Phone: Toll-free 1-888-293-7853, Calgary (403) 444-2600 ... · Chris Lazaruk, NewRes Business Representative 12952 WJ q1 report v6 5/6/05 11:24 AM Page 6. To supplement its consolidated

WESTJET HEAD OFFICE: 5055 - 11 St. NE, Calgary, Alberta, Canada T2E 8N4 Phone: Toll-free 1-888-293-7853, Calgary (403) 444-2600 Fax (403) 444-2301

BUILDING A BETTER AIRLINE

FIRST QUARTER REPORT 2005

12952 WJ q1 report v6 5/6/05 11:24 AM Page A2

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WESTJET FIRST QUARTER REPORT 2005

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Contents4 PRESIDENT’S MESSAGE TO SHAREHOLDERS

7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS

13 FINANCIAL STATEMENTS

EXECUTIVE OFFICERSClive J. BeddoeExecutive Chairman, President and ChiefExecutive Officer

Alexander (Sandy) J. Campbell, FCGAExecutive Vice-President, Financeand Chief Financial Officer

Tim MorganExecutive Vice-President, Operations

Donald BellExecutive Vice-President, Customer Service

Sean DurfyExecutive Vice-President, Marketing and Sales

Fred RingExecutive Vice-President, People

Transfer Agent and Registrar: CIBC Mellon Trust CompanyToll Free Phone Number in North America: 1-800-387-0825 Outside North America: 416-643-5500E-mail: [email protected] Website: www.cibcmellon.com

Auditors: KPMG LLP, Calgary, AB

Legal Counsel: Burnet, Duckworth and Palmer LLP,Calgary, AB

Stock Exchange Listing: WestJet is publicly traded on the TorontoStock Exchange under the symbol WJA.

Investor Relations Contact Information: Telephone: 1-877-493-7853 or 444-2252 in CalgaryE-mail: [email protected]

BOARD OF DIRECTORSClive J. BeddoeExecutive Chairman, President and CEO,WestJet Airlines Ltd.

Thomas (Tim) MorganExecutive Vice-President, Operations, WestJet Airlines Ltd.

James HomeniukAircraft Maintenance Engineer and P.A.C.T. Representative, WestJet

Ron GreeneLead DirectorPresident, Tortuga Investment Corp.

Wilmot MatthewsPresident, Marjad Inc.

Murph N. HannonPresident, Murcon Development Ltd.

Allan JacksonPresident and CEO, Arci Ltd. President and CEO, Jackson EnterprisesInc.

Donald A. MacDonaldPresident, Sanjel Corporation

Larry PollockPresident and Chief Executive Officer, Canadian Western Bank and Canadian Western Trust

WESTJET EXECUTIVE TEAMClive J. BeddoeExecutive Chairman, President and Chief Executive Officer

Donald BellExecutive Vice-President, Customer Service

Sandy CampbellExecutive Vice-President, Finance and Chief Financial Officer

Sean DurfyExecutive Vice-President, Marketing and Sales

Tim MorganExecutive Vice-President, Operations

Fred RingExecutive Vice-President, People

CORPORATE PROFILEWestJet Airlines Ltd. is Canada’s leading low-fare airline, and is based

in Calgary, Alberta. In the first quarter of 2005, WestJet employed 4,850

people and carried 2.3 million guests to its 24 Canadian destinations

of Victoria, Comox, Vancouver, Abbotsford/Fraser Valley, Prince George,

Kelowna, Grande Prairie, Calgary, Edmonton, Fort McMurray, Saskatoon,

Regina, Winnipeg, Thunder Bay, Windsor, London, Hamilton, Toronto,

Ottawa, Montréal, Moncton, Halifax, Gander and St. John’s, and its eight

American destinations of San Francisco, Los Angeles, Palm Springs,

Phoenix, Tampa, Orlando, Fort Lauderdale and New York. As at March

31, 2005, WestJet’s fleet consisted of 57 Boeing 737 aircraft. WestJet

is publicly traded on the Toronto Stock Exchange under the symbol WJA.

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In the first quarter of 2005, we achievedoperating revenue of $294.6 million, a35.9% increase from the $216.7 millionachieved in the first three months of 2004.Yield (revenue per revenue passenger mile)was 15.2 cents in the first quarter of 2005compared to 15.9 cents in the same periodin 2004. Our cost per available seat mileincreased to 11.6 cents this quartercompared with 10.8 cents in the firstquarter of 2004.

We reported a net loss in the first quarterof $9.6 million, down from $512,000 innet earnings achieved in the same quarterof 2004. In the first quarter of 2005, werecorded a diluted loss per share of 7.6cents, compared with diluted earnings pershare of 0.4 cents during the first quarterof 2004.

On an available seat mile basis, our fuelexpense was 21.6% higher in the firstquarter of 2005 versus the first quarter of2004. The impact of this cost wasmitigated somewhat by the increasingproportion of fuel-efficient Boeing Next-Generation aircraft in the fleet and ourincreasing stage length, which increased11.2% to 813 miles.

Capacity, measured in available seat miles(ASMs), increased in the first quarter by31.0% to 2.6 billion ASMs from 2.0 billionASMs during the same period in 2004.Revenue passenger miles grew by 42.1%to 1.9 billion in the first quarter of 2005from 1.4 billion during the same three-month period in 2004. During the firstthree months of 2005, our load factorincreased 5.8 percentage points to 73.6%

The majority of the first quarter of 2005

was difficult for WestJet with intense

competition and extremely high fuel prices.

