## BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C.

Application of

WESTJET

for an exemption from 49 U.S.C. § 41301 pursuant to 49 U.S.C. § 40109 and a foreign air carrier permit pursuant to 49 U.S.C. § 41301 (U.S. – Canada) Docket DOT-OST-2001-11158

APPLICATION OF WESTJET FOR RENEWAL OF EXEMPTION AUTHORITY AND A FOREIGN AIR CARRIER PERMIT

Communications with respect to th is document should be sent to:

Gregg Saretsky President & C.E.O. WESTJET 22 Aerial Place NE Calgary, Alberta CANADA T2E 3J1 Barbara Munroe Vice President, Legal Services WESTJET 22 Aerial Place NE Calgary, Alberta CANADA T2E 3J1

Don H. Hainbach Jason E. Maddux Garofalo Goerlich Hainbach PC 1200 New Hampshire Ave., NW, Ste. 800 Washington, DC 20036 202-776-3970

Counsel for WestJet

December 2, 2011

NOTICE: Any person may support or oppose this ap plication by filing an answer and serving a copy of the answer on counsel for WestJet and upon each person served with this application. Answers to the exemption application must be filed on or before December 19, 2011, and answers to the permit application must be filed on or before December 23, 2011.

## BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C.

Application of

WESTJET

for an exemption from 49 U.S.C. § 41301 pursuant to 49 U.S.C. § 40109 and a foreign air carrier permit pursuant to 49 U.S.C. § 41301 (U.S. – Canada) Docket DOT-OST-2001-11158

APPLICATION OF WESTJET FOR RENEWAL OF EXEMPTION AUTHORITY AND A FOREIGN AIR CARRIER PERMIT

Pursuant to Section 40109 of Title 49 of the United States Code and Part 302 of the

Department’s Economic Regulations, WestJet here by requests renewal of its exemption authority

to engage in:

(i) scheduled foreign air transportation of persons, property and mail from points behind Canada via Canada and intermedia te points to a point or points in the United States and beyond;

(ii) charter foreign air transpor tation between any point or points in Canada and any point or points in the United States a nd beyond, provided that, except with respect to cargo charters, such service constitutes part of a continuous operation, with or without a change of aircraft, that include s service to Canada for the purpose of carrying local traffic between Ca nada and the United States; and

(iii) other charters pursuant to Part 212 of the Department’s Economic Regulations.

## 2 WestJet’s exemption authority was most recen tly granted by Notice of Action Taken issued

December 4, 2009, in Docket DOT-OST-2001-11158 an d now is scheduled to terminate on

December 4, 2011. 1



## Pursuant to section 41301 of T itle 49 of the United States Code, Parts 211 and 302 of the

Department’s Economic Regulations, and the Air Transport Agreement between the Government

of the United States of America and the Gove rnment of Canada, WestJet further requests

issuance of a foreign ai r carrier permit to enable WestJet to engage in the same foreign air

transportation described above.

WestJet requests that the authority described above be issued expedi tiously and that the

Department process this application pursuant to the streamlined regulatory procedures for

licensing U.S. and foreign air carriers set forth in the Noti ce dated August 23, 2005 (Docket

OST-2005-22228), and issue a single order (1) granting the requested renewed exemption

authority for a two-year period or until the requested permit authority becomes effective,

whichever occurs first, and (2) approving th e corresponding foreign air carrier permit under the

show-cause procedures describe d in the August 23, 2005 Notice.

In support of this Application, WestJet states as follows:

1. Name and Address of Applicant

The full name and address of WestJet is:

WestJet 22 Aerial Place N.E. Calgary, Alberta, Canada T2E 3J1

1 

## WestJet hereby invokes the Administrative Procedure Act, 5 U.S.C. § 558(c), as implemented by 14 C.F.R. Part 377, to continue in effect the existing exemption referenced herein pending final decision on this renewal request.

## 3 2. Form of Organization

WestJet is a partnership es tablished under the Alberta Partnership Act , RSA 2000, c P-3.

3. Operational Authority

WestJet holds an Air Operator Certificate is sued by Transport Canada, a copy of which is

attached as Exhibit 1. WestJet also holds a license for international service issued by the

Canadian Transportation Agency. A copy of this license is att ached as Exhibit 2.

4. Name and Address of Re levant Aviation Authority

The competent Canadian air transport auth orities with regulatory jurisdiction over

WestJet are:

Canadian Transportation Agency 15 Eddy Street Gatineau, Quebec, Canada J8X 4B3

Transport Canada 330 Sparks Street Ottawa, ON K1A 0N8

5. Bilateral Authority

Aviation relations between the United Stat es and Canada are governed by the Air

Transport Agreement between the Government of the United States of America and the

Government of Canada (2007) (“Agreement”). The authority requested here is consistent with

the Agreement.

6. Proposed Services and Traffic Forecast

WestJet currently operates extensive scheduled service between major cities in Canada

and major cities in the United States, as well as Mexico and the Caribbean. WestJet also

## 4 operates charter service commensurate with demand. WestJet does not anticipate altering its

operations as a result of gran t of this application.

7. Directors and Key Management Personnel

The names and citizenship of WestJet’s dire ctors and key management personnel are set

forth in Exhibit 3. WestJet is not aware that any of the individuals listed in Exhibit 3 are related

by blood or marriage.

8. Ownership and Control of Applicant

WestJet is a Canadian partnership comprise d of WestJet Investme nt Corp. and WestJet

Operations Corp., both of which are wholly owned by WestJet Air lines Ltd., a Canadian holding

company. WestJet Airlines Ltd. is a publicly traded company on the Toronto Stock Exchange.

Under Canadian rules, only owners of 10% or mo re of WestJet Airlines Ltd.’s capital stock, of

which there are none, are require d to file notice.

9. Homeland Government and Other Relationships

WestJet’s parent company, WestJet Airlines Ltd., is a publicly tr aded company and does

not receive or expect to rece ive any financial assistance fr om the Canadian Government.

WestJet does not hold an interest in any U.S. carrier, any other foreign air carrier, any persons

engaged in the business of aeronautics, any common carrier, or any person whose principal

business is the holding of stock in, or control of, any air carrier.

## 5 10. History of Operations

WestJet was founded in 1996 as WestJet Airlines Ltd. with three planes, five destinations

and 220 friendly WestJetters. 2 

## WestJet began U.S. service in 1997 and currently serves fourteen

U.S. destinations year-round and two additional U. S. destinations season ally. It now employs

approximately 8,000 WestJetters flying 96 Boeing ai rcraft to 71 destinat ions in Canada, the

United States, the Caribbean and Mexico.

11. Aircraft and Maintenance Arrangements

WestJet currently operates 96 Boeing 737 aircra ft. WestJet’s fleet composition is set

forth in Exhibit 4. All WestJet ai rcraft are Canadian registered.

All routine maintenance will be performe d by WestJet. WestJet’s maintenance

program complies with the International Civil Av iation Organization (ICAO) Pilots and Airmen

Annexes 1, 6 (Part 1), and 7.

12. Code-share Arrangements

WestJet does not participate in any code-sha re or co-operative arrangements with any

U.S. or non-U.S. carrier that would affect the pr oposed service to the United States that are not

already on file with the Department.

2 

## By application dated December 11, 2001, in Docket DOT-OST-2001-11156, WestJet Airlines Ltd. requested a transfer of its foreign air carrier permit to “WestJet,” pursuant to 49 U.S.C. § 41303, explaining that it sought the transfer in connection with a corporate reorganization. That application remains pe nding, and WestJet would not object to that application being dismissed upon issuance of the foreign air carrier pe rmit requested herein.

## 6 13. Financial Summary

WestJet’s 2010 annual report, containing fina ncial data for 2009, and its consolidated

interim financial reports for th e first three quarters of 2011 ar e included in Exhibit 5.

14. Family Assistance Plan and Pa ssenger Manifest Information

WestJet’s Aviation Disaster Family Assistance Plan is already on file in Docket DOTOST-1998-3304.

Pursuant to Part 243 of the Department’s Regulations, WestJet has already submitted its

passenger manifest information collec tion process in Docket DOT-OST-1998-3305.

15. Insurance

Attached as Exhibit 6 is a copy of WestJet’ s Foreign Air Carrier Insurance Certificate

(OST Form 6411) verifying that WestJet’s insurance coverage co mplies with the Department’s

insurance requirements.

16. Safety and Tariff Violations

WestJet has not had any safety or tariff violat ions or fatal accidents in the last five (5)

years.

17. Waiver of Warsaw Convention Limits

A copy of WestJet’s OST Form 4523, covering the waiver of liability limitations under

the Warsaw Convention, is already on file in Docket DOT-OST-1995-236.

## 7 18. Estimated Fuel Usage

WestJet anticipates that grant of the re quested permit authority will not result in

additional aircraft fuel consumption exceeding 10 million gallons. Accordingly, grant of the

requested exemption would not constitute a “m ajor regulatory action” under the Energy and

Conservation Act of 1975, as defined in Sect ion 313.4 of the Department’s regulations.

When the Department previously granted West Jet’s exemption authority in this docket, it

determined that WestJet was qualified to perform the proposed operations. Based on those

findings, the Department concluded that grant of the requested authority would be consistent

with the public interest. WestJet remains fully qu alified to operate schedu led and charter foreign

air transportation to the United St ates and on a worldwide basis. Renewal of WestJet’s existing

exemption authority and issuance of a foreign air carrier permit would continue to provide

consumers in the United States and Canada additional choices in air transportation, expand the

trans-border service options currently available, increase competition, and therefore benefit the

traveling public. Under these circumstances, grant of the authority requeste d here is consistent

with the public interest.

ACCORDINGLY, for the reasons discussed above, WestJet resp ectfully requests that the

Department renew WestJet’s existing exemption au thority and grant a foreign air carrier permit

in order to engage in:

(i) scheduled foreign air transportation of persons, property and mail from points behind Canada via Canada and intermedia te points to a point or points in the United States and beyond;

## 8 (ii) charter foreign air transpor tation between any point or points in Canada and any point or points in the United States a nd beyond, provided that, except with respect to cargo charters, such service constitutes part of a continuous operation, with or without a change of aircraft, that include s service to Canada for the purpose of carrying local traffic between Ca nada and the United States; and

(iii) other charters pursuant to Part 212 of the Department’s Economic Regulations.

