Jun. 30 Mar. 31 Dec. 31
2005 2005 2005 2004 (1)
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Total revenues $ 406 $ 326 $ 295 $ 274
Net earnings (loss) $ 30 $ 2 $ (10) $ (46)
Basic earnings (loss) per
share $ 0.24 $ 0.02 $ (0.08) $ (0.37)
Diluted earnings (loss)
per share $ 0.23 $ 0.02 $ (0.08) $ (0.37)

(1) Includes writedown of $47,577,000 related to 200-series fleet
impairment


Third Quarter Summary

We completed the quarter with strong revenue and operating results stimulated by the demand for our industry-leading service as well as a company-wide effort to control costs. Our third quarter 2006 net earnings rose to $52.8 million, 74.5 per cent higher than in the third quarter of 2005. Year to date, net earnings improved by 283.3 per cent, from $23.0 million in 2005 to $88.0 million in the current year. Higher guest revenues, created by increased capacity, higher load factor and stronger yield and our persistent focus on cost control, drove growth in our net earnings during the current period.

This is the fifth-consecutive quarter we concurrently increased capacity, yield and load factor from the respective prior-year quarter. The synchronized increase in these three areas once again illustrates our ability to grow our network while attracting incremental guests to experience our exceptional guest-centred service.

Despite an increase of 9.3 per cent in our price of jet fuel per litre since the third quarter of 2005, our operating cost per available seat mile, including fuel, grew at a rate of just under one per cent. This was achieved through the improved efficiency and utilization of our new Next-Generation aircraft and our employees' efforts to contain controllable expenditures. Excluding fuel, our third quarter operating cost per available seat mile decreased by 1.1 per cent.

Highlights

We experienced many highlights during this quarter, including higher load factor and stronger yield. We expanded our fleet by five 600-series aircraft secured by a final commitment from the Export Import Bank of the United States ("Ex-Im Bank"), bringing our total registered fleet size to 62 aircraft, as at September 30, 2006. We also finalized leasing terms for four Boeing 737 aircraft for delivery in 2007 and 2008.

During this quarter, we reorganized our executive team and welcomed a new member to our Board of Directors. We appointed Sean Durfy to President of the airline while Clive Beddoe maintains his role as Chief Executive Officer and Chairman of the Board. Mr. Durfy has been an active part of our company and corporate culture for the past two years in his role as Executive Vice-President of Marketing, Sales and Airport Operations. We welcomed three new members to our executive team: Bob Cummings was appointed Executive Vice-President, Guest Experience and Marketing; Dr. Hugh Dunleavy became Executive Vice-President, Commercial Distribution; and Ken McKenzie is our Executive Vice-President, Operations. All three individuals have proven track records within the company and are strong and welcome additions. They join our existing executive team who are active in our continuous commitment to our culture and low-cost structure. We also welcomed Mr. Brett Godfrey, co-founder and Chief Executive Officer of Virgin Blue Airlines, to our Board of Directors in August 2006.



Operational performance

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

Three months Three months % increase
ended ended (decrease)
Sep 30 Sep 30
2006 2005
------------------------------------------------------------------------
------------------------------------------------------------------------

Available seat miles 3,310,271,095 2,821,051,988 17.3%
Revenue passenger miles 2,663,252,640 2,217,846,200 20.1%
Load factor 80.5% 78.6% 2.4%
Revenue per passenger mile
(cents) 18.9 18.3 3.3%
Revenue per available seat
mile (cents) 15.2 14.4 5.6%
Cost per passenger mile
(cents) 15.5 15.8 (1.9%)
Cost per available seat mile
(cents) 12.5 12.4 0.8%
Fuel consumption (litres) 163,679,642 144,380,341 13.4%
Fuel cost/litre (cents) 72.8 66.6 9.3%
Segment guests 2,956,996 2,522,782 17.2%
Average stage length 850 811 4.8%
Number of full time equivalent
employees at quarter end 4,903 4,208 16.5%
Fleet size at quarter end 62 57 8.8%
Aircraft available for use 62 57 8.8%

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

Nine months Nine months % increase
ended ended (decrease)
Sep 30 Sep 30
2006 2005
------------------------------------------------------------------------
------------------------------------------------------------------------

Available seat miles 9,209,620,042 7,985,225,263 15.3%
Revenue passenger miles 7,289,503,110 5,950,820,464 22.5%
Load factor 79.2% 74.5% 6.3%
Revenue per passenger mile
(cents) 18.0 17.3 4.0%
Revenue per available seat
mile (cents) 14.3 12.9 10.9%
Cost per passenger mile
(cents) 15.9 16.4 (3.0%)
Cost per available seat mile
(cents) 12.6 12.2 3.3%
Fuel consumption (litres) 452,357,964 418,470,602 8.1%
Fuel cost/litre (cents) 70.6 61.0 15.7%
Segment guests 8,278,592 6,974,081 18.7%
Average stage length 835 805 3.7%
Number of full time equivalent
employees at quarter end 4,903 4,208 16.5%
Fleet size at quarter end 62 57 8.8%
Aircraft available for use 62 57 8.8%
------------------------------------------------------------------------
------------------------------------------------------------------------


Operational performance for this quarter was highlighted with improvements in our revenue per available seat mile (RASM). RASM, for this quarter, increased to 15.2 cents from 14.4 cents in third quarter 2005, an increase of 5.6 per cent. RASM, a key indicator for managing our revenue, is calculated through a combination of load factor and yield.

We experienced an increase in our guest volumes, as evidenced by an increase of almost two points in our load factor for the third quarter of 2006, compared to the same quarter in 2005. We saw a 4.7 point increase in our year-to-date 2006 load factor, compared to the same period in 2005. Our increase in load factor during these periods is a notable accomplishment given that we grew our capacity by 17.3 per cent in the third quarter and 15.3 per cent in the first three quarters of 2006, compared to the respective periods in the previous year. At the same time, we successfully grew our third quarter yield to 18.9 cents from 18.3 cents over the same three months last year; and increased our yield to 18.0 cents for the first nine months of 2006 from 17.3 cents in the 2005 comparative period.

Our higher yield is partly attributed to fare increases sustained by a healthy revenue environment but is also due to the success of our revenue management process. During the third quarter, our average trip length increased from 1,128 to 1,154 miles, such that on a trip length adjusted basis, our yields improved by approximately four per cent.

Our ability to achieve a balance between yield and load factor is a challenging and important component to the success of our operations. This challenge is made more difficult during times of significant capacity growth. Assuming yield and seat capacity remain constant; we estimate the sensitivity of revenue to a one point change in guest load factor is $22.3 million per annum while a one percent change in yield, on the same basis, is $17.5 million. Despite the complexities, our revenue management capabilities have largely contributed to our achieving improved yields and load factors.