This created a high-cost and low-yield

environment that led to our disappointing and

unprofitable results. However, the market

rationalization that we had predicted took

place in March when Jetsgo ceased operations,

which materially changed our operating

environment. The environment is now much

more conducive for us to operate profitably

as yields and load factors increase.

President’s Message to Shareholders


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WESTJET FIRST QUARTER REPORT 2005 WESTJET FIRST QUARTER REPORT 2005

compared with 67.8% during the sameperiod in 2004.

The first quarter of 2005 ended positivelyfor our airline as market rationalizationproduced a significant improvement in theyield environment, although the benefitsof this will only be felt progressivelythrough the second quarter and not fullyuntil the third. High fuel prices willcontinue to affect our earnings; however,we are now well positioned to prosper aswe enter the busy summer season.

Going forward, we will have much moreflexibility to adjust our capacity to meetthe market demands. We are consequentlyintending to partially delay our acceleratedretirement plan for our 737-200 aircraft at least until the end of the summer,

although the persistently high price of fuelwill still make it uneconomical to keepthese less fuel-efficient aircraft in servicefor any extended period.

In February, we completed operatingleasing arrangements for the first eight of15 new Boeing Next-Generation aircraftthat we will acquire in 2005. We plan tofinance the remaining seven aircraft to bereceived in 2005 with loan-guaranteesupport from the Export-Import Bank ofthe United States (Ex-Im).

Subsequent to quarter-end, on April 8, weannounced the conversion of threepurchase options into firm deliveries ofNext-Generation 737-600 aircraft in 2006.This will bring the total number of newdeliveries for 2006 to nine with eight 737-600s and one 737-700. This leaves sevenpurchase options remaining with Boeingfor aircraft deliveries in 2006 that areeligible for Ex-Im financing support.

On January 7, 2005, we launched seasonalservice to Palm Springs, California, oureighth American destination sinceSeptember 2004. Demand for ourscheduled transborder service has beenstrong to date, but yields on many routeshave been hampered as a result ofcompetitive pressures.

With a more rational competitiveenvironment, WestJet will be in a strongposition this summer. We are very pleasedto be able to finally announce that all 39of our 737-700 aircraft are now equippedwith live seatback satellite television,leather seats and increased legroom, givingus a distinct edge over our competitorsand a clear advantage for our guests.

On behalf of the Board,

Clive BeddoeExecutive Chairman, President, and Chief Executive Officer, WestJet Airlines Ltd.April 2005

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Todd Irving, 737 Captain Certain information set forth in this document, including management’s assessment ofWestJet’s future plans and operations, contains forward-looking statements. By theirnature, forward-looking statements are subject to numerous risks and uncertainties, someof which are beyond WestJet’s control, including the impact of general economicconditions, changing domestic and international industry conditions, volatility of fuelprices, terrorism, currency fluctuations, interest rates, competition from other industryparticipants (including new entrants, and generally as to capacity fluctuations andpricing environment), labour matters, government regulation, stock market volatility andthe ability to access sufficient capital from internal and external sources. Readers arecautioned that management’s expectations, estimates, projections and assumptionsused in the preparation of such information, although considered reasonable at the timeof preparation, may prove to be imprecise and, as such, undue reliance should not beplaced on forward-looking statements. WestJet’s actual results, performance orachievements could differ materially from those expressed in, or implied by, theseforward-looking statements or if any of them do so, the benefits that WestJet willderive there from.

FORWARD-LOOKING INFORMATION

Management’s Discussion andAnalysis of Financial Results

Additionalinformationrelating to WestJet,including AnnualInformation Formsand financialstatements, islocated on SEDARat www.sedar.com.

Chris Lazaruk, NewRes Business Representative


To supplement its consolidated financialstatements presented in accordance withCanadian generally accepted accountingprinciples (“GAAP”), the Company usesvarious non-GAAP performance measures,including cost per available seat mile(“CASM”), revenue per available seat mile(“RASM”) and revenue per revenuepassenger mile (“yield”). These measuresare provided to enhance the user’s overallunderstanding of WestJet’s currentfinancial performance and are included toprovide investors and management withan alternative method for assessing the

Company’s operating results in a mannerthat is focused on the performance of theCompany’s ongoing operations and toprovide a more consistent basis forcomparison between quarters. Thesemeasures are not in accordance with or analternative for GAAP and may be differentfrom measures used by other companies.

HIGHLIGHTS

During the first quarter of 2005, extremelyhigh jet fuel prices and very low yieldsthroughout the domestic networkcontinued to negatively impact ouroperations. Similar to 2004, we experi-enced low fares driven by irrational pricingpractices of certain competitors.

Compounding these challenges, the firstquarter is characteristically a weak travelperiod; however, the impact of thisseasonality was somewhat mitigated as aresult of spring break falling in March thisyear rather than in April as it did last year.Our increased charter flying during thepast winter months has also contributed toeasing this slower time period.

We reported a net loss of $9.6 million inthe first quarter of 2005 compared to netincome of $512,000 in the same period in2004. In spite of our diligent work tocontain our costs, our results for thisquarter reflect the impact of lower faresthroughout the domestic airline systemand high fuel prices.