Respectfully submitted,

Don H. Hainbach Jason E. Maddux

Counsel for WestJet

December 2, 2011

## CERTIFICATE OF SERVICE

I hereby certify that on this 2nd day of December 2011, a copy of the foregoing

Application has been served by electr onic mail on the parties named below.

_________________________________ Vanessa Krasniewicz

Marshall S. Sinick (Alaska/Horizon) msinick@ssd.com Carl Nelson, Jr. (American/American Eagle) carl.nelson@aa.com John Richardson (Amerijet Internationa l) jrichardson@johnlrichardson.com Gerald Murphy (ASA/ExpressJet/S kyWest) gmurphy@crowell.com Jennifer Trock (Compass) jennifer.trock@pillsburylaw.com Alexander Van der Bellen (Delta) sascha.vanderbellen@delta.com Jeff Morgan (Delta) jeff.morgan@delta.com Sametta Barnett (Delta) Sametta.c.barnett@delta.com Lisa Harig (GoJet) lharig@mklawdc.com Jonathan Hill (Hawaiian/JetBlue/ Air Wisconsin) jhill@dowlohnes.com Malcolm Benge (North American) mlbenge@zsrlaw.com Bob Cohn (Republic/Shuttle America/Chau tauqua) robert.cohn@hoganlovells.com Pat Rizzi (Republic/Shuttle America/Ch autauqua) patrick.rizzi@hoganlovells.com David Hayes dhayes@transstates.net Dan Weiss (United/Continen tal) dan.weiss@coair.com Howard Kass (US Airways) Howard.kass@usairways.com Benjamin Slocum (US Airways) benjamin.slocum@usairways.com Barbara Russell (Virgin America) barbara.russell@virginamerica.com John Allen (FAA) john.allen@faa.gov Kris Urs (State Department) urskr@state.gov Robert Finamore (DOT) Robert.finamore@dot.gov

## WESTJET

______________________________________________________________________________

EXHIBIT 1

AIR OPERATOR CERTIFICATE

## WESTJET

______________________________________________________________________________

EXHIBIT 2

CTA INTERNATIONAL LICENSE

## WESTJET

______________________________________________________________________________

EXHIBIT 3

KEY MANAGEMENT PERSONNEL

## Name & Position Business Address Citizenship

Clive J. Beddoe Chairman of the Board 22 Aerial Place N.E. Calgary, Alberta, Canada T2E 3J1 British and Canadian

Hugh J. Bolton Director Same as above Canadian

Ron Brenneman Director Same as above Canadian

Brett Godfrey Director Same as above Australian

Don Hougan Director Same as above Canadian

Allan Jackson Director Same as above Canadian

S. Barry Jackson Director Same as above Canadian

Wilmot L. Matthews Director Same as above Canadian

Janice Gaye Rennie Director Same as above Canadian

L. Jacques Ménard Director Same as above Canadian

Larry Pollock Director Same as above Canadian

Arthur R.A. Scace Director Same as above Canadian

Gregg Saretsky Director, President and CEO Same as above U.S. and Canadian

Barbara Munroe VP General Counsel and Secretary Same as above Canadian

## Vito Culmone EVP - Finance and CFO Same as above Canadian

Dr. Hugh Dunleavy EVP – Strategy Same as above U.S. and U.K.

Cheryl Smith EVP & Chief Information Officer Same as above U.S.

Bob Cummings EVP – Marketing and Distribution Same as above Canadian

Cam Kenyon EVP – Operations Same as above U.S.

Ferruccio G.F. Pugliese EVP – People and Culture Same as above Canadian

Duncan Bureau VP – Sales Toronto Canadian

Ian Fraser Chief Pilot Same as above Canadian

Janice Paget VP – Finance Same as above Canadian

Chris Avery VP – WestJet Vacations Same as above Canadian

Richard Bartrem VP – Communications & Community Relations Same as above Canadian

Lauri Feser VP – Marketing Same as above Canadian

Tyson Matheson VP – People Relations & Inflight Services Same as above Canadian

Mike McNaney VP – Environment & Regulatory Same as above Canadian

## Affairs

Dale Tinevez VP – Guest Services Same as above Canadian

Len Winzinowich VP – Flight Operations Same as above Canadian

Russ White VP – Technical Operations Same as above Canadian

Candice Li VP – Treasury Same as above Canadian

Robert Palmer VP – Controller Same as above Canadian

John MacLeod VP – Network Management & Alliances Same as above Canadian

Blair Pollard VP – Talent Management Same as above Canadian

Scott Wilson VP – Safety Security & Quality Same as above Canadian

## WESTJET

______________________________________________________________________________

EXHIBIT 4

AIRCRAFT FLEET

# WestJet Fleet Summary As At October 31, 2011

A ircraft Type Re g istration A ircraft Type Re g istration Number Number

Boein g 737 C-GPWS Boein g 737 C-FWBG Boein g 737 C-GWSB Boein g 737 C-FWB L Boein g 737 C-GWSI Boein g 737 C-FWBW Boein g 737 C-GWSJ Boein g 737 C-FWBX Boein g 737 C-GWS L Boein g 737 C-FWCC Boein g 737 C-GWSK Boein g 737 C-FWCN Boein g 737 C-GBWS Boein g 737 C-GWBF Boein g 737 C-GWJU Boein g 737 C-GWBJ Boein g 737 C-GWCQ Boein g 737 C-GWBT Boein g 737 C-GWCT Boein g 737 C-GWCM Boein g 737 C-GWC Y Boein g 737 C-FWSF Boein g 737 C-GXWJ Boein g 737 C-FWSO Boein g 737 C-GEWJ Boein g 737 C-FWSV Boein g 737 C-FIWS Boein g 737 C-FWSX Boein g 737 C-FJWS Boein g 737 C-FWS Y Boein g 737 C-FKWS Boein g 737 C-GWAZ Boein g 737 C-GLWS Boein g 737 C-GWJO Boein g 737 C-FZWS Boein g 737 C-FGWJ Boein g 737 C-GRWS Boein g 737 C-GCWJ Boein g 737 C-GTWS Boein g 737 C-FUWS Boein g 737 C-GUWS Boein g 737 C-GWJF Boein g 737 C-GWSE Boein g 737 C-FMWJ Boein g 737 C-GWSH Boein g 737 C-GWBN Boein g 737 C-FBWJ Boein g 737 C-GWBX Boein g 737 C-FXWJ Boein g 737 C-GWCN Boein g 737 C-FEWJ Boein g 737 C-GYWJ Boein g 737 C-FIWJ Boein g 737 C-GMWJ Boein g 737 C-FTWJ Boein g 737 C-GGWJ Boein g 737 C-GWJE Boein g 737 C-GWJG Boein g 737 C-GWJK Boein g 737 C-GQWJ Boein g 737 C-FCWJ Boein g 737 C-GVWJ Boein g 737 C-GWSU Boein g 737 C-GUWJ Boein g 737 C-FWSI Boein g 737 C-FWSK Boein g 737 C-FBWS Boein g 737 C-GWJT Boein g 737 C-GWSN Boein g 737 C-GKWJ Boein g 737 C-GWSO Boein g 737 C-GJWS Boein g 737 C-GWSP Boein g 737 C-GZWS Boein g 737 C-GWSQ Boein g 737 C-GWS A Boein g 737 C-GWS Y Boein g 737 C-GWB L Boein g 737 C-GSWJ Boein g 737 C-GWWJ Boein g 737 C-FLWJ Boein g 737 C-GWSR Boein g 737 C-FKIW Boein g 737 C-FWSE Boein g 737 C-FIBW Boein g 737 C-GWSZ Boein g 737 C-FWAD Boein g 737 C-GWSX Boein g 737 C-FWAF Boein g 737 C-FKWJ Boein g 737 C-FWAI Boein g 737 C-FCNW Boein g 737 C-FWAO Boein g 737 C-FAWJ Boein g 737 C-FWAQ Boein g 737 C-GWSV

## WESTJET

______________________________________________________________________________

EXHIBIT 5

FINANCIAL DATA

### Condensed Consolidated Interim Financial Statements and Notes

For the three and nine months ended September 30, 2011 and 2010WestJet Third Quarter 2011 │ 1 Consolidated Statement of Earnings (Stated in thousands of Canadian dollars, except per share data) (Unaudited)

Three months ended September 30 Nine months ended September 30

Note 2011 2010 2011 2010

Revenues: Guest 714,621 632,659 2,079,053 1,751,438

Other 60,664 51,440 210,942 163,637 775,285 684,099 2,289,995 1,915,075 Expenses:

Aircraft fuel 230,764 170,828 680,304 495,332 Airport operations 106,051 94,051 314,266 287,826 Flight operations and navigational charges 89,063 83,890 259,628 245,333 Sales and distribution 67,846 64,928 206,491 188,696 Marketing, general and administration 50,624 44,369 152,926 142,327 Depreciation and amortization 43,624 42,598 130,439 127,896 Aircraft leasing 41,384 36,754 123,721 106,409 Maintenance 38,317 30,268 103,444 86,620 Inflight 35,519 30,680 103,334 92,414 Employee profit share 5,973 8,567 18,142 14,780 709,165 606,933 2,092,695 1,787,633 Earnings from operations 66,120 77,166 197,300 127,442

Non-operating income (expense):

Finance income 3,865 2,531 11,604 6,303 Finance costs ) 14,682 ( ) 17,670 ( ) 46,465 ( ) 54,033 ( Gain on foreign exchange 1,255 441 3,393 1,753 Gain (loss) on disposal of property and

equipment ) 20 ( ) 11 ( ) 11 ( 595 Loss on derivatives 10 ) 1,233 ( ) 473 ( ) 7,649 ( ) 399 ( ) 10,815 ( ) 15,182 ( ) 39,128 ( ) 45,781 ( Earnings before income tax 55,305 61,984 158,172 81,661

Income tax expense :

Current ) 222 ( 383 962 1,115 Deferred 16,260 17,770 44,092 27,517 16,038 18,153 45,054 28,632 Net earnings 39,267 43,831 113,118 53,029

Earnings per share : 9

Basic 0.28 0.30 0.81 0.37 Diluted 0.28 0.30 0.80 0.36

The accompanying notes are an integral part of the condensed consolidated interim financial statements.WestJet Third Quarter 2011 │ 2 Consolidated Statement of Financial Position (Stated in thousands of Canadian dollars) (Unaudited)
September 30 December 31

Note 2011 2010

Assets Current assets:

Cash and cash equivalents 4 1,320,091 1,187,899 Accounts receivable 30,859 17,518 Prepaid expenses, deposits and other 69,815 53,761 Inventory 28,650 26,095 1,449,415 1,285,273 Non-current assets:

Property and equipment 5 1,936,747 1,989,522 Intangible assets 14,487 13,018 Other assets 93,911 96,167 Total assets 3,494,560 3,383,980

Liabilities and shareholders’ equity Current liabilities:

Accounts payable and accrued liabilities 337,046 287,710 Advance ticket sales 433,801 336,926 Non-refundable guest credits 39,594 36,381 Current portion of long-term debt 7 165,151 178,337 Current portion of obligations under finance leases 75 108 975,667 839,462 Non-current liabilities:

Maintenance provisions 6 117,718 106,711 Long-term debt 7 725,556 848,465 Obligations under finance leases 3,193 3,249 Other liabilities 9,483 8,958 Deferred income tax 315,491 268,069 Total liabilities 2,147,108 2,074,914

Shareholders’ equity:

Share capital 8 629,994 647,637 Equity reserves 72,060 66,726 Hedge reserves 257 (10,470) Retained earnings 645,141 605,173 Total shareholders’ equity 1,347,452 1,309,066

Total liabilities and shareholders’ equity 3,494,560 3,383,980

The accompanying notes are an integral part of the condensed consolidated interim financial statements.WestJet Third Quarter 2011 │ 3 Consolidated Statement of Cash Flows (Stated in thousands of Canadian dollars) (Unaudited)

Three months ended September 30 Nine months ended September 30

Note 2011 2010 2011 2010

Operating activities: Net earnings 39,267 43,831 113,118 53,029 Items not involving cash:

Depreciation and amortization 43,624 42,598 130,439 127,896 Change in long-term maintenance provisions 8,037 7,292 22,541 20,849 Change in other liabilities ) 183 ( ) 150 ( ) 115 ( ) 530 ( Amortization of hedge settlements 350 350 1,050 1,049 Loss on derivative instruments 1,233 473 7,649 399 (Gain) loss on disposal of property and

equipment 20 ) 68 ( 11 ) 744 ( Share-based payment expense 8 2,903 2,772 10,015 12,507 Income tax credit

− − − ) 1,667 ( Deferred income tax expense 16,260 17,770 44,092 27,517 Unrealized foreign exchange (gain) loss ) 696 ( 71 1,387 222 Change in non-cash working capital 78,429 48,339 122,061 132,450 Change in other assets (1,942) ) 1,445 ( (4,727) ) 4,274 ( 187,302 161,833 447,521 368,703

Investing activities: Aircraft additions ) 8,682 ( ) 3,938 ( ) 56,290 ( ) 18,727 ( Other property and equipment and intangible

additions ) 8,731 ( ) 6,817 ( ) 25,067 ( ) 12,064 ( ) 17,413 ( ) 10,755 ( ) 81,357 ( ) 30,791 (

Financing activities: Repayment of long-term debt ) 46,158 ( ) 41,322 ( ) 137,204 ( ) 123,689 ( Decrease in obligations under finance leases ) 18 ( ) 87 ( ) 90 ( ) 505 ( Shares repurchased 8 ) 16,740 (

− ) 74,570 (

− Dividends paid ) 6,912 (

− ) 28,086 (

− Issuance of common shares 34

− 34 520 Change in other assets 76 77 ) 601 ( ) 4,411 ( Change in non-cash working capital ) 2 ( 1,679 7,092 2,621

) 69,720 ( ) 39,653 ( ) 233,425 ( ) 125,464 (

Cash flow from operating, investing and

financing activities 100,169 111,425 132,739 212,448 Effect of foreign exchange on cash and cash

equivalents 3,891 ) 1,525 ( ) 547 ( 434 Net change in cash and cash equivalents 104,060 109,900 132,192 212,882

Cash and cash equivalents, beginning of period 1,216,031 1,108,163 1,187,899 1,005,181

Cash and cash equivalents, end of period 4 1,320,091 1,218,063 1,320,091 1,218,063 Cash taxes received (paid) 1,183 ) 712 ( 417 ) 2,367 ( Cash interest received 4,512 1,819 10,574 4,493 Cash interest paid 12,630 15,081 39,634 46,764

The accompanying notes are an integral part of the condensed consolidated interim financial statements.WestJet Third Quarter 2011 │ 4 Consolidated Statement of Changes in Equity (Stated in thousands of Canadian dollars) (Unaudited)
Nine months ended September 30

Note 2011 2010

Share capital: 8 Balance, begi nning of period 647,637 633,075

Issuance of shares pursuant to stock option plan 34 520 Transfer of share-based payments expense 4,681 24,631 Shares repurchased (22,358)

− 629,994 658,226

Equity reserves: 8

Balance, beginning of period 66,726 75,866 Share-based payments expense 10,015 12,507 Transfer of share-based payments expense ) 4,681 ( (24,631) 72,060 63,742

Hedge reserves:

Balance, beginning of period (10,470) (14,852) Other comprehensive income 10,727 5,703 257 (9,149)

Retained earnings:

Balance, beginning of period 605,173 542,921 Dividends declared (20,938)

− Shares repurchased (52,212)

− Net earnings 113,118 53,029 645,141 595,950

Total shareholders’ equity 1,347,452 1,308,769

The accompanying notes are an integral part of th e condensed consolidated interim financial statements



### .WestJet Third Quarter 2011 │ 5 Consolidated Statement of Comprehensive Income (Stated in thousands of Canadian dollars) (Unaudited)

Three months ended September 30 Nine months ended September 30

2011 2010 2011 2010

Net earnings 39,267 43,831 113,118 53,029

Other comprehensive income, net of tax:

Amortization of hedge settlements to aircraft leasing 350 350 1,050 1,049 Net unrealized (loss) gain on foreign exchange

derivatives under cash flow hedge accounting (i) 9,238 (2,271) 5,559 (88) Reclassification of net realized loss on foreign

exchange derivatives to net earnings (ii) 1,444 145 4,126 1,246 Net unrealized (loss) gain on fuel derivatives under

cash flow hedge accounting (iii)

− (221) 1,952 (2,070) Reclassification of net realized loss (gain) on fuel

derivatives to net earnings (iv)

− 2,192 (1,960) 5,566 11,032 195 10,727 5,703

Total comprehensive income 50,299 44,026 123,845 58,732

(i) Net of income taxes of $(3,173) and $(1,898) (2010 – $809 and $29). (ii) Net of income taxes of $(500) an d $(1,435) (2010 – $(55) and $(469)). (iii) Net of income taxes of $n il and $(675) (2010 – $83 and $779). (iv) Net of income taxes of $nil an d $678 (2010 – $(825) and $(2,095)).
The accompanying notes are an integral part of the condensed consolidated interim financial statements.Notes to Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2011 and 2010 (Stated in thousands of Canadian dollars, except share and per share data) (Unaudited)

WestJet Third Quarter 2011 │ 6 1. Statement of significant accounting policies
The condensed consolidated interim financial statements of WestJe t Airlines Ltd. (the Corporation) for the three and nine month s ended September 30, 2011 and 2010, were authorized for issu e by the Board of Directors on November 8, 2011. The Corporation is a public company incorporated and domiciled in Canada. The Corporation provides airline service and travel packages. The Corporation’s shares are publicly traded on the Toronto Stock Exchange (TSX). The principal business address is 22 Aerial Place N.E., Calgary, Alberta, T2E 3J1 and the register ed office is Suite 1400, 350 - 7 Avenue SW, Calgary, Alberta, T 2P 3N9. (a) Basis of presentation
These condensed consolidated interim financial statements and th e notes thereto have been prepared in accordance with IAS 34 – Interim Financial Reporting. Th ey do not include all of the information requir ed for full annual financ ial statements and sho uld be read in conjunction with the consolidated financial statem ents of the Corporation for the years ended December 31, 2010 and 2009, and the Corporation’s first consolidated interim financial statements filed under International Financial Reporting Stand ards (IFRS) for the three months ended March 31, 2011 and 2010. For all periods up to and including the year ended December 31, 2010, the Corporation prepared its consolidated financial statements in accordance with Canadian Generally Accepted Accounting Principles (GAAP). These condensed consolidated interim financial statements for the three and nine months ended September 30, 2011 and 2010 have been prepared in accordance with IFRS. For an explanation of the significant accounting policies and principal adjustments made by the Corporation in the transition to IFRS from Canadian GAAP refer to note 13 and the consolidated interim financial statements for the three months ended March 31, 2011 and 2010. There have been no changes to the Corporation’s accounting policies from those disclosed in the consolidated interim financial statements for the three months ended March 31, 2011 and 2010. (b) Principles of consolidation The accompanying condensed consolidated in terim financial statements include the accounts of the Corporation and its wholly owned subsidiaries, as well as the accounts of five special-purp ose entities (SPEs), which are utilized to facilitate the finan cing of aircraft. The Corporation has no equity ownership in the SPEs; however, the substance of the relationship between the Corporation and the SPEs indicates that they are controlled by th e Corporation. Accordingly, the accounts of the SPEs have been consolidated in the Corporation’s financial statements and all intercompany balances and transactions have been eliminated. (c) Seasonality The Corporation experiences increased domestic travel in the summer months and more demand for transborder and international travel over the winter months, thus re ducing the effects of seasonality on net earnings.Notes to Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2011 and 2010 (Stated in thousands of Canadian dollars, except share and per share data) (Unaudited)

WestJet Third Quarter 2011 │ 7 1. Statement of significant accounting policies (continued) (d) New standards and interpretations The International Accounting Standards Board (IASB) and Intern ational Financial Reporting Interpretations Committee (IFRIC) have issued the following standards and amendments that have not been applied in preparing these condensed consolidated interim financial statements as their effe ctive dates fall in a nnual periods beginning subsequent to the current reporting peri od.
Proposed standards/amendments Description Previous standard Effective date (i)

IFRS 7 – Financial Instruments: Disclosures (amendment) Enhances the disclosure requirements for the transfer of financial assets to better understand the nature and timing of risk associated with these transfers. IFRS 7 – Financial Instruments: Disclosures July 1, 2011

IAS 12 – Income Taxes (amendment) Requires an entity to measure the deferred tax relating to an asset based on whether the entity expects to recover the carrying amount through use or sale. IAS 12 – Income Taxes July 1, 2011