During this quarter, we provided more long-haul flights to U.S. destinations than we did one year ago, causing our average stage length to increase to 850 miles from 811 miles in the comparative period last year. For the same reason, we flew an average stage length of 835 miles in the first nine months of 2006 as compared to 805 miles in the same period in 2005.

The third quarter is typically one of the busiest periods in our business, as there is a seasonal increase in demand for leisure travel to visit friends and families or to enjoy Canadian vacation destinations during the summer. To manage the inherent variability in air travel and to maximize our resources, we strive to allocate our capacity within our network with the seasonal demand.



Income Statement

Revenue

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Three months Three months
ended ended
Revenue per available Sep 30 Sep 30 % increase
seat mile (cents) 2006 2005 (decrease)
------------------------------------------------------------------------
------------------------------------------------------------------------
Guest revenues 13.7 13.0 5.4%
Charter and other 1.4 1.3 7.7%
Interest income 0.1 0.1 0.0%
------------------------------------------------------------------------
15.2 14.4 5.6%
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Nine months Nine months
ended ended
Revenue per available Sep 30 Sep 30 % increase
seat mile (cents) 2006 2005 (decrease)
------------------------------------------------------------------------
------------------------------------------------------------------------
Guest revenues 12.5 11.0 13.6%
Charter and other 1.7 1.8 (5.6%)
Interest income 0.1 0.1 0.0%
------------------------------------------------------------------------
14.3 12.9 10.9%
------------------------------------------------------------------------


We grew our guest revenues by $85.2 million in the three months ended September 30, 2006 to $453.5 million, up from $368.3 million in the third quarter of 2005. We increased our 2006 year-to-date guest revenues to $1.1 billion from $879.7 million in the same period last year. The increase in guest revenues can be attributed to modest fare increases; and a stronger demand for the WestJet brand and air travel in general.

While we focus on sustainable cost management to improve our financial performance, we also expand alternative revenue channels to complement our primary revenue generating activity of providing scheduled flight services. WestJet Vacations is our most recent and significant endeavour in this area. This wholly owned subsidiary of WestJet Airlines Ltd., was launched in the second quarter of this year and offers travellers the ability to plan their vacation, including hotels, car rentals, attractions and insurance, in one convenient package. During the quarter, we enhanced this valuable service by introducing a website dedicated to travel agents. Bookings through WestJet Vacations have been strong to date and we are confident that this revenue channel will continue to grow.



Unit costs
------------------------------------------------------------------------
% of Expenses
Three Three Three
months months months
ended ended ended
Cost per available Sep 30 Sep 30 Sep 30 % increase
seat mile (cents) 2006 2006 2005 (decrease)
------------------------------------------------------------------------
------------------------------------------------------------------------

Aircraft fuel 28.9% 3.6 3.4 5.9%
Airport operations 15.6% 2.0 1.9 5.3%
Flight operations and
navigational charges 15.1% 1.9 1.8 5.6%
Sales and marketing 9.9% 1.2 1.2 0.0%
Depreciation and amortization 7.1% 0.9 0.9 0.0%
Interest expense 4.5% 0.6 0.5 20.0%
General and administration 4.3% 0.5 0.6 (16.7%)
Inflight 4.3% 0.5 0.5 0.0%
Aircraft leasing 4.3% 0.5 0.7 (28.6%)
Maintenance 4.0% 0.5 0.6 (16.7%)
Guest services 2.0% 0.3 0.3 0.0%
------------------------------------------------------------------------
100.0% 12.5 12.4 0.8%
------------------------------------------------------------------------
------------------------------------------------------------------------


Nine Nine
months months
ended ended
Sep 30 Sep 30 % increase
Cost per available seat mile (cents) 2006 2005 (decrease)
------------------------------------------------------------------------
------------------------------------------------------------------------

Aircraft fuel 3.5 3.2 9.4%
Airport operations 2.1 2.0 5.0%
Flight operations and navigational charges 1.8 1.7 5.9%
Sales and marketing 1.2 1.1 9.1%
Depreciation and amortization 0.9 1.0 (10.0%)
Interest expense 0.5 0.5 0.0%
General and administration 0.6 0.6 0.0%
Inflight 0.5 0.5 0.0%
Aircraft leasing 0.6 0.6 0.0%
Maintenance 0.6 0.7 (14.3%)
Guest services 0.3 0.3 0.0%
------------------------------------------------------------------------
12.6 12.2 3.3%
------------------------------------------------------------------------
------------------------------------------------------------------------


Our high-efficiency and low-cost philosophy is rooted throughout our entire operation and is the key to successfully managing our financial results, through an often difficult and challenging high-cost environment.

To achieve our objectives, we strive to contain controllable costs, partly by improving productivity and efficiencies throughout our Company. The higher efficiency of our single-type fleet plays a fundamental role to help offset uncontrollable cost pressures, mainly related to fuel. In the third quarter of 2006, our aircraft were deployed into revenue service, on average, for 11.8 block hours per day as compared to 11.1 block hours per day in the same period in 2005, a utilization increase of 6.3 per cent. For the first nine months of this year, our aircraft utilization was 11.8 block hours per day versus 11.2 block hours per day in the first three quarters of 2005, an increase of 5.4 per cent. Increasing the productivity of our aircraft allows us to generate incremental revenue from higher utilization and spread our fixed costs over more flight hours.

Excluding the cost of fuel, our third quarter CASM decreased by 1.1 per cent to 8.9 cents per ASM from 9.0 cents in the same period last year. Our year-to-date CASM, excluding fuel, increased by 1.1 per cent to 9.1 cents in the first nine months of the year from 9.0 cents during the first three quarters of 2005.

During the third quarter, we experienced an increase of 9.3 per cent in our cost of fuel per litre and a weighted average increase of 6.8 per cent in airport rates and fees, as compared to the same period one year ago. At the same time, our total operating CASM, including fuel, grew at a slower pace of 0.8 per cent, remaining almost flat at 12.5 cents from 12.4 cents in the same prior-year period. This is a notable accomplishment when we take into consideration the record-high fuel price environment we have been operating in over the past three months.

Overall, changes in our total unit operating costs during the quarter was primarily a result of higher fuel, airport, flight operations and interest costs, which were offset by reduced maintenance, aircraft rental and general and administration expenses.

Fuel

Our third quarter fuel cost per ASM increased by 5.9 per cent, compared to the same quarter in 2005, and grew by 9.4 per cent in the first nine months of 2006 compared to the same period in 2005.

Oil prices continued to rise steadily during the quarter to an average WTI US $70.44 per barrel from an average WTI US $63.08 per barrel in the same quarter last year, impacting our third quarter CASM by almost three per cent. Although oil prices have fallen, since reaching a record high in July 2006, they still remain at historically elevated levels.

Our investment in new Next-Generation aircraft, with improved fuel efficiency, helps us combat uncertainties in rising fuel costs. We further enhanced the effectiveness of our fleet by adding blended winglet technology on our larger 737-700 and 737-800 aircraft. As a result of operating a high fuel-efficiency fleet, our CASM associated with fuel has increased at a slower rate of 5.9 per cent during the quarter than our 9.3 per cent increase in our cost per litre to purchase fuel in the same quarter.