In the fourth quarter of 2004, we revisedour fleet plan to replace the majority ofour 200-series aircraft by the end of2005. This required us to incur animpairment write-down of $47.6 millionon our bottom line in the last quarter of 2004. In March, one of our competitorsabruptly ceased operations and filed forbankruptcy protection. With Jetsgo’sannouncement, we are now consideringalternatives to accommodate theadditional market share available,including delaying the retirement of the200-series fleet and/or acquiring moreNext-Generation aircraft. At this time,we are uncertain about how travellerswill react to the elimination ofuneconomic fares in the networkand how it will ultimately impactour industry and available marketcapacity.

As always, our constantcommitment to lower costsremained a priority this quarter.We continued to implementrevenue-building initiatives suchas the installation of live satellitetelevision in every seatback of ourNext-Generation aircraft, andcost-reduction initiatives like the ongoing installation ofblended winglets on each Next-Generation aircraft to enhancefuel efficiency and increaseoperational effectiveness.

OPERATIONALGROWTH

Guest revenues, which relate to revenuesgenerated from scheduled services,increased 27.3% from $175.8 million inthe first quarter of last year to $223.8million in the first three months of 2005.

Our growth in charter and other revenueswas considerable, increasing 75.9% from$39.7 million in the first quarter last yearto $69.8 million this quarter. Our chartercapacity, measured in available seat miles,increased by approximately 59% thisquarter compared to the same period last

year. The increase in this component ofour operations is a result of our focus toincrease charter flying during weakertravel periods, such as winter, and off-peak hours. This will allow us to capitalizeon the utilization of our aircraft andmaximize the return on capital related tothese assets.

Revenue per passenger mile (“yield”)decreased by 4.4% from 15.9 cents in thefirst quarter of 2004 to 15.2 cents thisquarter. The weak yield environment andlower fares led to an increase in our loadfactor, with load factor for the first threemonths of 2005 up 5.8 percentage pointscompared to the same period in theprevious year.

Although beneficial to load factors,uneconomic low fares are detrimental toour operations, especially in today’s highfuel-cost environment. We estimate for

8 9


Quarterly unaudited financial information (in millions except per share data)June 30, 2004 Sept. 30, 2004 Dec. 31, 2004 Mar. 31, 2005

Total revenues $ 257 $ 310 $ 274 $ 295 Net earnings (loss) $ 7 $ 21 $ (46) $ (10) Basic earnings (loss) per share (cents) 6.0 16.8 (36.9) (7.6) Diluted earnings (loss) per share (cents) 5.9 16.7 (36.7) (7.6)

June 30, 2003 Sept. 30, 2003 Dec. 31, 2003 Mar. 31, 2004Total revenues $ 206 $ 255 $ 230 $ 217 Net earnings $ 15 $ 32 $ 13 $ 1 Basic earnings per share (cents) 13.0 28.4 10.4 0.4 Diluted earnings per share (cents) 12.9 27.8 10.1 0.4

We continued to implementrevenue-building initiatives such as the installation of live satellitetelevision in every seatback of ourNext-Generation aircraft...

Sarah Cross, Budget AnalystMaria Brant-McMahon, Recruiter


1110


experienced a 6.2% weighted airportrate increase across our network overthe same quarter in the previous year.

This quarter, we adjusted ouraccounting estimates for amortizingour 737-700 aircraft. We reducedthe number of cycles expected to beflown on our 700-series aircraftbased on an analysis of our actualutilization of these aircraft. We willcontinue to conduct annual reviewsof our accounting estimates toensure amortization estimates areappropriate and conservative.

BALANCE SHEETFLEXIBILITY

We believe financial strength andflexibility in our balance sheet is afundamental component of our long-termsuccess. We began 2005 with a strongcash balance of $148.5 million and hadincreased that balance to $168.1 millionby the end of the quarter. We completedthe quarter with a working capital ratio of0.7 to 1 compared to 0.6 to 1 at thebeginning of the year and 1.1 to 1 in thesame quarter in 2004.

Our long-term target is to finance our fleetthrough a mixture of debt, equity andoperating leases. Our intention is tomaintain a debt-to-equity ratio of nogreater than 3 to 1 by managing ourleverage through utilization of the mixtureof different capital sources.

During each month of this quarter wefinanced the delivery of one new BoeingNext-Generation 737-700 aircraft throughan eight-year US dollar operating lease.

With the addition of these three aircraft,we completed the quarter with 18 737-200 aircraft and 39 737-700 aircraft.Thirteen of our 737-700 aircraft arefinanced through operating leases and theremaining financed through Canadiandollar long-term debt guaranteed by theExport-Import Bank of the United States(“Ex-Im Bank”).

Leasing these aircraft provides us withseveral advantages over owning. Leasingallows for 100% financing of an aircraftversus only 85% financing under Ex-ImBank supported debt. In addition, leasescan finance most incidental costs incurredin acquiring aircraft. These costs includedelivery charges, interest charges onadvance payments, sales taxes andinstallation costs. Such costs are notusually financed under traditional long-term debt financing.