IAS 1 – Financial Statement Presentation (amendment) Amendments to improve the presentation of other comprehensive income (OCI) by grouping together items in OCI that will be reclassified to the statement of earnings and those that will not. IAS 1 – Financial Statement Presentation July 1, 2012

IFRS 9 – Financial Instruments (new) Initially issued in November 2009 to address the classification and meas urement of financial assets. Additional guidance issued in October 2010 on the classification and measurement of financial liabilities. IAS 39 – Financial Instruments: Recognition and Measurement January 1, 2013

IFRS 10 – Consolidated Financial Statements (new) Builds on the existing principles of control and elaborates on the definition of control when determining whether an entity should be consolidated or not. SIC-12 – Consolidation – Special Purpose Entities

IAS 27 – Consolidated and Separate Financial Statements January 1, 2013

IFRS 11 – Joint Arrangements (new) Focuses on the rights and obligations of an arrangement rather than its legal form and requires a single method to account for interests in jointly controlled entities. IAS 31 – Interests in Joint Ventures

SIC 13 – Jointly Controlled Entities – Non-Monetary Contributions by Venturers January 1, 2013

IFRS 12 – Disclosure of Interests in Other Entities (new) A new standard detailing disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose entities and other off-statement of financial position vehicles. Various – no direct replacement January 1, 2013

IFRS 13 – Fair Value Measurement (new) Sets out a single framework for measuring fair value and disclosure requirements surrounding the inputs and assumptions used in determining fair value. Various – no direct replacement January 1, 2013

(i) Effective for annual periods beginning on or after the stated date. Management continues to evaluate the potential impact of standards and amendments effective in future periods on both quantitative and qualitative disclosure.Notes to Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2011 and 2010 (Stated in thousands of Canadian dollars, except share and per share data) (Unaudited)

WestJet Third Quarter 2011 │ 8 2. Capital management The Corporation’s policy is to maintain a strong capital base in order to maintain investor, creditor and market confidence and to sustain the future development of the airline. The Corporation manages its capital structure and makes adjustments in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Corporation may, from time to time, purchase shares for cancellation pursuant to normal course issuer bids, issue new shares, pay dividends and adjust current and projected debt levels. In the management of capital, the Corporat ion includes shareholders’ equity (excluding hedge reserves), lo ng-term debt, finance leases, cash and cash equivalents and the Corporation’s off-bala nce-sheet obligations related to its aircraft operating leases, all of which are presented in detail below. The Corporation monitors its capital structure on a number of bases, including adjusted debt-to-equity and adjusted net debt t o earnings before net finance costs, taxes, depreciation and amor tization and aircraft leasing (EBITDAR). EBITDAR is a non-GAAP financial measure commonly used in the airlin e industry to evaluate results by excludin g differences in the method by which an airline finances its aircraft. In addition, the Corporation will adjust EBITDAR for one-time special items, for non-operating g ains and losses on derivatives and for gains and losses on foreign exchange. The calculation of EBITDAR is a measure that does not have a standardized meaning prescribed under IFRS and theref ore may not be comparable to similar measures presented by other issuers. The Corporation adjusts debt to include its off- balance-sheet aircraft operating leases. Common industry practic e is to multiply the trailing 12 months of aircraft leasing expense by 7.5 to derive a present-value debt equivalent. The Corporatio n defines adjusted net debt as adjusted debt less cash and cash equivalents. The Corpor ation defines equity as total shareholders ’ equity, excluding hedge reserves.
September 30, 2011 December 31, 2010 Change

Adjusted debt-to-equity

Long-term debt (i) 890,707 1,026,802 ) 136,095 ( Obligations under finance leases (ii) 3,268 3,357 ) 89 ( Off-balance-sheet aircraft leases (iii) 1,205,198 1,075,358 129,840 Adjusted debt 2,099,173 2,105,517 ) 6,344 ( Total shareholders’ equity 1,347,452 1,309,066 38,386 Add: Hedge reserves ) 257 ( 10,470 ) 10,727 ( Adjusted equity 1,347,195 1,319,536 27,659 Adjusted debt-to-equity 1.56 1.60 (2.5%) Adjusted net debt to EBITDAR (iv) Net earnings 150,285 90,197 60,088 Add:

Net finance costs (v) 48,135 61,004 ) 12,869 ( Taxes 59,690 43,268 16,422 Depreciation and amortization 173,005 170,462 2,543 Aircraft leasing 160,693 143,381 17,312 Other (vi) 3,065 (2,545) 5,610 EBITDAR 594,873 505,767 89,106 Adjusted debt (as above) 2,099,173 2,105,517 ) 6,344 ( Less: Cash and cash equivalents ) 1,320,091 ( (1,187,899) ) 132,192 ( Adjusted net debt 779,082 917,618 ) 138,536 ( Adjusted net debt to EBITDAR 1.31 1.81 (27.6%)

(i) As at September 30, 2011, long-t erm debt includes the current portion of long-term debt of $165,151 (Decembe r 31, 2010 – $178,3 37) and longterm debt of $725,556 (D ecember 31, 2010 – $848,465). (ii) As at September 30, 2011, obligatio ns under finance leases includes the current portion of obligat ions under finance leases of $75 (December 31, 2010 – $108) and obligations under finance le ases of $3,193 (Decem ber 31, 2010 – $3,249). (iii) Off-balance-sheet aircraft leases are calcul ated by multiplying the tra iling 12 months of aircraft le asing expense by 7.5. As a t September 30, 2011, the trailing 12 months of aircraft leasing co sts totalled $160,693 (December 31, 2010 – $143,381). (iv) The trailing 12 months are used in the calculation of EBITDAR. (v) As at September 30, 2011 net finance costs includes the trailin g 12 months of finance income of $15,211 (December 31, 2010 – $9 ,910) and the trailing 12 months of finance cost s of $63,346 (December 31, 2010 – $70,914). (vi) As at September 30, 2011, other includes the trailing 12 months foreign exchange ga in of $4,219 (December 31, 2010 – gain of $2 ,579) and the trailing 12 months non-operating loss on deriva tives of $7,284 (December 31, 2010 – loss of $34). As at September 30, 2011 and December 31, 2010, the Corporation ex ceeded its internal targets of an adjusted debt-to-equity measure of no more than 3.00 and an adjusted net debt to EBITDAR measure of no more than 3.00.Notes to Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2011 and 2010 (Stated in thousands of Canadian dollars, except share and per share data) (Unaudited)

WestJet Third Quarter 2011 │ 9 3. Employee counts and compensation The Corporation employed 7,011 full-time equivalent employ ees as at September 30, 2011 (September 30, 2010 – 6,581). The following table reconciles the Corporation’s compensation expense items to where the amounts are presented on the consolidated interim statement of earnings:

Note Three months ended September 30 Nine months ended September 30 2011 2010 2011 2010 Salaries and benefits (i) 116,975 106,619 356,612 330,195 Employee share purchase plan 14,951 13,323 43,415 38,711 Employee profit share (ii) 5,973 8,567 18,142 14,780 Share-based payment expense 8 2,903 2,772 10,015 12,507 140,802 131,281 428,184 396,193 Presented on the consolidated interim statement of earnings as follows: Airport operations 19,715 19,169 61,035 58,401 Flight operations and navigational charges 45,248 41,894 138,991 129,220 Sales and distribution 10,816 11,177 34,232 34,597 Marketing, general and administration 20,349 17,009 62,933 58,745 Maintenance 10,727 9,534 32,490 28,805 Inflight 27,975 23,930 80,361 71,645 Employee profit share 5,972 8,568 18,142 14,780 140,802 131,281 428,184 396,193

(i) Salaries and benefits expense is classified in the consolidated interim statement of earnings based on the related nature of the service performed. (ii) Employee profit share expense is a va riable payment based on a percentage of pr e-tax earnings available to all employees. 4. Cash and cash equivalents
September 30 2011 December 31 2010 Cash and cash equivalents:

Bank balances 396,678 229,817 Short-term investments 923,413 958,082 1,320,091 1,187,899
Included in these balances, as at September 30, 2011, the Corporation has US- dollar cash and cash equivalents totalling US $49,500 (December 31, 2010 – US $66,194). As at September 30, 2011, cash and cash equivalents includes total restricted cash of $42,472 (December 31, 2010 – $28,583). Included in this amount is $35,296 (December 31, 2010 – $21,578), representing cash held in trust by WestJet Vacations Inc., a wholly owned subsidiary of the Corporation, in accordance wi th regulatory requirements gove rning advance ticket sales for certain travel related activi ties; $6,806 (December 31, 2010 – $6, 691) for security on the Corp oration’s facilit ies for letters of guarantee; and, in accordance with U.S. regulatory re quirements, US $354 (December 31, 2010 – US $315) representing cash not yet remitted for passenger facility charges.Notes to Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2011 and 2010 (Stated in thousands of Canadian dollars, except share and per share data) (Unaudited)

WestJet Third Quarter 2011 │ 10 5. Property and equipment
January 1 2011 Net additions Depreciation (i) Transfers September 30 2011 Aircraft (ii) 1 , 616 , 263 31 , 599 ( 111 , 660 ) 15 , 047 1 , 551 , 249 Ground property and equipment 60,298 6,459 (8,057) 569 59,269 Spare engines and parts 72,952 12,188 (4,550) 2,538 83,128 Deposits on aircraft 98,344 19,521

− (11,979) 105,886 Buildings 122,662 4 (2,574)

− 120,092 Leasehold improvements 6,617 1,290 (420) 2,299 9,786 Assets under finance leases 3,243

− (104)

− 3,139 Assets under development 9,143 3,529

− (8,474) 4,198 1,989,522 74,590 (127,365)

− 1,936,747

January 1 2010 Net additions Depreciation (i) Transfers December 31 2010 Aircraft (ii) 1 , 748 , 250 10 , 483 ( 145 , 635 ) 3 , 165 1 , 616 , 263 Ground property and equipment 67,591 3,429 (10,741) 19 60,298 Spare engines and parts 71,846 6,334 (5,228)

− 72,952 Deposits on aircraft 81,001 17,343

− − 98,344 Buildings 126,385 324 (3,312) (735) 122,662 Leasehold improvements 7,009 115 (507)

− 6,617 Assets under finance leases 3,672

− (429)

− 3,243 Assets under development 2,597 9,772

− (3,226) 9,143 2,108,351 47,800 (165,852) (777) 1,989,522

(i) For the nine months ended Septembe r 30, 2011, total aircraft de preciation expense was $48,017 (year ended December 31, 201 0 - $60,739) for overhaul components and $63,643 (year ended December 31, 2010 - $84,896) for airc raft, including live satellite television equi pment. (ii) Aircraft includes (a) aircraft (b) engine, airframe and landing gear overhauls, and (c) live satellite television equipmen t.