Airport operations

Our unit costs per ASM associated with airport operations increased by 5.3 per cent from 1.9 cents in the third quarter of 2005 to 2.0 cents in the third quarter of this year; with a similar increase in our year-to-date airport unit costs. A significant driver of this increase can be attributed to the higher landing fees we incur on our larger Next-Generation aircraft compared to that of our older 737-200 series aircraft.

In addition, we have further enhanced our network, since this same period one year ago, by flying to more American destinations, and allocating more capacity to Canada's largest air travel market, Toronto. Although these destinations carry higher airport landing and terminal fees, these network enhancements were necessary to meet the needs of our guests and have proven to be successful.

Flight operations and navigational charges

Costs per ASM for our third quarter flight operations and navigational charges increased by 5.6 per cent to 1.9 cents per unit, from 1.8 cents per unit in the same quarter last year; and grew by 5.9 per cent in the first nine months of 2006 from the comparative prior-year period.

In the first quarter of this year, we amended our pilot agreement to allow for more flexibility and choices in our pilot compensation plan by offering the alternative of receiving various levels of cash in lieu of stock options. In the first year of this new agreement, we will be incurring both a cash expense and stock based compensation expense related to options granted in 2006 under the old pilot agreement. As such, we incurred expenses of $3.8 million for this quarter and $6.4 million year to date 2006, for those pilots that elected to receive cash, rather than a certain portion of stock options, in 2007.

Sales and Marketing

During the first nine months of 2006, our sales and marketing expenses per ASM increased by 9.1 per cent from 1.1 cents to 1.2 cents in the same period this year. To better leverage our travel agent distribution channel, we offered travel agents higher incentives to encourage them to book their customers on WestJet. This distribution channel comprised approximately 37 per cent of our total net bookings in the third quarter of 2006, an increase of 9.7 per cent since the same period last year, and approximately 37 per cent in the current year-to-date period, compared to approximately 34 per cent in the first nine months of 2005.

Despite this increase in travel agent commissions, we were able to control our other costs related to sales and marketing. Our successful cost-control efforts in this area are reflected in our third quarter sales and marketing unit costs, which remained stable at 1.2 cents per ASM from the comparative period in 2005.

Depreciation and amortization

Our depreciation and amortization unit costs remained constant at 0.9 cents per ASM from the third quarter of last year and decreased by 10.0 per cent when comparing the first nine months of this year to the same period last year. The year-to-date decrease resulted from a one-time adjustment required as a result of the early disposal of our 737-200 capital leases.

Interest expense

Our interest expense is primarily driven by our financing arrangements on our owned aircraft. Our third quarter interest expense unit costs increased by 20.0 per cent compared to the same period in 2005, as a result of our financing an additional 15 Next-Generation aircraft since the end of the third quarter in 2005. These aircraft were financed with low interest rate debt supported by Ex-Im Bank guarantees, which allowed us to secure 12-year fixed interest rate debt in Canadian dollars that brings our total company weighted average interest rate to approximately 5.4 per cent on all of our debt.

General and administration

We improved our general and administration unit expenses by 16.7 per cent, in the third quarter of 2006 compared to the same quarter last year. General and administration expenses comprise a large portion of our fixed costs associated with operating our airline and include activities such as legal, purchasing, accounting and real estate services. The decline in our general and administration CASM is partly due to a decline in legal fees since the settlement of our lawsuit with Air Canada.

Aircraft leasing

Unit costs associated with our leased aircraft decreased by 28.6 per cent in the three months ending September 30, 2006, compared to the third quarter in the prior year. Last year, we incurred lease payments on five 737-200s, 13 737-700s and five 737-800s. In the third quarter of this year, we only incurred lease payments on the same 737-700s and 737-800s as the leases on the 737-200s were surrendered or expired in the first quarter of this year.

Maintenance

We achieved a 16.7 per cent improvement in our third quarter maintenance unit costs and a 14.3 per cent decrease in our year-to-date maintenance unit costs, compared to the same respective periods in 2005. We have gained several operating and financial benefits from our investment in new aircraft within the Next-Generation family.

Income tax

Current tax expense of $2.3 million combined with the future tax provision of $31.9 million, resulted in a net income tax expense of $34.2 million and an effective tax rate of 27.95 per cent for the nine months ended September 30, 2006. Overall our total year-to-date tax expense is lower than otherwise expected due to the federal government, along with several provincial governments, substantively enacting corporate tax rate reductions in the second quarter 2006. The revaluation of our future tax liability resulted in an approximate $11.2 million recovery of future income tax expense in the second quarter of 2006. The federal government also eliminated the large corporations tax (LCT) effective January 1, 2006, which created a reversal of approximately $1 million of LCT already accrued in the year. Although these items were recorded in the second quarter, they continue to impact our year-to-date calculations.

Financial Position

We continue to see improvement in our financial strength, as indicated in our debt-to-equity and working capital ratios. This has arisen partly from favourable travel bookings conditions and a rationalized fare environment, as well as through the direct result of our cost-management actions taken to improve our operational effectiveness.

From January to September of this year, we continued to grow our fleet and accepted delivery of 10 737-600 aircraft and one 737-700 aircraft, all of which were acquired under our Ex-Im Bank supported fleet acquisition plan. The acquisition of these aircraft resulted in a $380.8 million addition to our debt bringing our total debt-to-equity ratio to 2.4 to 1, a decrease from 2.5 to 1 at year-end 2005. Included in this debt is an off-balance sheet debt related to aircraft operating leases of $433.2 million. We believe that this low debt-to-equity ratio, supplemented by our healthy cash reserves of $378.9 million provides us with sufficient flexibility to continue to grow our network and services, while providing enough of a cushion should we encounter economic uncertainties. At September 30, 2006, $8.6 million of stock based compensation expense was included in contributed surplus related to expired stock options, $97,000 of which related to option expiries in the third quarter of 2006.

By the end of the third quarter of this year, our working capital ratio strengthened to 0.93 to 1, as compared to 0.86 to 1 at the end of the same quarter one year ago and 0.85 to 1 at the end of 2005.

As at October 20, 2006, we had 129,578,305 shares outstanding: 122,988,555 common voting shares and 6,589,750 variable voting shares, as well as 15,402,249 stock options outstanding.

Operating cash flow

Our operations produced $28.6 million more cash during the third quarter of 2006 compared to the same quarter in 2005 and increased to $279.4 million during the first three quarters of this year compared to $209.0 million in the same period in 2005. Our higher cash flows from operating activities were primarily driven by higher revenues and our continued efforts on controlling expenditures in the current nine-month period versus the same period in 2005.