Leasing also protects us againstobsolescence and eliminates market riskassociated with the book value of theaircraft. We will be able to maintain amodern fleet by acquiring new aircraftwithout taking on the burden of keepingor disposing of obsolete aircraft. Aircraftcan be returned at the end of the leasewithout regard for its book value or theexpense of disposal as the risk of

each $1 increase in the price of crude oil,we would have to increase our averagefare by approximately $0.80 in order torecover our costs. However, despite theaverage cost of fuel increasing by $14.15compared to the first quarter of 2004, ouraverage fares increased only $2.50 overthe same period.

Our cost per available seat mile (“CASM”)this quarter increased by 7.4% over thesame quarter last year, from 10.8 cents to11.6 cents. The largest contributor to thisincrease was fuel, which represented66.0% of the increase in total cost peravailable seat mile. This quarter, weexperienced a 25.9% increase in our fuelcost per litre.

Our best defence against rising fuel priceshas been, and will continue to be,maintaining a competitively fuel-efficientfleet and matching the aircraft size to thedemands of any given route. With ouracquisition of our Next-Generation 600-,700- or 800-series aircraft, we will be muchmore capable of achieving this objective.

New aircraft have been the main driver inreducing the maintenance requirementsof our fleet. Since we began to modernizeour fleet with Next-Generation 737-700aircraft in 2001, our unit maintenance costhas declined from 2.4 cents in the firstquarter of 2001 to 0.8 cents for the three-months ended March 31, 2005. The newestseries of aircraft in our fleet, the 737-800,will play the same role in meeting ourobjective of the reduction of fuelconsumption and maintenance costs.

Increasing airport costs is anothersignificant driver of our CASM increasethis quarter. We incurred a rise in theaverage cost per turn of 31.2% for thethree months ended March 31, 2005compared to the same period one year ago.The increase in our cost is primarily a resultof a 230% increase in frequency of flightsinto Toronto compared to the first quarterof 2004, one of the more expensiveairports in our network. On average, we

COST PER AVAILABLE SEAT MILE (CENTS):3 months ended 12 months ended 3 months ended % change over % change over Mar. 31, 2005 Dec. 31, 2004 Mar. 31, 2004 Dec. 31, 2004 Mar. 31, 2004

Aircraft fuel 2.95 2.69 2.43 9.67 21.40Airport operations 2.18 1.93 1.87 12.95 16.58Flight operations and navigational charges 1.59 1.66 1.63 (4.22) (2.45)Amortization(1) 0.97 0.88 0.91 10.23 6.59Maintenance 0.79 0.87 0.91 (9.20) (13.19)Sales and marketing 0.76 0.94 0.75 (19.15) 1.33General and administration 0.62 0.70 0.57 (11.43) 8.77Interest expense 0.51 0.49 0.44 4.08 15.91Inflight 0.50 0.49 0.48 2.04 4.17Aircraft leasing 0.44 0.46 0.52 (4.35) (15.38)Customer service 0.26 0.27 0.26 (3.70) (0.00)

Total 11.57 11.38 10.77 1.67 7.43

Note 1: For comparison purposes, impairment loss of $47,577,000 included in amortization expense has been excludedfrom unit cost calculations.

Tim Kingston, First Officer and Alysha Robson, Flight Attendant


Our best defence against rising fuelprices has been, and will continueto be, maintaining a competitivelyfuel-efficient fleet and matchingthe aircraft size to the demands of any given route.


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WESTJET AIRLINES LTD.WESTJET AIRLINES LTD.Consolidated Balance Sheets

March 31, 2005, December 31, 2004 and March 31, 2004 (Stated in Thousands of Dollars)

March 31 December 31 March 312005 2004 2004

(unaudited) (unaudited)AssetsCurrent assets:

Cash and cash equivalents $ 168,106 $ 148,532 $ 242,350 Accounts receivable 24,213 12,814 16,897 Income taxes recoverable 12,069 2,854 5,378 Prepaid expenses and deposits 27,285 25,493 20,417 Inventory 4,386 5,382 4,718

236,059 195,075 289,760

Property and equipment (note 1) 1,591,298 1,601,546 1,253,087

Other assets 83,190 80,733 66,987

$ 1,910,547 $ 1,877,354 $ 1,609,834

Liabilities and Shareholders’ EquityCurrent liabilities:

Accounts payable and accrued liabilities $ 98,490 $ 91,885 $ 74,703 Advance ticket sales 123,905 81,991 88,887Non-refundable guest credits 26,562 26,704 20,982Current portion of long-term debt (note 2) 96,457 97,305 68,798Current portion of obligations under capital lease (note 6) 5,454 6,564 6,371

350,868 304,449 259,741

Long-term debt (note 2) 882,577 905,631 678,532

Obligations under capital lease (note 6) – – 5,620

Long-term liabilities (note 3) 10,818 10,000 10,000

Future income tax 71,605 67,382 65,925 1,315,868 1,287,462 1,019,818

Shareholders’ equity:Share capital (note 5(a)) 401,450 390,469 382,544 Contributed surplus (note 5(e)) 25,377 21,977 12,346 Retained earnings 167,852 177,446 195,126

594,679 589,892 590,016

Subsequent events (note 4)Commitments and contingencies (note 6)

$ 1,910,547 $ 1,877,354 $ 1,609,834

obsolescence and market value risk belongto the lessor.