September 30, 2011 Cost Accumulated depreciation Net book value Aircraft 2,510,066 (958,817) 1,551,249 Ground property and equipment 131,458 (72,189) 59,269 Spare engines and parts 121,629 (38,501) 83,128 Deposits on aircraft 105,886

− 105,886 Buildings 135,820 (15,728) 120,092 Leasehold improvements 13,555 (3,769) 9,786 Assets under finance leases 4,221 (1,082) 3,139 Assets under development 4,198

− 4,198 3,026,833 (1,090,086) 1,936,747

December 31, 2010 Cost Accumulated depreciation Net book value Aircraft 2,463,536 (847,273) 1,616,263 Ground property and equipment 124,674 (64,376) 60,298 Spare engines and parts 106,903 (33,951) 72,952 Deposits on aircraft 98,344 – 98,344 Buildings 135,817 (13,155) 122,662 Leasehold improvements 9,965 (3,348) 6,617 Assets under finance leases 4,413 (1,170) 3,243 Assets under development 9,143 – 9,143 2,952,795 (963,273) 1,989,522
The net book value of the property and equipment pledged as collateral for the Corporation’s long-term debt was $1,478,512 as at September 30, 2011 (December 31, 2010 – $1,592,871).Notes to Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2011 and 2010 (Stated in thousands of Canadian dollars, except share and per share data) (Unaudited)

WestJet Third Quarter 2011 │ 11 6. Maintenance provisions and reserves The Corporation’s aircraft leasing agreements require leased airc raft to be returned to the lessor in a specified condition. Th e Corporation recognizes maintenance costs over the lease te rm based on the passage of time and aircraft usage.
January 1 2011 Additions Foreign exchange Accretion Transfers Settled September 30 2011 Maintenance provisions: Current portion (i) 12,372 2,185 (290)

− 18,538 (16,783) 16,022 Long-term portion 106,711 18,826 7,004 3,715 (18,538)

− 117,718 119,083 21,011 6,714 3,715

− (16,783) 133,740

January 1 2010 Additions Foreign exchange Accretion Transfers Settled December 31 2010 Maintenance provisions: Current portion (i) 8,031 1,073 (692)

− 6,763 (2,803) 12,372 Long-term portion 91,227 23,202 (5,680) 4,725 (6,763)

− 106,711 99,258 24,275 (6,372) 4,725

− (2,803) 119,083

(i) The current portion of maintenanc e provisions is included in accounts payable and accrued liabilities.
A certain number of aircraft leases also require the Corporation to pay a maintenance reserve to the lessor. Maintenance reserves are refunded when qualifying maintenance is performed and therefore re present a reimbursement of the related maintenance provision recognized. Where th e amount of maintenance re serves paid exceeds the estimated amount recoverable from the lessor, the non-recoverable amount is recorded as maintenance expense in the period it is incurred. As at September 30, 2011, maintenance reserves included in prepaid expenses, deposits and other is $15,898 (December 31, 2010 – $12,045), $3,133 (December 31, 2010 – $nil) included in accounts receivable and the long-term portion of maintenance reserves included in other assets is $36,447 (December 31, 2010 – $41,736).Notes to Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2011 and 2010 (Stated in thousands of Canadian dollars, except share and per share data) (Unaudited)

WestJet Third Quarter 2011 │ 12 7. Long-term debt
September 30 2011 December 31 2010 Term loans – purchased aircraft (i) 867,537 985,571 Term loan – purchased aircraft (ii) 22,418 25,729 Term loan – flight simulator (iii)

− 5,575 Term loan – live satellite television equipment (iv)

− 41 Term loan – Calgary Hangar facility (v)

− 8,707 Term loan – Calgary Hangar facility (vi) 752 1,179 890,707 1,026,802 Current portion 165,151 178,337 725,556 848,465

(i) 52 individual term loans, amorti zed over a 12-year term, each repayable in quarterly principa l instalments ranging from $668 to $955, at a fixed interest at an effective weighted averag e rate of 5.97%, maturing between 2014 and 2020. These facilities are guaranteed by Ex- Im Bank and secured by one 800-series aircraft, 38 700-se ries aircraft and 13 600-series aircraft.
(ii) Term loan of US $21,571 repa yable in quarterly instalments of US $1,788, including effe ctive interest at a rate of 4.82%, matur ing in 2014. This facility is secured by one 800-series aircraft.
(iii) Five-year term loan matured in July 2011 wi th a final payment of $5,123. This facility was secured by one flight simulator.
(iv) Five-year term loan matured in January 2011 with a final paymen t of $41. This facility was for the purchase of live satellite t elevision equipment, was guaranteed by the Ex-I m Bank and was secured by certain 700-series and 600-series aircraft.
(v) Ten-year term loan matured in April 2011 with a final payment of $8,575. This fac ility was secured by the Calgary Hangar.
(vi) Term loan repayable in monthly in stalments of $50, including floati ng interest at the bank’s prim e rate plus 0.50%, with an eff ective interest rate of 3.50% as at September 30, 2011, maturing April 2013, secured by the Calgary Hangar facility. Future scheduled repayments of long-term debt as at September 30, 2011 are as follows:

Within 1 year 165,151 1 – 3 years 332,842 3 – 5 years 245,577 Over 5 years 147,137 890,707Notes to Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2011 and 2010 (Stated in thousands of Canadian dollars, except share and per share data) (Unaudited)

WestJet Third Quarter 2011 │ 13 8. Share capital (a) Issued and outstanding
September 30, 2011 December 31, 2010 Number Amount Number Amount Common and variable voting shares:

Balance, beginning of year 142,958,414 647,637 144,359,383 633,075 Issuance of shares pursuant to stock option plan 173,016 34 741,014 520 Share-based payment expense on stock options

exercised – 3,976 – 21,860 Issuance of shares pursuant to key employee

and pilot plan 9,230 – 2,298 – Share-based payment expense on settled key

employee and pilot units – 125 – 29 Issuance of shares pursuant to executive share

unit plan 36,371 – 194,449 – Share-based payment expense on executive

share units exercised – 580 – 2,748 Shares repurchased (4,926,090) (22,358) (2,338,730) (10,595) Balance, end of period 138,250,941 629,994 142,958,414 647,637
As at September 30, 2011, the number of common voting shares outstanding was 130,115,914 (December 31, 2010 – 137,489,456) and the number of variable voting shares was 8,135,027 (December 31, 2010 – 5,468,958). During the nine months ended September 30, 2011, the Corporation purchased and subsequently cancelled 4,926,090 shares under its normal course issuer bid for total consideration of $74,570. The average book value of the shares repurchased of $4.5 4 per share was charged to share capital with the $52,212 excess of the market price over the average book value, including transaction costs, charged to retained earnings. (b) Stock option plan The fair value of the options granted during the thr ee and nine months ended September 30, 2011 and 2010 and the assumptions used in their determination are as follows:

Three months ended September 30 Nine months ended September 30 2011 2010 2011 2010 Weighted average fair value per option 4.01 3.87 4.31 4.03 Weighted average risk-free interest rate 1.5% 1.9% 2.3% 2.5% Weighted average expected volatility 35.8% 38.8% 37.8% 38.4% Expected life of options (years) 4.77 3.6 4.00 3.6 Dividend yield 1.4% – 1.4% –

Three months ended Nine months ended September 30, 2011 September 30, 2011

Number of

options Weighted average exercise price Number of options Weighted average exercise price Stock options outstanding, beginning of period 7,496,178 14.15 8,083,431 14.21 Granted 15,161 14.00 1,841,546 14.87 Exercised (82,955) 12.60 (1,024,483) 12.56 Forfeited

– – (6,252) 12.50 Expired (32,765) 15.76 (1,498,623) 16.41 Stock options outstanding, end of period 7,395,619 14.16 7,395,619 14.16 Exercisable, end of period 4,967,082 14.07 4,967,082 14.07Notes to Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2011 and 2010 (Stated in thousands of Canadian dollars, except share and per share data) (Unaudited)

WestJet Third Quarter 2011 │ 14 8. Share capital (continued) (b) Stock option plan (continued)

Three months ended Nine months ended September 30, 2010 September 30, 2010

Number of

options Weighted average exercise price Number of options Weighted average exercise price Stock options outstanding, beginning of period 8,345,253 14.23 11,521,844 13.42 Granted 17,491 12. 50 1,996,793 12.77 Exercised (22,225) 12.40 (5,098,123) 11.83 Forfeited (9,364) 12.43 (28,082) 12.51 Expired (257,283) 14.82 (318,560) 14.77 Stock options outstanding, end of period 8,073,872 14.21 8,073,872 14.21 Exercisable, end of peri od 3,335,619 16.51 3,335,619 16.51
Under the terms of the Corporation's stock option plan, with the approval of the Corporation, op tion holders can either (i) ele ct to receive shares by delivering cash to the Corporation in the amount of the exercise price of the options, or (ii) choose a cashless settlement alternative, whereby they can elect to receiv e a number of shares equivalent to the market value of the options over the exercise price. For the three and nine mont hs ended September 30, 2011, option holders exercised 80,266 and 1,021,794 options, respectively, (three and nine months ended September 30, 2010 – 22,225 and 5,054,132 options, respectively) on a cashless settlement basis and received 7,674 and 170,327 shares, respectively (three and nine months ended September 30, 2010 – 1,024 and 696,289 shares, respectively). Fo r the three and nine months ended September 30, 2011, 2,689 and 2,689 options were exercised on a cash basis, respecti vely, and with option holders receiving 2,689 and 2,689 shares, respectively (three and nine months ended September 30, 2010 – nil and 43,991 shares, respectively). (c) Key employee and pilot plan

Three months ended Nine months ended September 30, 2011 September 30, 2011 Number of units Weighted fair value Number of units Weighted fair value Units outstanding, beginning of period 355,710 13.88 171,129 12.77 Granted 11,472 14.00 197,125 14.82 Units, in lieu of dividends 1,382 13.05 3,763 13.98 Settled (6,818) 13.74 (9,230) 13.49 Forfeited

– – (1,041) 12.50 Units outstanding, end of period 361,746 13.88 361,746 13.88 Vested, end of period – – – –