A key indicator of our future performance is advanced ticket sales. Typically, advanced ticket sales at the end of the third quarter decline due to slower bookings for travel in the winter season. However, this year our advanced ticket sales have grown to $166.2 million at the end of September 2006 from $132.5 million at the end of the third quarter last year and $127.5 million at year-end 2005, representing a 25.4 per cent and 30.4 per cent increase, respectively. At the end of the current third quarter, 31.3 per cent of our advanced bookings were associated with future travel to our transborder and international destinations. As the slower winter travel season approaches in the coming months, the increase in advanced bookings demonstrates our ability to manage our seasonal capacity and scheduled network to lessen the variability of seasonality inherent in our business.

Financing cash flow

Our financing activities provided cash totalling $117.0 million in the third quarter of 2006 compared to $85.3 million in the same period in 2005 and $264.9 million in the year-to-date period ended September 30, 2006, compared to $47.8 million in the same period last year. Our current year financing cash received was primarily from long-term debt funded to purchase 10 737-600s and one 737-700 aircraft during the first nine months of 2006, with five of the 737-600s received in the current third quarter. In the previous year, we financed one 737-600 and two 737-700 aircraft in the third quarter.

In the beginning of the third quarter of this year, we completed a debt financing facility (the "Facility") supported by loan guarantees from the Ex-Im Bank for US $191.1 million. The Facility will support the purchase of five Boeing Next-Generation 737-600s and one 737-700 series aircraft. By the end of the third quarter of 2006, the five 737-600s have been received, with the remaining 737-700 to be received in December of 2006.

We are continually examining the mix of leased and debt-financed aircraft to ensure we achieve the optimal balance to maintain a conservatively leveraged balance sheet and ample cash reserves. In addition to our Ex-Im Bank supported debt financed aircraft, we also finalized leasing terms with Singapore Aircraft Leasing Enterprise in the beginning of the current third quarter for four Boeing Next-Generation 737 aircraft to be delivered in late 2007 and early 2008.

Investing cash flow

In the third quarter of 2006, we invested $184.3 million in five 737-600 aircraft compared to $128.4 million for one 737-600 and two 737-700s in the same quarter last year. In the first nine-months of 2006, we invested $425.0 million versus $148.4 million in the same period last year. So far in 2006, we purchased 10 737-600s and one 737-700 aircraft, 85 per cent of which is funded through low-interest rate debt, while the remaining portion is financed with our own equity. In the comparative prior year period, we acquired eight aircraft under sale and leaseback agreements and financed three aircraft.

During the year we also spent $35.1 million in information technology related costs and aircraft associated parts, $7.9 million of which was spent in the current quarter. A portion of our information technology investment related to the further development of our new reservation system, which we expect to launch in 2007.

Our investment in new aircraft and a new reservation system is important to our growth plans. The development of a new reservation system allows us improved inventory and fare management, and creates opportunities for us to partner with other airlines, should we choose to do so, to better serve more guests. This system can accommodate the growth of our network, allowing us to serve more guests through agreements with partnering airlines without incurring the high infrastructure costs otherwise required.

The addition of new aircraft allows us to grow our infrastructure by adding capacity and new routes to meet the needs of Canadian travellers. At the end of the third quarter in 2006, we had commitments to take delivery of a total of 14 Next-Generation aircraft. In the remainder of 2006 we will receive one 737-700. In 2007 we will receive six 737-700s and one 737-800. In 2008, we will accept delivery of five 737-700s and one 737-800. To further support our future growth we are considering opportunities to add capacity when appropriate.

Moving Forward

Looking forward to the fourth quarter, we expect our capacity to grow by approximately 23 per cent over the same quarter in 2005. Our decision to early retire our 737-200 fleet resulted in aircraft being taken out of service in the fourth quarter of last year and thereby, reduced our capacity in that period. This capacity reduction in the previous year drives the magnitude of our increase in our current fourth quarter year-over-year growth.

In spite of the significant increase in our system-wide capacity in the present fourth quarter, we are extremely pleased that our RASM performance has kept pace thus far with our RASM results in the same period last year. These results are encouraging as we approach the completion of our 2006 fiscal year.

Our employees are devoted to our standards of creating a high-efficiency operation while striving to achieve sustainable low-costs in order to provide our guests with a high-value affordable product. For the second year in a row, we have been recognized by Waterstone Human Capital Ltd., for having Canada's most admired corporate culture. As we begin the last quarter of 2006, we are confident that our award winning, nationally recognized, culture will continue to attract guests.

October 25, 2006



WestJet Airlines Ltd.
Consolidated Balance Sheets
September 30, 2006, December 31, 2005, and September 30, 2005
(Unaudited)
(Stated in Thousands of Dollars)

------------------------------------------------------------------------
------------------------------------------------------------------------
September 30 December 31 September 30
2006 2005 2005
------------------------------------------------------------------------
Assets

Current assets:
Cash and cash equivalents
(note 3) $ 378,944 $ 259,640 $ 256,961
Accounts receivable 11,616 8,022 10,848
Income taxes recoverable 14,162 13,909 6,698
Prepaid expenses and
deposits 34,931 31,746 33,034
Inventory 5,161 6,259 3,570
------------------------------------------------------------------------
444,814 319,576 311,111

Property and equipment
(note 1) 2,149,757 1,803,497 1,675,187

Other assets 103,719 90,019 86,489
------------------------------------------------------------------------
$ 2,698,290 $ 2,213,092 $ 2,072,787
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and Shareholders'
Equity

Current liabilities:
Accounts payable and
accrued liabilities
(note 5(c)) $ 129,601 $ 100,052 $ 93,775
Advance ticket sales 166,183 127,450 132,509
Non-refundable guest
credits 34,465 32,814 27,754
Current portion of
long-term debt
(note 2) 146,334 114,115 104,308
Current portion of
obligations under
capital lease (note 5(b)) 351 2,466 2,769
------------------------------------------------------------------------
476,934 376,897 361,115

Long-term debt (note 2) 1,297,265 1,044,719 938,865

Obligations under capital
lease (note 5(b)) 1,573 1,690 878

Other liabilities 14,331 16,982 16,092

Future income tax 134,519 102,651 94,768
------------------------------------------------------------------------
1,924,622 1,542,939 1,411,718
------------------------------------------------------------------------

Shareholders' equity:
Share capital (note 4(a)) 429,711 429,613 426,172
Contributed surplus
(note 4(e)) 54,485 39,093 34,487
Retained earnings 289,472 201,447 200,410
------------------------------------------------------------------------
773,668 670,153 661,069
------------------------------------------------------------------------

Commitments and
contingencies (note 5)
------------------------------------------------------------------------
$ 2,698,290 $ 2,213,092 $ 2,072,787
------------------------------------------------------------------------
------------------------------------------------------------------------


WestJet Airlines Ltd.
Consolidated Statements of Earnings and Retained Earnings
For the periods ended September 30, 2006 and 2005 (Unaudited)
(Stated in Thousands of Dollars, Except Per Share Amounts)