In April, we accepted delivery of the firstof five new 737-800 aircraft configured tocarry up to 166 guests. These aircraft arealso being financed through US dollaroperating leases for a term of 10 years.

Although our operating leases are off-balance sheet, we include the presentvalue of these obligations in assessing ourdebt-to-equity ratio. Our debt to equityratio stood at 2.2 to 1 at the end of thequarter, including a present value of$343.8 million in off-balance sheet debtrelated to 14 operating leases. Thiscompares to 1.8 to 1 at March 31, 2004and 2.2 to 1 at December 31, 2004.

To ease the impact of foreign exchangemovement on our aircraft purchases andUS dollar aircraft leases, we enter intoforeign exchange arrangements from timeto time. We have entered into a contractto purchase US $2.5 million at a forwardrate of 1.22 each month for 12 monthscommencing in March 2005 in order to

hedge a portion of our committed dollarUS dollar lease payments during the sameperiod. Subsequent to the quarter end, we fixed the foreign exchange rate at 1.22 on US $109 million of future debtfacilities for the purchase of four air-craft to be delivered between July andSeptember 2005.

As at April 25, 2005, we had 127,341,150common shares outstanding and 8,185,810options outstanding.

2005 OUTLOOK

We look forward to the remaining three-quarters of the year and eagerly wait toembrace this more rational environment.The summer season is typically our busiesttime of the year, and we are confident theinitiatives we have launched, including liveseatback satellite television, new 737-600sand 737-800s, and our first summer flyingscheduled routes to American destinations,will yield favourable results.

April 26, 2005

Tessa Zaniecki, Business Analyst


WESTJET AIRLINES LTD.Consolidated Statements of Earnings (Loss) and Retained Earnings


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WESTJET AIRLINES LTD. WESTJET AIRLINES LTD.For the periods ended March 31, 2005 and 2004 (Unaudited)(Stated in Thousands of Dollars, Except Per Share Data)

Three Months Ended March 31 2005 2004

Net earnings (loss) (9,594) 512

Retained earnings, beginning of period 177,446 204,731

Change in accounting policy (note 5(d)) – (10,117)

Retained earnings, end of period $ 167,852 $ 195,126

Earnings (loss) per share (note 5(c)):Basic $ (0.08) $ – Diluted $ (0.08) $ –

Operating highlights:

Available seat miles 2,630,180,625 2,007,542,603 Revenue passenger miles 1,934,680,989 1,361,650,765 Load factor 73.6% 67.8%Revenue per passenger mile (cents) 15.2 15.9 Revenue per available seat mile (cents) 11.2 10.8 Cost per passenger mile (cents) 15.7 15.9 Cost per available seat mile (cents) 11.6 10.8 Fuel consumption (litres) 141,463,749 111,857,832 Fuel cost/litre (cents) 54.9 43.6 Segment guests 2,277,400 1,764,487 Average stage length 813 731 Number of full time equivalent employees at quarter end 4,157 3,418 Fleet size at quarter end 57 46

For the periods ended March 31, 2005 and 2004 (Unaudited)(Stated in Thousands of Dollars, Except Per Share Data)

Three Months Ended March 31 2005 2004Revenues:

Guest revenues $ 223,811 $ 175,838 Charter and other 69,784 39,669 Interest income 1,006 1,212

294,601 216,719

Expenses:Aircraft fuel 77,669 48,764 Airport operations 57,277 37,495 Flight operations and navigational charges 41,931 32,725Amortization 25,525 18,182 Maintenance 20,749 18,345 Sales and marketing 19,905 15,104 General and administration 16,262 11,467Interest expense 13,435 8,886 Inflight 12,994 9,693 Aircraft leasing 11,565 10,324 Customer service 6,903 5,274

304,215 216,259

Earnings (loss) from operations (9,614) 460

Non-operating (expense) income:Gain (loss) on foreign exchange (541) 519 Gain on disposal of property and equipment 41 126

(500) 645

Employee profit share (note 7) – (115)

Earnings (loss) before income taxes (10,114) 990

Income tax (expense) recovery:Current 4,743 4,024 Future (4,223) (4,502)

520 (478)

WESTJET AIRLINES LTD.Consolidated Statements of Earnings (Loss) and Retained Earnings



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WESTJET AIRLINES LTD.Notes to Consolidated Financial Statements

WESTJET AIRLINES LTD.Consolidated Statements of Cash Flows

For the periods ended March 31, 2005 and 2004 (Unaudited)(Tabular Dollar Amounts are Stated in Thousands, Except Per Share Data)

The interim consolidated financial statements of WestJet Airlines Ltd. (“WestJet” or “the Corporation”) have been preparedby management in accordance with accounting principles generally accepted in Canada. The interim consolidated financialstatements have been prepared following the same accounting policies and methods of computation as the consolidatedfinancial statements for the fiscal year ended December 31, 2004. The disclosures provided below are incremental to thoseincluded with the annual consolidated financial statements. The interim consolidated financial statements should be readin conjunction with the consolidated financial statements and the notes thereto in the Corporation’s annual report for theyear ended December 31, 2004.