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

Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
------------------------------------------------------------------------
Revenues:
Guest revenues $ 453,526 $ 368,349 $ 1,147,301 $ 879,650
Charter and other 45,142 35,963 158,680 143,391
Interest income 3,942 1,823 9,536 4,114
------------------------------------------------------------------------
502,610 406,135 1,315,517 1,027,155

Expenses:
Aircraft fuel 119,154 96,117 319,199 255,144
Airport operations 64,426 54,155 191,295 162,573
Flight operations
and navigational
charges 62,253 49,661 167,522 136,010
Sales and marketing 40,985 34,492 113,029 87,083
Depreciation and
amortization 29,495 27,109 81,327 78,985
Interest expense 18,446 13,866 50,899 40,679
General and
administration 17,859 16,753 57,916 51,874
Inflight 17,834 13,469 48,610 39,180
Aircraft leasing 17,682 19,412 53,785 46,426
Maintenance 16,415 18,053 54,015 56,601
Guest services 8,269 7,256 23,252 19,863
------------------------------------------------------------------------
412,818 350,343 1,160,849 974,418

Earnings from
operations 89,792 55,792 154,668 52,737
------------------------------------------------------------------------

Non-operating income
(expense):
Gain (loss) on
foreign exchange 201 (2,378) (2,751) (2,483)
Gain (loss) on
disposal of
property
and equipment (9) 392 792 475
Non recurring
expenses
(note 5(c)) - - (15,600) -
------------------------------------------------------------------------
192 (1,986) (17,559) (2,008)

Employee profit
share (note 6) (9,960) (5,276) (14,929) (5,276)
------------------------------------------------------------------------
Earnings before
income taxes 80,024 48,530 122,180 45,453
------------------------------------------------------------------------

Income tax (expense)
recovery (note 7):
Current (740) 1,206 (2,284) 4,958
Future (26,474) (19,476) (31,871) (27,447)
------------------------------------------------------------------------
(27,214) (18,270) (34,155) (22,489)
------------------------------------------------------------------------

Net earnings $ 52,810 $ 30,260 $ 88,025 $ 22,964
------------------------------------------------------------------------
------------------------------------------------------------------------


Retained earnings,
beginning of period $ 236,662 $ 170,150 $ 201,447 $ 177,446

Net earnings 52,810 30,260 88,025 22,964

------------------------------------------------------------------------
Retained earnings,
end of period $ 289,472 $ 200,410 $ 289,472 $ 200,410
------------------------------------------------------------------------
------------------------------------------------------------------------

Earnings per share
(note 4(c)):
Basic $ 0.41 $ 0.24 $ 0.68 $ 0.18
Diluted $ 0.41 $ 0.23 $ 0.68 $ 0.18
------------------------------------------------------------------------
------------------------------------------------------------------------


------------------------------------------------------------------------
Three Months Ended
September 30
2006 2005
------------------------------------------------------------------------

Operating highlights:

Available seat miles 3,310,271,095 2,821,051,988
Revenue passenger miles 2,663,252,640 2,217,846,200
Load factor 80.5% 78.6%
Revenue per passenger mile (cents) 18.9 18.3
Revenue per available seat mile
(cents) 15.2 14.4
Cost per passenger mile (cents) 15.5 15.8
Cost per available seat mile (cents) 12.5 12.4
Fuel consumption (litres) 163,679,642 144,380,341
Fuel cost/litre (cents) 72.8 66.6
Segment guests 2,956,996 2,522,782
Average stage length 850 811
Number of full time equivalent
employees at quarter end 4,903 4,208
Fleet size at quarter end 62 57
Aircraft available for use 62 57


------------------------------------------------------------------------
Nine Months Ended
September 30
2006 2005
------------------------------------------------------------------------
Operating highlights:

Available seat miles 9,209,620,042 7,985,225,263
Revenue passenger miles 7,289,503,110 5,950,820,464
Load factor 79.2% 74.5%
Revenue per passenger mile (cents) 18.0 17.3
Revenue per available seat mile
(cents) 14.3 12.9
Cost per passenger mile (cents) 15.9 16.4
Cost per available seat mile (cents) 12.6 12.2
Fuel consumption (litres) 452,357,964 418,470,602
Fuel cost/litre (cents) 70.6 61.0
Segment guests 8,278,592 6,974,081
Average stage length 835 805
Number of full time equivalent
employees at quarter end 4,903 4,208
Fleet size at quarter end 62 57
Aircraft available for use 62 57


WestJet Airlines Ltd.
Consolidated Statements of Cash Flows
For the periods ended September 30, 2006 and 2005 (Unaudited)
(Stated in Thousands of Dollars)

------------------------------------------------------------------------
------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
------------------------------------------------------------------------
Cash flows from
(used in):

Operating
activities:
Net earnings $ 52,810 $ 30,260 $ 88,025 $ 22,964
Items not involving
cash:
Depreciation and
amortization 29,495 27,109 81,327 78,985
Amortization of
other liabilities (217) (217) (651) (387)
Amortization of
hedge settlements 348 348 1,043 1,043
Loss (gain) on
disposal of
property
and equipment 9 (392) (792) (475)
Stock-based
compensation
expense 5,397 4,875 15,497 12,960
Issued from treasury
stock - 5,780 - 15,993
Future income tax
expense 26,474 19,476 31,871 27,447
Decrease (increase)
in non-cash
working capital (26,501) (28,062) 63,070 50,475
------------------------------------------------------------------------
87,815 59,177 279,390 209,005
------------------------------------------------------------------------

Financing
activities:
Repayment of
long-term
debt (36,758) (23,950) (96,005) (71,779)
Increase in
long-term debt 164,573 112,016 380,770 112,016
Decrease in
obligations
under capital
lease (85) (2,429) (395) (5,317)
Increase (decrease)
in other
liabilities - (50) - 8,480
Share issuance costs - (150) (10) (183)
Increase in other
assets (10,718) (5,740) (18,425) (13,941)
Issuance of common
shares - 5,886 - 19,382
Increase in non-cash
working capital - (264) (1,071) (837)
------------------------------------------------------------------------
117,012 85,319 264,864 47,821
------------------------------------------------------------------------

Investing activities:
Aircraft additions (176,502) (123,016) (395,117) (514,134)
Aircraft disposals 6 4,523 3,766 401,201
Other property and
equipment additions (7,926) (10,355) (35,145) (35,968)
Other property and
equipment disposals 74 433 1,546 504
------------------------------------------------------------------------
(184,348) (128,415) (424,950) (148,397)
------------------------------------------------------------------------

Net change in cash 20,479 16,081 119,304 108,429

Cash, beginning of
period 358,465 240,880 259,640 148,532

------------------------------------------------------------------------
Cash, end of period $378,944 $256,961 $378,944 $256,961
------------------------------------------------------------------------
------------------------------------------------------------------------



Cash is defined as cash and cash equivalents.