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

1. Property and equipment:

March 31, 2005 AccumulatedCost Depreciation Net book value

Aircraft - 700 series $ 1,305,576 $ 57,170 $ 1,248,406 Aircraft - 200 series 142,519 126,819 15,700 Ground property and equipment 117,581 38,688 78,893 Spare engines and parts - 700 series 54,406 5,583 48,823 Buildings 39,636 3,086 36,550 Aircraft under capital lease 31,601 27,900 3,701 Spare engines and parts - 200 series 22,978 16,663 6,315 Leasehold improvements 5,693 3,334 2,359

1,719,990 279,243 1,440,747 Deposits on aircraft 135,103 – 135,103 Assets under construction 15,448 – 15,448

$ 1,870,541 $ 279,243 $ 1,591,298

December 31, 2004 AccumulatedCost Depreciation Net book value

Aircraft - 700 series $ 1,282,308 $ 46,180 $ 1,236,128 Aircraft - 200 series 142,657 121,182 21,475 Ground property and equipment 109,334 34,586 74,748 Spare engines and parts - 700 series 52,641 4,777 47,864 Buildings 39,636 2,840 36,796 Aircraft under capital lease 31,304 26,781 4,523 Spare engines and parts - 200 series 24,397 16,523 7,874 Leasehold improvements 5,655 3,104 2,551


$ 1,857,519 $ 255,973 $ 1,601,546

For the periods ended March 31, 2005 and 2004 (Unaudited)(Stated in Thousands of Dollars)

Three Months Ended March 31 2005 2004Cash flows from (used in):

Operating activities:Net earnings (loss) $ (9,594) $ 512 Items not involving cash:

Amortization 25,525 18,182 Amortization of long-term liabilities (26) – Gain on disposal of property and equipment (41) (126)Stock-based compensation expense 3,536 2,487 Issued from treasury stock 4,601 – Future income tax expense 4,223 4,502

28,224 25,557

Decrease in non-cash working capital 27,288 452 55,512 26,009

Financing activities:Repayment of long-term debt (23,902) (15,033)Increase in long-term debt – 113,498 Decrease in obligations under capital lease (1,431) (1,584)Increase in long-term liabilities 844 10,000 Increase in other assets (3,285) (7,773)Share issuance costs – (2)Issuance of common shares 6,244 6,207

(21,530) 105,313

Investing activities:Aircraft additions (141,370) (125,372)Aircraft disposals 135,218 – Other property and equipment additions (8,305) (5,556)Other property and equipment disposals 49 572

(14,408) (130,356)

Increase in cash 19,574 966

Cash, beginning of period 148,532 241,384

Cash, end of period $ 168,106 $ 242,350

Cash interest and taxes paid during the three months ended March 31, 2005 were $13,705,000 (2004 - $8,311,000) and$4,472,000 (2004 - $11,174,000) respectively.

As at March 31, 2005 cash and cash equivalents include US $2,419,167 (December 31, 2004 - US $4,251,000, March 31,2004 - US $2,468,000) of restricted cash.



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2. Long-term debt (continued):


$6,939,000 in 11 individual term loans, amortized on a straight-line basis over a five year term, repayable in monthly principleinstalments ranging from $29,000 to $33,000, includingfloating interest at the Canadian LIBOR rate plus 0.08%, with aweighted average effective interest rate of 2.78%, as at March31,2005, maturing in 2009, guaranteed by the Ex-Im Bank and secured by certain 700-series aircraft. $ 5,956 $ 6,303 $ 1,877

$ 979,034 $ 1,002,936 $ 747,330 Less current portion 96,457 97,305 68,798

$ 882,577 $ 905,631 $ 678,532

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

2005 $ 73,420 2006 92,183 2007 92,353 2008 97,647 2009 91,051 2010 and thereafter 532,380

$ 979,034

3. Long-term liabilities:

The Corporation has recorded $10,000,000 (December 31, 2004-$10,000,000, March 31, 2004 - $10,000,000) ofunearned revenue related to the tri-branded credit card for future net retail sales. The unearned revenue will be drawndown commencing in May 2005 under this five year agreement.

Included in long-term liabilities at March 31, 2005 are net deferred gains of $817,800 (December 31, 2004 - $nil,March 31, 2004 - $nil). The net gain on the sale and leaseback of aircraft is deferred and amortized over the leaseterm with the amortization included in aircraft leasing.

4. Foreign exchange risk management:

At March 31,2005, the Corporation had US dollar cash and cash equivalents totaling US $36,013,000 (December 31,2004 - US $37,924,000, March 31, 2004 - US $37,924,000).

The Corporation has entered into a contract to purchase US $2.5 million per month at a forward rate of 1.22 for theperiod from March 2005 to February 2006 to hedge a portion of the Corporation’s committed US dollar leasepayments during the same period. The estimated fair market value of the contract as at March 31, 2005 is a loss ofCAD $437,000.

Subsequent to the quarter end, the Corporation entered into contracts to fix the foreign exchange rates at a weightedaverage rate of 1.22 on future debt facilities totalling US $109 million for the purchase of four aircraft during theperiod from July to September 2005.