Cash interest paid during the three and nine months ended in September 30, 2006 were $ 17,240,000 (2005 - $13,355,000), and $ 47,731,000 (2005 - $40,416,000), respectively.

Net cash taxes paid during the three and nine months ended in September 30, 2006 were $489,000 (2005 - $2,137,000), and $2,537,000 (2005 - $5,005,000), respectively.



WestJet Airlines Ltd.
Notes to Consolidated Financial Statements,
For the periods ended September 30, 2006 and 2005 (Unaudited)
(Tabular Dollar Amounts are Stated in Thousands, Except Per Share Data)
------------------------------------------------------------------------
------------------------------------------------------------------------


The interim consolidated financial statements of WestJet Airlines Ltd. ("WestJet" or "the Corporation") have been prepared by management in accordance with accounting principles generally accepted in Canada. The interim consolidated financial statements have been prepared following the same accounting policies and methods of computation as the consolidated financial statements for the fiscal year ended December 31, 2005. 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, 2005.

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 charter sun destinations over the winter period.




1. Property and equipment
------------------------------------------------------------------------
------------------------------------------------------------------------
Accumulated
September 30, 2006 Cost Depreciation Net book value
------------------------------------------------------------------------
Aircraft $ 2,040,824 $ 163,069 $ 1,877,755
Ground property and
equipment 152,621 61,335 91,286
Spare engines and parts 85,596 11,943 73,653
Buildings 39,501 4,564 34,937
Leasehold improvements 6,769 4,430 2,339
Assets under capital
lease 2,481 569 1,912
------------------------------------------------------------------------
2,327,792 245,910 2,081,882
Deposits on aircraft 39,971 - 39,971
Assets under
development 27,904 - 27,904
------------------------------------------------------------------------
$ 2,395,667 $ 245,910 $ 2,149,757
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
------------------------------------------------------------------------
Accumulated
December 31, 2005 Cost Depreciation Net book value
------------------------------------------------------------------------
Aircraft -
Next-Generation $ 1,619,850 $ 102,914 $ 1,516,936
Ground property and
equipment 135,217 52,664 82,553
Spare engines and parts
- Next-Generation 67,960 8,029 59,931
Buildings 39,636 3,825 35,811
Leasehold improvements 6,302 3,992 2,310
Other assets under capital
lease 2,289 198 2,091
Spare engines and parts
- 200 series 12,547 11,128 1,419
Aircraft - 200 series 3,892 2,861 1,031
Aircraft under capital
lease 19,475 19,475 -
------------------------------------------------------------------------
1,907,168 205,086 1,702,082
Deposits on aircraft 73,493 - 73,493
Assets under development 27,922 - 27,922
------------------------------------------------------------------------
$ 2,008,583 $ 205,086 $ 1,803,497
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
------------------------------------------------------------------------
Accumulated
September 30, 2005 Cost Depreciation Net book value
------------------------------------------------------------------------
Aircraft -
Next-Generation $ 1,448,795 $ 85,061 $ 1,363,734
Ground property and
equipment 133,372 48,144 85,228
Spare engines and parts
- Next-Generation 65,797 7,226 58,571
Buildings 39,636 3,579 36,057
Leasehold improvements 6,451 3,825 2,626
Spare engines and parts
- 200 series 15,375 12,577 2,798
Aircraft - 200 series 62,776 58,664 4,112
Aircraft under capital
lease 31,755 30,848 907
------------------------------------------------------------------------
1,803,957 249,924 1,554,033
Deposits on aircraft 96,829 - 96,829
Assets under
development 24,325 - 24,325
------------------------------------------------------------------------
$ 1,925,111 $ 249,924 $ 1,675,187
------------------------------------------------------------------------
------------------------------------------------------------------------


During the three and nine months ended September 30, 2006 property and equipment was acquired at an aggregate cost of $NIL (2005 - $79,000) and $172,000 (2005 - $1,117,000), respectively, by means of capital leases.




------------------------------------------------------------------------
2. Long-term debt:
------------------------------------------------------------------------
September 30 December 31 September 30
2006 2005 2005
------------------------------------------------------------------------
$1,671,656,000 in 44 individual
term loans, amortized on a
straight-line basis over a
12-year term, repayable in
quarterly principal
installments ranging from
$ 674,000 to $ 955,000,
including fixed interest at
a weighted average rate of
5.32%, maturing between 2014
and 2018. These facilities
are guaranteed by the Ex-Im
Bank and secured by 31
700-series aircraft and 13
600-series aircraft. $ 1,390,455 $ 1,114,506 $ 998,226


$35,000,000 in three
individual term loans,
repayable in monthly
installments ranging from
$ 104,000 to $ 166,000
including floating interest
at the bank's prime rate plus
0.88% with an effective
interest rate of 6.88% as at
September 30, 2006, maturing
in 2008 and 2011, secured by
three Next-Generation flight
simulators. 26,911 19,615 20,125


$16,968,000 in 24 individual
term loans, amortized on a
straight line basis over a
five year term, repayable in
quarterly principal
installments ranging from
$29,000 to $47,000, including
floating interest at the
Canadian LIBOR rate plus 0.08%
with a weighted average
effective interest rate of 4.39%
as at September 30, 2006 maturing
between 2009 and 2011, guaranteed
by the Ex-Im Bank and secured by
certain 700-series and 600-series
aircraft. 12,547 10,462 7,880


$12,000,000 term loan
repayable in monthly
installments of $108,000 including
interest at 9.03% maturing April
2011, secured by the Calgary
hangar facility. 10,512 10,767 10,830


$4,550,000 term loan repayable
in monthly installments of
$50,000 including floating
interest at the bank's prime
plus 0.50%, with an effective
interest rate of 6.50% as at
September 30, 2006, maturing
April 2013, secured by the
Calgary hangar facility. 3,174 3,484 3,585


$22,073,000 in six individual
term loans, repayable in
monthly installments ranging
from $25,000 to $87,000
including fixed rate weighted
average interest at 8.43%
having matured in October 2005. - - 2,527

------------------------------------------------------------------------
1,443,599 1,158,834 1,043,173
Less current portion 146,334 114,115 104,308
------------------------------------------------------------------------
$ 1,297,265 $ 1,044,719 $ 938,865
------------------------------------------------------------------------
------------------------------------------------------------------------


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

------------------------------------------------------------------------
------------------------------------------------------------------------
2006 $ 36,554
2007 146,397
2008 159,599
2009 143,767
2010 142,967
2011 and thereafter 814,315
------------------------------------------------------------------------
$ 1,443,599
------------------------------------------------------------------------
------------------------------------------------------------------------


During the quarter ended September 30, 2006, the Corporation converted US $191.2 million of preliminary commitments with the Export-Import Bank of the United States ("Ex-Im Bank") into a final commitment to support the acquisition of five Boeing Next-Generation 737-600 aircraft and one Boeing Next-Generation 737-700 aircraft and their related live satellite television systems, to be delivered between July and December 2006. The Corporation also has a total preliminary commitment from Ex-Im Bank for US $247.8 million for seven aircraft to be delivered between 2007 and 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 an aircraft, and is charged a 3% exposure fee on the financed portion of the aircraft price, payable upon delivery of an aircraft.