1. Property and equipment (continued):

March 31, 2004 AccumulatedCost Depreciation Net book value

Aircraft - 700 series $ 891,778 $ 23,130 $ 868,648 Aircraft - 200 series 144,805 68,450 76,355 Ground property and equipment 96,554 25,269 71,285 Spare engines and parts - 700 series 37,904 2,990 34,914 Buildings 39,397 2,098 37,299 Aircraft under capital lease 31,177 19,022 12,155 Spare engines and parts - 200 series 26,198 12,438 13,760 Leasehold improvements 5,220 2,557 2,663


$ 1,409,041 $ 155,954 $ 1,253,087

2. Long-term debt:


$1,053,530,000 in 26 individual term loans, amortized on astraight-line basis over a 12-year term, repayable in quarterlyprinciple instalments ranging from $768,000 to $955,000,including fixed rate weighted average interest at 5.48%,guaranteed by the Ex-Im Bank, secured by 26 737-700series aircraft, and maturing in 2014 through 2016. $ 932,725 $ 954,674 $ 698,530

$26,000,000 in two term loans, repayable in monthlyinstalments ranging from $106,000 to $156,000 includingfloating interest at the bank’s prime rate plus 0.88% with aneffective interest rate of 5.13% as at March 31, 2005, withvarying maturities ranging between July 2008 and July 2013,secured by two Next-Generation flight simulators and crosscollateralized by one 200-series aircraft. 21,168 21,684 23,237

$12,000,000 term loan repayable in monthly instalments of$108,000 including interest at 9.03%, maturing April2011, secured by the Calgary hangar facility. 10,994 11,075 11,290

$22,073,000 in six individual term loans, repayable in monthlyinstalments ranging from $25,000 to $87,000 including fixedrate weighted average interest at 8.43% all maturing inOctober 2005, secured by three 200-series aircraft. 4,396 5,301 8,170

$4,550,000 term loan repayable in monthly instalments of$50,000, including floating interest at the bank’s prime rateplus 0.50%, with an effective interest rate of 4.75% as atMarch 31, 2005, maturing April 2013, secured by theCalgary hangar facility. 3,795 3,899 4,226



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5. Share capital (continued):

Under the terms of the Corporation’s stock option plans, a cashless settlement alternative is available wherebyoption holders can either (a) elect to receive shares by delivering cash to the Corporation in the amount of theoptions or (b) elect to receive a number of shares equivalent to the market value of the options over the exerciseprice. For the three months ended March 31, 2005, option holders exercised 2,259,932 (12 months ended December31, 2004 - 449,635, three months ended March 31, 2004 - nil) options on a cashless settlement basis and received677,123 (12 months ended December 31, 2004 - 102,354, three months ended March 31, 2004 - nil) shares.

(c) Per share amounts:

The following table summarizes the common shares used in calculating net earnings (loss) per common share:

Three Months Ended March 31 2005 2004

Weighted average number of common shares outstanding - basic 125,853,313 124,274,411 Effect of dilutive employee stock options – 3,004,198

Weighted average number of common shares outstanding - diluted 125,853,313 127,278,609

For the three months ended March 31, 2005, a total of 8,426,911 options were not included in the calculation ofdilutive potential common shares as the result would be anti-dilutive.

(d) Stock-based compensation:

On January 1, 2004 the Corporation changed its accounting policy related to stock options granted on or afterJanuary 1, 2002. Under the new policy, the Corporation determines the fair value of stock options on their grantdate and records this amount as compensation expense over the period that the stock options vest, with acorresponding increase to contributed surplus. The Corporation has retroactively adopted changes withoutrestatement of prior periods on January 1, 2004 which resulted in retained earnings decreasing by $10.1 millionand an offsetting entry to contributed surplus.

As new options are granted, the fair value of these options will be expensed over the vesting period, with an offsettingentry 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 amountspreviously recorded in contributed surplus is recorded as an increase in share capital.

Employee compensation expense included in flight operations and general and administration expenses totalled$3,536,000 (2004 - $2,487,000) for the three months ended March 31, 2005 related to the vesting of theoutstanding stock options issued on or after January 1, 2002 to officers and certain employees of the Corporation.

The fair market value of options granted during the three months ended March 31, 2005 and the weightedaverage assumptions used in their determination are as follows:

Weighted average fair market value per option $ 4.09 Average risk-free interest rate 3.60%Average volatility 40%Expected life (years) 3.5 Dividends per share $ 0.00

During the three months ended March 31, 2004 no stock options were granted.


5. Share capital:

(a) Issued:

Three Months Ended 12 Months Ended Three Months EndedMarch 31, 2005 December 31, 2004 March 31, 2004______________________ ______________________ ______________________

Number Amount Number Amount Number Amount

Common shares:

Balance, beginning of period 125,497,407 $ 390,469 123,882,490 $ 376,081 123,882,490 $ 376,081 Exercise of options 850,186 1,644 1,611,721 13,949 660,032 6,207 Stock-based compensation expense – 136 – 445 – 258 Issued from treasury 681,559 9,201 – – – – Issued on rounding of stock split – 3,196 – Share issuance costs – (10) (2)Tax benefit of issue costs – 4 –

Balance, end of period 127,029,152 $ 401,450 125,497,407 $ 390,469 124,542,522 $ 382,544

The Corporation has an Employee Share Purchase Plan (“ESPP”) whereby the Corporation matches every dollarcontributed by each employee. Under the terms of the ESPP the Corporation has the option to acquire commonshares on behalf of employees through open market purchases or to issue new shares from treasury at the currentmarket price. For the period January to March 2005, shares under the ESPP were issued from treasury at the currentmarket price. For the three months ended March 31, 2005 $4,600,500 of common shares were issued fromtreasury (December 31, 2004 - $nil, March 31, 2004 - $nil) representing the Corporation’s matching contributionfrom treasury for employee contributions, for which no cash was exchanged. Current market price for commonshares issued from treasury is determined based on the weighted average trading price of the common shares onthe 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 12 Months Ended Three Months EndedMarch 31, 2005 December 31, 2004 March 31, 2004______________________ ______________________ ______________________

Weighted Weighted Weightedaverage average average

Number exercise Number exercise Number exerciseof Options price of Options price of Options price

Stock options outstanding,beginning of period 10,682,082 $ 12.37 9,809,753 $ 10.78 9,809,753 $ 10.78

Granted 207,681 12.07 2,927,875 15.73 – – Exercised (2,432,995) 9.79 (1,959,002) 9.42 (660,032) 9.41 Cancelled (29,857) 14.56 (96,544) 12.83 (42,963) 11.81

Stock options outstanding,end of period 8,426,911 13.09 10,682,082 12.37 9,106,758 10.87

Exercisable, end of period 2,287,477 12.06 4,694,357 10.88 868,044 9.07



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6. Commitments and contingencies (continued):

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

2005 $ 233,544 2006 256,277

$ 489,821

(b) Contingencies:

An Amended Fresh as Amended Statement of Claim was filed by Air Canada and ZIP Air Inc. in the Ontario SuperiorCourt on March 11, 2005 against the Corporation, two officers, two employees, two former officers, and one formeremployee (the “Defendants”). The principal allegations are that the Defendants unlawfully obtained confidential flightload and load factor information from Air Canada’s employee travel website and, as a result, the Plaintiffs havesuffered damages and the Defendants have benefited from having access to the alleged confidential information. ThePlaintiffs are seeking damages, aggregating $220 million, but the Plaintiffs have provided no details or evidence tosubstantiate their damages claim.

A Statement of Claim was also filed by Jetsgo Corporation in the Ontario Superior Court on October 15, 2004 againstthe Corporation, an officer, and a former officer (the “defendants”). The principal allegations are that the defendantsconspired together to unlawfully obtain Jetsgo’s proprietary information and to use this proprietary information toharm Jetsgo and benefit WestJet. The Plaintiff is seeking damages, in an amount to be determined plus $50 million,but the Plaintiff has provided no details or evidence to substantiate its claim.

Based on the results to date of (i) an internal investigation, (ii) advice from independent industry experts, and (iii)cross-examinations of witnesses in the Air Canada proceedings, management believes the amounts claimed aresubstantially without merit. The amount of loss, if any, to the Corporation as a result of these two claims cannot bereasonably estimated. The defense and investigation of these claims are continuing.

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

7. Employee profit share provision:

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

8. Comparative figures:

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


5. Share capital (continued):

(e) Contributed surplus:

Changes to contributed surplus were as follows:

Three Months Ended 12 Months Ended Three Months EndedMarch 31, 2005 December 31, 2004 March 31, 2004

Balance, beginning of year $ 21,977 $ – $ – Stock-based compensation - adoption – 10,117 10,117 Stock-based compensation expense 3,536 12,305 2,487 Stock options exercised (136) (445) (258)

Balance, end of period $ 25,377 $ 21,977 $ 12,346

6. Commitments and contingencies:

(a) Commitments:

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

Capital OperatingLeases Leases

2005 $ 4,131 $ 68,6222006 1,531 88,864 2007 – 86,455 2008 – 86,000 2009 – 83,902 2010 and thereafter – 421,144 Total lease payments 5,662 $ 834,987 Less imputed interest at 7.90% (208)Net minimum lease payments 5,454 Less current portion of obligations under capital lease (5,454)Obligations under capital lease $ –

The Corporation’s capital leases are denominated in US dollars. The obligations in US dollars are 2005 - $3,400,000,2006 - $1,260,000.

Included in operating leases are US dollar operating leases primarily related to aircraft. The obligations of theseoperating leases in US dollars are 2005 - $48,492,000, 2006 - $67,682,000, 2007 - $67,119,000, 2008 - $67,119,000,2009 - $67,119,000, 2010 and thereafter - $331,273,000.

As at March 31, 2005 the Corporation has committed to purchase eight 737-600s and five 737-700s Next Generationaircraft for delivery between 2005 and 2006. The Corporation has entered into arrangements to lease five 737-800aircraft to be delivered during April to June 2005 for a term of 10 years in US dollars with an independent third party.Subsequent to the quarter-end, the Corporation converted purchase options into firm deliveries in 2006 for three Boeing737-600 aircraft, which have been reflected in the following note.


WESTJET HEAD OFFICE: 5055 - 11 St. NE, Calgary, Alberta, Canada T2E 8N4 Phone: Toll-free 1-888-293-7853, Calgary (403) 444-2600 Fax (403) 444-2301

BUILDING A BETTER AIRLINE

FIRST QUARTER REPORT 2005

12952 WJ q1 report v6 5/6/05 11:24 AM Page A2

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Phone: Toll-free 1-888-293-7853, Calgary (403) 444-2600 ... · Chris Lazaruk, NewRes Business Representative 12952 WJ q1 report v6 5/6/05 11:24 AM Page 6. To supplement its consolidated