During the quarter ended September 30, 2006, the Corporation completed financing arrangements for US $191.2 million supported by loan guarantees from the Ex-Im Bank on six aircraft as outlined above. This facility will be drawn in Canadian dollars, in separate instalments, with 12-year terms for each new aircraft. Each loan will be amortized on a straight-line basis over the 12-year term in quarterly principal instalments, and interest calculated on the outstanding balance. As at September 30, 2006, the Corporation has taken delivery of five aircraft under this facility and has drawn a total of CAD $164.6 million (US $146.5 million).

3. Financial instruments:

At September 30, 2006, the Corporation had U.S. dollar cash and cash equivalents totalling US $34,838,000 (December 31, 2005 - US $35,453,000, September 30, 2005 - US $34,022,000).

As at September 30, 2006 cash and cash equivalents include US $5,033,000 of restricted cash (December 31, 2005 - US $6,317,000, September 30, 2005 - US $2,666,000).

The Corporation has entered into a contract to purchase US $2.5 million per month at a forward rate of 1.11 for the payment period from October 2006 to March 2007 to hedge a portion of the Corporation's committed US dollar lease payments during the same period. The estimated fair market value of the contract as at September 30, 2006 is a loss of CAD $5,000.



4. Share capital:

a) Issued and outstanding:

------------------------------------------------------------------------
------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, 2006 September 30, 2006
------------------------------------------------------------------------
Number Amount Number Amount
------------------------------------------------------------------------

Common and variable
voting shares:

Balance, beginning of
period 129,578,305 $ 429,711 129,575,099 $ 429,613
Exercise of options - - 3,206 -
Stock-based
compensation expense - - - 105
Issued from treasury - - - -
Share issuance costs - - - (10)
Tax benefit of issue costs - - - 3
------------------------------------------------------------------------
Balance, end of period 129,578,305 $ 429,711 129,578,305 $ 429,711
------------------------------------------------------------------------
------------------------------------------------------------------------

Year Ended
December 31, 2005
------------------------------------------------------------------------
Number Amount
------------------------------------------------------------------------

Common and variable
voting shares:

Balance, beginning of
period 125,497,407 $ 390,469
Exercise of options 1,333,791 3,389
Stock-based
compensation expense - 488
Issued from treasury 2,743,901 35,410
Share issuance costs - (215)
Tax benefit of issue costs - 72
------------------------------------------------------------------------
Balance, end of period 129,575,099 $ 429,613
------------------------------------------------------------------------
------------------------------------------------------------------------


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

Common shares:

Balance, beginning of
period 128,255,922 $ 414,542 125,497,407 $ 390,469
Exercise of options 16,552 105 1,332,682 3,389
Stock-based compensation
expense - 64 - 450
Issued from treasury 968,323 11,561 2,410,708 31,986
Share issuance costs - (150) - (183)
Tax benefit of issue costs - 50 - 61
------------------------------------------------------------------------
Balance, end of period 129,240,797 $ 426,172 129,240,797 $ 426,172
------------------------------------------------------------------------
------------------------------------------------------------------------


As at September 30, 2006, the number of common voting shares and variable voting shares amounted to 122,844,030 (September 30, 2005 - 117,157,756; December 31, 2005 - 119,378,637) and 6,734,275 (September 30, 2005 - 12,083,041; December 31, 2005 - 10,196,462) respectively.

The Corporation has an Employee Share Purchase Plan ("ESPP") whereby the Corporation matches every dollar contributed by each employee. Under the terms of the ESPP the Corporation has the option to acquire common shares on behalf of employees through open market purchases or to issue new shares from treasury at the current market price. During the period ended September 30, 2006, the Corporation elected to purchase these shares through the open market and will continue to review this option in the future. For the three and nine months ended September 30, 2006 $NIL of common shares were issued from treasury (three months ended September 30, 2005 - $5,780,606, nine months ended September 30, 2005 - $15,993,063) representing the Corporation's matching contribution from treasury for employee contributions, for which no cash was exchanged. Current market price for common shares issued from treasury is determined based on the weighted average trading price of the common shares on the Toronto Stock Exchange for the five trading days preceding the issuance.



b) Stock option plan:

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

------------------------------------------------------------------------
------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, 2006 September 30, 2006
------------------------------------------------------------------------
Weighted Weighted
average average
Number of exercise Number of exercise
Options price Options price
------------------------------------------------------------------------

Stock options outstanding,
beginning of period 15,627,058 $ 13.16 11,428,718 $ 13.94
Issued 26,266 9.90 5,906,245 11.81
Exercised - - (27,736) 11.21
Cancelled (228,077) 12.89 (309,833) 13.29
Purchased - - - -
Expired (22,998) 12.16 (1,595,145) 13.78
------------------------------------------------------------------------
Stock options outstanding,
end of period 15,402,249 $ 13.16 15,402,249 $ 13.16
------------------------------------------------------------------------
------------------------------------------------------------------------
Exercisable, end of period 5,252,553 $ 13.44 5,252,553 $ 13.44
------------------------------------------------------------------------
------------------------------------------------------------------------


Year Ended
December 31, 2005
------------------------------------------------------------------------
Weighted
average
Number of exercise
Options price
------------------------------------------------------------------------

Stock options outstanding,
beginning of period 10,682,082 $ 12.37
Issued 4,474,184 14.46
Exercised (3,506,625) 9.82
Cancelled (147,309) 14.53
Purchased (66,724) 11.99
Expired (6,890) 13.79
------------------------------------------------------------------------
Stock options outstanding,
end of period 11,428,718 $ 13.94
------------------------------------------------------------------------
------------------------------------------------------------------------
Exercisable, end of period 3,920,623 $ 12.24
------------------------------------------------------------------------
------------------------------------------------------------------------


Three Months Ended Nine Months Ended
September 30, 2005 September 30, 2005
------------------------------------------------------------------------
Weighted Weighted
average average
Number of exercise Number of exercise
Options price Options price
------------------------------------------------------------------------
Stock options outstanding,
beginning of period 11,588,470 $ 13.92 10,682,082 $ 12.37
Issued 38,344 11.97 4,470,078 14.46
Exercised (30,986) 9.44 (3,498,890) 9.82
Cancelled (63,091) 14.52 (120,533) 14.67
------------------------------------------------------------------------
Stock options outstanding,
end of period 11,532,737 $ 13.93 11,532,737 $ 13.93
------------------------------------------------------------------------
------------------------------------------------------------------------
Exercisable, end of
period 3,933,056 $ 12.23 3,933,056 $ 12.23
------------------------------------------------------------------------
------------------------------------------------------------------------


Under the terms of the Corporation's stock option plan, a cashless settlement alternative is available whereby option holders can either (a) elect to receive shares by delivering cash to the Corporation in the amount of the options or (b) elect to receive a number of shares equivalent to the market value of the options over the exercise price. For the three and nine months ended September 30, 2006, option holders exercised nil and 27,736 options, respectively (three months ended September 30, 2005 -16,763, nine months ended September 30, 2005 -- 3,144,188) on a cashless settlement basis and received nil and 3,206 shares respectively (three months ended September 30, 2005 - 2,329 shares, nine months ended September 30, 2005 - 977,980 shares).



c) Per share amounts:

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

------------------------------------------------------------------------
------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
------------------------------------------------------------------------
Weighted average
number of shares
outstanding - basic 129,578,305 128,621,232 129,577,962 127,539,066
Effect of dilutive
employee stock
options - 192,029 184 474,121
------------------------------------------------------------------------
Weighted average
number of shares
outstanding -
diluted 129,578,305 128,813,261 129,578,146 128,013,187
------------------------------------------------------------------------
------------------------------------------------------------------------


For the three and nine month periods ended September 30, 2006, 15,402,249 and 12,774,317 (three months ended September 30, 2005 - 8,827,355, nine months ended September 30, 2005 - 8,681,409) options, respectively, were not included in the calculation of dilutive potential shares as the result would be anti-dilutive.

d) Stock-based compensation:

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

Stock-based compensation expense included in flight operations and general and administration expenses totalled $5,397,000 and $15,497,000 for the three and nine months ended September 30, 2006, respectively, (three months ended September 30, 2005 - $4,875,000, nine months ended September 30, 2005 - $12,960,000).



The fair market value of options granted during the three and nine
months ended September 30, 2006 and 2005 and the assumptions used in
their determination are as follows:

------------------------------------------------------------------------
------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
------------------------------------------------------------------------
------------------------------------------------------------------------
Weighted average
fair market value
per option $ 3.46 $ 4.21 $ 4.29 $ 5.26
Average risk free
interest rate 3.98% 3.37% 4.24% 3.41%
Average volatility 42% 42% 42% 43%
Expected life (years) 3.6 3.7 3.6 3.7
Dividends per share $ - $ - $ - $ -
------------------------------------------------------------------------
------------------------------------------------------------------------


e) Contributed surplus:

Changes to contributed surplus were as follows:

------------------------------------------------------------------------
------------------------------------------------------------------------
Three Months Ended Nine Months Ended Year Ended
September 30 September 30 December 31
2006 2005 2006 2005 2005
------------------------------------------------------------------------
Balance, beginning
of period $ 49,088 $ 29,676 $ 39,093 $ 21,977 $ 21,977
Stock - based
compensation
expense 5,397 4,875 15,497 12,960 17,604
Stock options
exercised - (64) (105) (450) (488)
------------------------------------------------------------------------
Balance, end of
period $ 54,485 $ 34,487 $ 54,485 $ 34,487 $ 39,093
------------------------------------------------------------------------
------------------------------------------------------------------------

5. Commitments and contingencies:

a) Aircraft:

The Corporation has committed to purchase seven 737-700s, and one
737-800 Next-Generation aircraft for delivery between 2006 and 2008.

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

------------------------------------------------------------------------
------------------------------------------------------------------------
2006 $ 35,407
2007 162,260
2008 106,484
------------------------------------------------------------------------
$ 304,151
------------------------------------------------------------------------
------------------------------------------------------------------------


b) Leasehold Commitments:

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

--------------------------------------
--------------------------------------
Capital Leases Operating Leases
--------------------------------------
2006 $ 111 $ 22,181
2007 444 96,649
2008 444 112,897
2009 444 112,305
2010 698 101,844
2011 and thereafter 37 470,568
--------------------------------------
Total lease payments 2,178 $ 916,444
--------------------
Less imputed interest at 5.29% (254)
-----------------
Net minimum lease payments 1,924
Less current portion of
obligations under capital lease (351)
-----------------
Obligations under capital lease $ 1,573
-----------------
-----------------


The Corporation has committed to lease an additional five 737-700 aircraft and one 737-800 aircraft to be delivered between 2007 and 2008 for eight- and 10-year terms, respectively, in U.S. dollars. These amounts have been included at their Canadian dollar equivalent in the above table.



Included in operating leases are U.S. dollar operating leases primarily
related to aircraft. The obligations of these operating leases in U.S
dollars are as follows:

------------------------------------------------------------------------
------------------------------------------------------------------------
2006 $ 16,864
2007 76,853
2008 93,139
2009 96,422
2010 88,588
2011 and thereafter 405,873
------------------------------------------------------------------------
$ 777,739
------------------------------------------------------------------------
------------------------------------------------------------------------


c) Contingencies:

On April 4, 2004, Air Canada commenced a lawsuit against WestJet. Air Canada claimed damages in the amount of $220 million in an amendment to its statement of claim. On May 29, 2006, as a full settlement, the Corporation has agreed to pay Air Canada's investigation and litigation costs incurred of $5.5 million and has accepted Air Canada's request that WestJet make a donation in the amount of $10 million in the name of Air Canada and the Corporation to children's charities across the country. Air Canada has accepted the Corporation's apology and withdrawn its claims in light of this settlement. All legal proceedings between the parties have been terminated. These amounts and other settlement costs have been included in non-recurring expenses. As at September 30, 2006, $5.6 million has been paid related to this settlement with the $10 million balance outstanding included in accounts payable and accrued liabilities.

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

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

6. Employee profit share provision:

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

7. Income taxes:

During the second quarter of 2006, the federal government and various provinces in which the Corporation operates enacted legislation reducing the federal and provincial statutory income tax rates. The impact of this legislation is a reduction of the Corporation's liability and provision for future income taxes of $11.2 million in the three-months ended June 30, 2006. The federal government also eliminated the large corporations tax (LCT) effective January 1, 2006, which created a reversal of approximately $1 million in the second quarter of 2006 of LCT already accrued as current tax expense in the year.

8. Comparative figures:

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

WestJet will hold a live analysts' conference call today at 9 a.m. MDT (11 a.m. EDT). Clive Beddoe, Chairman and CEO, and Derek Payne, Vice-President, Finance and Corporate Services and Co-CFO will discuss WestJet's third quarter results and answer questions from financial analysts. Following the analysts' question period, members of the media are invited to participate in a question and answer session as time permits. The conference call is available through the toll-free telephone number 1-877-869-7694. Participants are encouraged to join the call 10 minutes prior to the scheduled start, at 8:50 a.m. MDT (10:50 EDT). The call can also be heard live through an Internet webcast in the Investor Relations section of westjet.com.

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