Three months ended Nine months ended September 30, 2010 September 30, 2010 Number of units Weighted fair value Number of units Weighted fair value Units outstanding, beginning of period 166,316 12.77 – – Granted 5,416 12.50 174,511 12.76 Settled (1,177) 12.77 (2,298) 12.77 Forfeited (1,228) 12.77 (2,886) 12.77 Units outstanding, end of period 169,327 12.76 169,327 12.76 Vested, end of period – – – –Notes to Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2011 and 2010 (Stated in thousands of Canadian dollars, except share and per share data) (Unaudited)

WestJet Third Quarter 2011 │ 15 8. Share capital (continued) (d) Executive share unit plan
Three months ended September 30 Nine months ended September 30 2011 RSUs PSUs RSUs PSUs Number of units Weighted fair value Number of units Weighted fair value Number of units Weighted fair value Number of units Weighted fair value Units outstanding, beginning of period 250,844 13.95 260,214 13.79 187,875 13.73 199,486 13.90

Granted – – – – 75,213 15.39 91,450 15.44 Exercised (23,821) 14.36 – – (36,065) 16.09 – – Forfeited – – (1,205) 14.53 – – (31,927) 19.26 Units outstanding, end of period 227,023 13.91 259,009 13.78 227,023 13.91 259,009 13.78 Vested, end of period 43,348 14.41 22,948 14.16 43,348 14.41 22,948 14.16

Three months ended September 30 Nine months ended September 30 2010 RSUs PSUs RSUs PSUs Number of units Weighted fair value Number of units Weighted fair value Number of units Weighted fair value Number of units Weighted fair value Units outstanding, beginning of period 147,060 13. 91 196,074 13.91 143,461 14.10 191,276 14.10

Granted – – – – 86,935 13.80 115,911 13.80 Exercised – – – – (83,336) 14.13 (111,113) 14.13 Units outstanding, end of period 147,060 13.91 196,074 13.91 147,060 13.91 196,074 13.91 Vested, end of period 17,211 14.16 22,948 14.16 17,211 14.16 22,948 14.16 (e) Share-based payment expense The following table summarizes share-based payment expense for the Corporation’s equity-based plans:

Three months ended September 30 Nine months ended September 30 2011 2010 2011 2010 Stock option plan 1,923 2,286 6,747 8,465 Key employee and pilot plan 567 269 1,839 875 Executive share unit plan 413 217 1,429 3,167 Total share-based payment expense 2,903 2,772 10,015 12,507 Presented on the consolidated interim statement of earnings as follows: Flight operations and navigational charges 1,738 2,000 5,788 6,807 Marketing, general and administration 1,165 772 4,227 5,700 Total share-based payment expense 2,903 2,772 10,015 12,507Notes to Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2011 and 2010 (Stated in thousands of Canadian dollars, except share and per share data) (Unaudited)

WestJet Third Quarter 2011 │ 16 9



### . Earnings per share The following reflects the share data used in the computation of basic and diluted earnings per share:

Three months ended September 30 Nine months ended September 30 2011 2010 2011 2010 Weighted average number of shares outstanding – basic 138,682,553 145,192,443 140,456,384 145,041,379 Effect of dilution 710,762 153,776 838,231 267,378 Weighted average number of shares outstanding – diluted 139,393,315 145,346,219 141,294,615 145,308,757
For the three and nine months ended September 30, 2011, 3,669,585 and 3,651,001 employee stock options, respectively, (three and nine months ended September 30, 2010 – 8,070,247 an d 7,127,996 employee stock options, respectively) were not included in the calculation of dilutive shares outstanding as the result would be anti-dilutive. 10. Financial instruments and risk management (a) Fair value of financial assets and financial liabilities The following tables set out the Corporation’s classification, ca rrying amount and fair value for each financial asset and liab ility as at September 30, 2011 and December 31, 2010:

Fair value Amortized cost Totals

September 30, 2011 Through profit or loss Derivatives Loans and receivables Other financial liabilities Carrying amount Fair value Asset (liability): Cash and cash equivalents 1,320,091 – – – 1,320,091 1,320,091 Accounts receivable

– – 30,859 – 30,859 30,859 Foreign exchange derivatives (i) – 9,440 –

– 9,440 9,440 Fuel derivatives (ii) – 3,269 –

– 3,269 3,269 Deposits (iii) 30,922 – – – 30,922 30,922 Accounts payable and accrued

liabilities (iv) – – – (306,057) (306,057) (306,057) Long-term debt (v) – – – (890,707) (890,707) (1,008,579) Obligations under finance leases (vi) – – – (3,268) (3,268) (3,268) 1,351,013 12,709 30,859 (1,200,032) 194,549 76,677Notes to Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2011 and 2010 (Stated in thousands of Canadian dollars, except share and per share data) (Unaudited)

WestJet Third Quarter 2011 │ 17 10. Financial instruments and risk management (continued) (a) Fair value of financial assets and financial liabilities (continued)

Fair value Amortized cost Totals

December 31, 2010 Through profit or loss Derivatives Loans and receivables Other financial liabilities Carrying amount Fair value Asset (liability): Cash and cash equivalents 1,187,899 –

– – 1,187,899 1,187,899 Accounts receivable – – 17,518 – 17,518 17,518 Foreign exchange derivatives (i) – (3,579) – – (3,579) (3,579) Fuel derivatives (ii) – 4,889 – – 4,889 4,889 Deposits (iii) 28,258 – – – 28,258 28,258 Accounts payable and accrued

liabilities (iv) – – – (264,136) (264,136) (264,136) Long-term debt (v) – – – (1,026,802) (1,026,802) (1,141,961) Obligations under finance leases (vi) – – – (3,357) (3,357) (3,357) 1,216,157 1,310 17,518 (1, 249,295) (59,310) (174,469)

(i) Includes $9,440 (December 31, 2010 – $nil) classified in pr epaid expenses, deposits and ot her and $nil (December 31, 2010 – $3, 579) classified in accounts payable and accrued liabilities. As at September 30, 2011, the average contracted rate on the forward contracts was 0. 9859 (December 31, 2010 – 1.0264) Canadian dollars to US dollars, and the average forw ard rate used in determining the fair value was 1.0503 (Dece mber 31, 2010 – 0.9995) Canadian dolla rs to US dollars. (ii) Includes $3,269 (December 31, 2010 – $5,689) classified in pr epaid expenses, deposits and ot her, and $nil (December 31, 2010 – $800) classified in accounts payable and accrued liabilities. As at September 30, 2011, for the period that the Corp oration is hedged, the closing forward curve for crude oil averaged approximately US $80 per barrel (December 31, 2010 – US $93), with the average forward foreign exchange rate used in determining the fair value being 1.0531 (December 31, 2010 – 1.0032) Canadian dolla rs to US dollars. (iii) Includes $16,680 (December 31, 2010 – $14,752) classified in pr epaid expenses, deposits and ot her, and $14,242 (D ecember 31, 20 10 – $13,506) classified in other assets. (iv) Excludes current portion of maintenance provisions of $16,022 (December 31, 2010 – $12,372) and de ferred Frequent Guest Program (FGP) revenue of $14,967 (December 31, 2010 – $6,823), foreign exchange deriva tive liabilities of $nil (December 31, 2010 – $3,579), fuel der ivative liabilities of $nil (December 31, 2010 – $800). (v) Includes current portion of long-term de bt of $165,151 (December 31, 2010 – $178,337) and long-term port ion of long-term debt o f $725,556 (December 31, 2010 – $848,465). As at September 30, 2011, rates used in determining the fa ir value on the Corporation’s fixed-r ate long-term debt ranged from 1.16% to 1.70% (December 31, 2010 – 2.00% to 2.74%). (vi) Includes current portion of ob ligations under finance leases of $75 (December 31, 2010 – $108) an d long-term portion of obligat ions under finance leases of $3,193 (Dec ember 31, 2010 – $3,249). (b) Gain (loss) on derivatives recorded at fair value The following table presents the components of loss on derivative s included on the consolidated interim statement of earnings for the three and nine months ended September 30, 2011 and 2010:

Three months ended September 30 Nine months ended September 30 2011 2010 2011 2010 Loss on designated fuel derivatives (1,233) (473) (7,649) (321) Loss on foreign exchange options

− − − (78) (1,233) (473) (7,649) (399) (c) Risk management The Corporation is exposed to market, credit and liquidity risks associated with its financial assets and liabilities. From tim e to time, the Corporation will use various financial derivatives to re duce market risk exposures from changes in foreign exchange rates, interest rates and jet fuel prices. The Corporation does not hold or use any derivative instruments for trading or speculative purposes. Overall, the Corporation’s Board of Directors has responsibility for the establishment and approval of the Corporation’s risk management policies. Management continually performs risk assessments to ensure th at all significant risks related to the Corporation and its operations have been reviewed and assessed to reflect changes in market conditions and the Corporation’s operating activities.Notes to Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2011 and 2010 (Stated in thousands of Canadian dollars, except share and per share data) (Unaudited)

WestJet Third Quarter 2011 │ 18 10. Financial instruments and risk management (continued) (c) Risk management (continued)

Fuel risk The airline industry is inherently dependent upon jet fuel to op erate and, therefore, the Corporation is exposed to the risk of volatile fuel prices. Fuel prices are impacted by a host of factors outside the Corporation’s control, such as significant weat her events, geopolitical tensions, refinery capacity, and global demand and supply. For the three and nine months ended September 30, 2011, aircraft fuel expense represented approximately 33% and 33%, respectively, (three and nine months ended September 30, 2010 – 28% and 27%, respectively) of the Corporation’s total operating expenses. Under the Corporation’s fuel price risk management policy, th e Corporation is permitted to hedge a portion of its future anticipated jet fuel purchases for up to 36 months, as approved by the Board of Directors. The hedging program is designed to mitigate the risk of sudden and substantial movements in fuel pr ices causing volatility in earnings and cash flows. Management continuously reviews and adjusts its strategy based on market conditions and competitors’ positions. Financial derivatives in crude-oil-based commodities (including a variety of crude oil, heating oil and jet fuel benchmarks) that are traded directly on organized exchanges or are available over the counter can be useful in mitigating the risk of volatile fuel prices. As at September 30, 2011, the Corporation had Canadian-dollar West Texas Intermediate (WTI) call options to hedge approximately 21% (December 31, 2010 – 20%) of its anticipated jet fuel requirements for the next 12 months. The following table outlines, per year, as at September 30, 2011, the notional volumes per barrel (bbl.) along with the weighted average contract prices:

Type Year Instrument Notional volumes (bbl.) WTI average call price ($ CAD/bbl.) WTI 2011 Call options 390,000 112 WTI 2012 Call options 1,030,000 113
The following table presents the financial impact and statemen t presentation of the Corporation’s fuel derivatives on the consolidated statement of financial position as at September 30, 2011 and December 31, 2010:

Statement presentation September 30 2011 December 31 2010 Receivable from counterparties for fuel

derivatives Accounts receivable

− 445 Fair value of fuel derivatives Prepaid expenses, deposits and other 3,269 5,244 Payable to counterparties for fuel derivati ves Accounts payable and accrued liabilities

− (800) Unrealized gain from fuel derivative s Hedge reserves – before tax impact

− (11)
The following table presents the financial impact and statemen t presentation of the Corporation’s fuel derivatives on the consolidated statement of earnings for the thr ee and nine months ended September 30, 2011 and 2010:

Statement presentation Three months ended September 30 Nine months ended September 30 2011 2010 2011 2010 Realized gain (loss) on designated fuel

derivatives Aircraft fuel

− ) 3,016 ( 2,639 (7,661) Loss on designated fuel derivatives Loss on derivatives (1,233) ) 473 ( (7,649) ) 321 (
During the three and nine months ended September 30, 2011, the Corporation cash settled fuel derivatives in its favour of $nil and $2,706, respectively (three and nine months ended Septem ber 30, 2010 – $3,247 and $7,902, respectively, in favour of the counterparties). The Corporation paid cash premiums for opti on contracts of $1,420 and $5,753 for the three and nine months ended September 30, 2011, respectively (three and nine mont hs ended September 30, 2010 – $1,774 and $3,951, respectively).Notes to Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2011 and 2010 (Stated in thousands of Canadian dollars, except share and per share data) (Unaudited)

WestJet Third Quarter 2011 │ 19 10. Financial instruments and risk management (continued) (c) Risk management (continued) Foreign exchange risk The gain or loss on foreign exchange included in the Corporat ion’s consolidated interim statement of earnings is mainly attributable to the effect of the changes in the value of th e Corporation’s US-dollar-denominate d monetary assets and liabiliti es. As at September 30, 2011, US-dollar-deno minated net monetary liabilities totalled approximately US $9, 218 (December 31, 2010 – US $12,618). As at September 30, 2011 the Corporation has entered into fo reign exchange forward contracts for an average of US $13,293 per month for the next 11 months for a total of US $146,220 at a weighted average contract rate of 0.9859 Canadian dollars to US dollars to offset a portion of its US-dollar-denominated aircraft lease payments. As at September 30, 2011, no portion of th e forward contracts was considered ineffective. As at September 30, 2011, the fair value of the foreign exchange forward contracts was $9,440 (December 31, 2010 - $3,579 included in accounts payable and accrued liabilities). For the three and nine months ended September 30, 2011, the Corporation realized a loss before tax on forward contracts of $1,944 and $5, 561, respectively, (three and nine months ended September 30, 2010 – $200 and $1,715, respectively) included in net earnings as an increase to aircraft leasing expense. The estimated amount reported in hedge reserves that is expected to be reclassified to net earnings as a component of aircraft leasing expense in th e next 11 months is a gain before tax of $9,440 (December 31, 2010 – $3,579 loss before tax).

Credit risk (i) Cash and cash equivalents Cash and cash equivalents consist of bank balances and short-term investments with terms of up to one year, with the majority having terms less than 91 days. Credit risk associated with cash and cash equivalents is minimi zed substantially by ensuring th at these financial assets are invested primarily in debt instrument s with highly rated financial institutions, some with provincia lgovernment-backed guarantees. The Corporation manages its ex posure risk by assessing th e financial strength of its counterparties and by limiting the total exposure to any one individual counterparty. As at September 30, 2011, the Corporation had a total principal amount invested of $923,413 (December 31, 2010 – $913,167) in Canadian-dollar short-term investments and a total of US $nil (December 31, 2010 – US $45,157) invested in US-dollar short-term investments, all with terms ranging between 28 and 365 days. The Corporation performs an ongoing review to evaluate its risk associated with its cash and cash equivalent counterparties. As at September 30, 2011, the Corporation does not expect any counterparties to fail to meet their obligations. (ii) Accounts receivable As at September 30, 2011, the Corporation’s accounts receivable included trade receivables of $14,962 (December 31, 2010 – $12,446) and receivables from travel agents, interline agreements and partnerships with other airlines of $18,201 (December 31, 2010 – $5,242). All significant counterparties are reviewed and appr oved for credit on a regular basis. Receivables are shortterm in nature, generally being settled within 30 to 60 days. As at September 30, 2011, the Corporation continues to dispute with a counterparty an accounts receivable balance relating to its cargo operations of $2,368 (December 31, 2010

− $2,368). The Corporation recorded a bad debt provision for the amount in 2009. There were no new provisions recorded for bad debts during the three and nine months ended September 30, 2011. (iii) Derivative financial instruments The Corporation recognizes that it is subject to credit risk ar ising from derivative transactions that are in an asset position at the consolidated interim statement of financial position date. The Co rporation carefully monitors this risk by closely considering the size, credit rating and diversification of the counterparty. As at September 30, 2011, fuel derivatives of $3,269 (December 31, 2010

− $5,689) and foreign exchange derivatives of $9,440 (Decem ber 31, 2010 – $nil) outstanding with the Corporation’s counterparties were in an asset position. The Corporation does not expect these counterparties to fail to meet their obligation s. (iv) Deposits The Corporation is not exposed to counterparty credit risk on its deposits that relate to purchased aircraft, as the funds are held in a security trust separate from the assets of the financial institution. While the Corporation is exposed to counterparty cre dit risk on its deposit relating to airport operations, it considers this risk to be remote because of the nature and size of the counterparty.Notes to Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2011 and 2010 (Stated in thousands of Canadian dollars, except share and per share data) (Unaudited)

WestJet Third Quarter 2011 │ 20 10. Financial instruments and risk management (continued) (c) Risk management (continued) Liquidity risk The table below presents a maturity analysis of the Corporatio n’s undiscounted contractual cash flows for its non-derivative an d derivative financial liabilities as at September 30, 2011. Th e analysis is based on foreign ex change and interest rates in effe ct at the consolidated interim statement of financial position date, an d includes both principal and interest cash flows for long-ter m debt and obligations under finance leases.
Total Within 1 year 1–3 years 3–5 years Over 5 years

Accounts payable and accrued liabilities (i) 306,057 306,057

− − − Long-term debt 1,052,897 214,492 401,870 277,764 158,771 Obligations under finance leases 5,657 245 490 490 4,432 1,364,611 520,794 402,360 278,254 163,203

(i) Excludes current portion of maintenance prov isions of $16,022 and deferred FGP revenue of $14,967. A portion of the Corporation’s cash and cash equivalents balance relates to cash collected with respect to advance ticket sales , for which the balance at September 30, 2011 was $433,801 (December 31, 2010 – $336,926). Typically, the Corporation has cash and cash equivalents on hand to have sufficient liquidity to meet its liabilities, when due, under both normal and stresse d conditions. As at September 30, 2011 the Corporation had cash and cash equivalents on hand of 3.04 times (December 31, 2010 – 3.53) the advance ticket sales balance. The Corporation aims to maintain a current ratio, defi ned as current assets over curr ent liabilities, of at least 1.00. As at Se ptember 30, 2011, the Corporation’s current ratio was 1.49 (December 31, 2010 – 1.53). A s at September 30, 2011, the Corporation has not been required to post collateral with respect to any of its outstanding derivative contracts. 11. Commitments and contingencies (a) Purchased aircraft and live satellite television equipment As at September 30, 2011, the Corporation is committed to purchase 35 737-700 and two 737-800 aircraft for delivery between 2012 and 2018. The remaining estimated amounts to be paid in deposits and purchase prices for the 37 aircraft, as well as amounts to be paid for live satellite television equipment on pu rchased and leased aircraft in US dollars and Canadian dollar equivalents are as follows:

USD CAD

Within 1 year 95,060 99,643 1 – 3 years 342,576 359,095 3 – 5 years 613,008 642,566 Over 5 years 596,071 624,813 1,646,715 1,726,117 (b) Operating leases and commitments The Corporation has entered into operating leases and commitments for aircraft, land, buildings, equipment, computer hardware, software licenses and sate llite programming. As at September 30, 2011 the future payments in US dollars, where applicable, and Canadian dollar equivalents under operating leases and commitments are as follows:

USD CAD

Within 1 year 194,440 226,823 1 – 3 years 369,063 410,239 3 – 5 years 281,907 308,457 Over 5 years 237,528 291,647 1,082,938 1,237,166
As at September 30, 2011, the Corporation is committed to lease an additional two 737-800 aircraft for a term of eight years in US dollars. These aircraft have been included in the above totals.Notes to Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2011 and 2010 (Stated in thousands of Canadian dollars, except share and per share data) (Unaudited)

WestJet Third Quarter 2011 │ 21 11. Commitments and contingencies (continued) (c) Letters of guarantee As at September 30, 2011, the Corporation ha s available two revolv ing letter of credit facilities with a Canadian charter bank totalling $38,000 (December 31, 2010 – $38,000). One facility is unsecured for $8,000 an d the other is a facility for $30,000 t hat requires funds to be assigned and held in cash security for the full value of letters of guarantee issued by the Corporation. A s at September 30, 2011 $6,806 (December 31, 2010 – $6,691) of letters of guarantee were issued under these facilities. These facilities are secured by $6,806 (Decembe r 31, 2010 – $6,691) of restricted cash. (d) Operating line of credit Commencing in the third quarter of 2009, the Corporation has ava ilable a three-year revolving operating line of credit with a syndicate of three Canadian banks. The line of credit is available for up to a maximum of $76,500 (December 31, 2010 – $80,750) and is secured by the Corporation’s campus facility. The line of credit bears interest at prime plus 0.50% per annum, or a banker’s acceptance rate at 2.0% annual stamping fee or equi valent, and is available for gene ral corporate expenditures and working capital purposes. The Corporation is required to pay a standby fee of 15 basis points, based on the average unused portion of the line of credit for the previous quarter, payable quarterly. As at September 30, 2011, no amounts were drawn (December 31, 2010 – $nil). (e) Contingencies The Corporation is party to legal proceedings and claims that aris e during the ordinary course of business. It is the opinion o f management that the ultimate outcome of these and any outs tanding matters will not have a material effect upon the Corporation’s financial position, results of operations or cash flows. 12. Related parties (a) Subsidiaries and partnership
The condensed consolidated interim financial statements of West Jet Airlines Ltd., the parent company, include the accounts of the Corporation and its following three directly wholly-owned subs idiaries incorporated in Canada, as well as an indirectly who llyowned Alberta partnership: WestJet Investment Corp. WestJet Operations Corp. WestJet Vacations Inc. WestJet Partnership WestJet Partnership is the primary operating entity of the Corporation. The Corporation utilizes five SPEs to facilitate the financing of aircraft. The Corporation has no equity ownership in the SPEs , however, the substance of the relationship between the Corpor ation and the SPEs indicates that they are controlled by the Corporation. Accordingly, the accounts of the SPEs have been consolidated in the Corporation’s financial statements and all intercompany balances and transactions have been eliminated. (b) Key management personnel The Corporation has defined key ma nagement personnel as senior ex ecutive officers, as well as the Board of Directors, as they have the collective authority and responsibility for planning, di recting and controlling the activities of the Corporation. The following table outlines the total compensation expense for ke y management personnel for the three and nine months ended September 30, 2011 and 2010:

Three months ended September 30 Nine months ended September 30 2011 2010 2011 2010 Short-term fees and other short-term benefits 1,082 502 3,273 2,323 Termination and post-employment benefits

– – – 1,618 Share-based payment expense (i) 691 610 2,772 4,573 1,773 1,112 6,045 8,514

(i) Includes amounts expensed pursuant to the stock option plan, executive share unit plan, deferred share unit plan and employee s hare purchase plan.Notes to Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2011 and 2010 (Stated in thousands of Canadian dollars, except share and per share data) (Unaudited)

WestJet Third Quarter 2011 │ 22 12. Related parties (continued) (c) Transactions with other related parties The Corporation has debt financing and invest ments in short-term deposits with a fina ncial institution that is related through two common directors, one of whom is also the president of the financ ial institution. Included in cash and cash equivalents, as at September 30, 2011, are short-term investments of $177,004 (December 31, 2010 – $164,710) owing from the financial institution. In 2008, the Corporation signed a three-year revolv ing operating line of credit agreement with a banking syndicate , of which, one of the members is the related-party financial instit ution. See note 11, Commitments and contingencies, for further information. These transactions occurred in the normal course ofoperations on terms consistent with those offered to arm’slength parties and are measured at the exchange amount. During 2010, the Corporation engaged a relocation firm to purchase a single family residence from the President and Chief Executive Officer (CEO) for a guaranteed price of US $1,525 in a ccordance with the Corporation’s relocation policy, and in addition, granted RSUs pursuant to the Corporation’s ESU plan in connection with the relocation. On September 30, 2011, the residence was sold for US $1,050 to a third party. The Corporat ion recognized an expense of $475 plus closing charges of $90 on the transaction, this difference was made payable to the relocation firm and recognized as of September 30, 2011, under marketing, general and administrative expense.

13. Transition to IFRS – Reconciliation of Canadian GAAP to IFRS The following tables illustrate the principal adjustments made by the Corporation in restating its Canadian GAAP consolidated interim financial statements to IFRS for the three and nine months ended September 30, 2010. For a detailed explanation of the IFRS adjustments refer to the Corporation’s consolidated inte rim financial statements for the three months ended March 31, 2011 and 2010.Notes to Condensed Consolidated Interim Financial StatementsFor the three and nine months ended September 30, 2011 and 2010(Stated in thousands of Canadian dollars, except share and per share data)(Unaudited)WestJet Third Quarter 2011│2313. Transition to IFRS(continued)Reconciliation of Consolidated Statement ofFinancial Position as at September 30, 2010Canadian GAAPbalanceIAS 16IAS 37 IAS 39OtherIFRSbalanceAssetsCurrent assetsCash and cash equivalents1,218,063 ––––1,218,063Accounts receivable27,259 ––––27,259Prepaid expenses, deposits and other34,151 –15,322 –– 49,473Inventory15,329 –––5,892 21,221Future income tax1,086 –––(1,086) –1,295,888 –15,322 –4,806 1,316,016Property and equipment2,238,573 (227,172)–––2,011,401Intangible assets13,012 ––––13,012Other assets58,699 –41,673 ––100,3723,606,172 (227,172)56,995 –4,8063,440,801Liabilities and shareholders’ equityCurrent liabilitiesAccounts payable and accrued liabilities288,067 –15,151 859–304,077Advance ticket sales350,267 –(58) ––350,209Non-refundable guest credits38,906 –(780) ––38,126Current portion of long-term debt184,252 ––(5,540)–178,712Current portion of obligations under capital leases329 ––––329861,821 –14,313 (4,681)– 871,453Maintenance provisions– –103,458 –– 103,458Long-term debt906,601 ––(16,304)– 890,297Obligations under capital leases3,268 –––– 3,268Other liabilities19,067 (5,677)– –(4,279) 9,111Deferred income tax318,990 (56,196)(15,418) 5,4331,636 254,4452,109,747 (61,873)102,353 (15,552)(2,643) 2,132,032Shareholders’ equityShare capital658,226 –––– 658,226Equity reserves59,334 –––4,408 63,742Hedge reserves(9,149) –––– (9,149)Retained earnings788,014 (165,299)(45,358) 15,5523,041 595,9501,496,425 (165,299)(45,358) 15,5527,449 1,308,7693,606,172 (227,172)56,995 –4,806 3,440,801Notes to Condensed Consolidated Interim Financial StatementsFor the three and nine months ended September 30, 2011 and 2010(Stated in thousands of Canadian dollars, except share and per share data)(Unaudited)WestJet Third Quarter 2011│2413. Transition to IFRS(continued)Reconciliation of Consolidated Statement of Earnings for the three months ended September 30, 2010Canadian GAAPbalanceIAS 16IAS 37 IAS 39OtherIFRSbalanceRevenues:Guest636,182 –(3,523) ––632,659Other48,382 –3,058 ––51,440684,564 –(465) –– 684,099Expenses:Aircraft fuel170,828 ––––170,828Airport operations94,134 –(83) –– 94,051Flight operations and navigational charges84,149 –– –(259) 83,890Sales and distribution64,938 –(10) –– 64,928Marketing, general and administration44,483 –(131) –17 44,369Depreciation and amortization34,021 8,577– –– 42,598Aircraft leasing36,469 –– –285 36,754Maintenance26,085 (79)4,567 –(305) 30,268Inflight30,680 ––––30,680Employee profit share8,567 ––––8,567594,354 8,4984,343 –(262) 606,933Earnings from operations90,210 (8,498)(4,808) –262 77,166Non-operating income (expense):Interest income2,531 ––––2,531Interest expense(14,893) –(1,163) (1,614)– (17,670)Gain (loss) on foreign exchange(1,563) –2,004 ––441Loss on disposal of property and equipment(113) 102–––(11)Loss on derivatives(473)––––(473)(14,511) 102841 (1,614)– (15,182)Earnings before income taxes75,699 (8,396)(3,967) (1,614)262 61,984Income tax expense:Current383 ––––383Deferred21,333 (2,131)(1,020) (417)5 17,77021,716 (2,131)(1,020) (417)5 18,153Net earnings53,983 (6,265)(2,947) (1,197)25743,831Earnings per share:Basic0.370.30Diluted0.370.30Notes to Condensed Consolidated Interim Financial StatementsFor the three and nine months ended September 30, 2011 and 2010(Stated in thousands of Canadian dollars, except share and per share data)(Unaudited)WestJet Third Quarter 2011│2513. Transition to IFRS(continued)Reconciliation of Consolidated Statement of Earnings for the nine months ended September 30, 2010Canadian GAAPbalanceIAS 16IAS 37 IAS 39OtherIFRSbalanceRevenues:Guest1,763,376 –(11,938) ––1,751,438Other153,070 –10,567 ––163,6371,916,446 –(1,371) ––1,915,075Expenses:Aircraft fuel495,332 –– ––495,332Airport operations288,036 –(210) ––287,826Flight operations and navigational charges245,288 –– –45245,333Sales and distribution188,729 –(33) ––188,696Marketing, general and administration142,899 –(624) –52142,327Depreciation and amortization100,208 27,688– –– 127,896Aircraft leasing105,555 –– –854 106,409Maintenance74,464 (170)12,761 –(435) 86,620Inflight92,414 –– –– 92,414Employee profit share14,780 –– –– 14,7801,747,705 27,51811,894 –516 1,787,633Earnings from operations168,741 (27,518)(13,265) –(516) 127,442Non-operating income (expense):Finance income6,303 –– ––6,303Finance costs(45,862) –(3,494) (4,677)–(54,033)Gain on foreign exchange567 –1,186 ––1,753Gain on disposal of property and equipment285 310– ––595Loss on derivatives(399) ––––(399)(39,106) 310(2,308) (4,677)– (45,781)Earnings before income taxes129,635 (27,208)(15,573) (4,677)(516) 81,661Income tax expense:Current1,115 –– –– 1,115Deferred39,708 (6,880)(3,986) (1,210)(115) 27,51740,823 (6,880)(3,986) (1,210)(115) 28,632Net earnings88,812 (20,328)(11,587) (3,467)(401) 53,029Earnings per share:Basic0.610.37Diluted0.610.36Notes to Condensed Consolidated Interim Financial StatementsFor the three and nine months ended September 30, 2011 and 2010(Stated in thousands of Canadian dollars, except share and per share data)(Unaudited)WestJet Third Quarter 2011│2613. Transition to IFRS(continued)Reconciliation of Consolidated Statement of CashFlows for the three months ended September 30, 2010Canadian GAAPbalanceIAS 16IAS 37 IAS 39OtherIFRSbalanceOperating activitiesNet earnings53,983 (6,265)(2,947) (1,197)257 43,831Items not involving cash:Depreciation and amortization34,021 8,577–––42,598Change in long-term maintenance provisions– –7,292 –– 7,292Change in other liabilities(452) –––302 (150)Amortization of hedge settlements350 ––––350Loss on derivatives473 ––––473Loss (gain) on disposal of property and equipment113 (181)–––(68)Stock-based compensation expense3,031 –––(259) 2,772Deferred income tax expense21,333 (2,131)(1,020) (417)5 17,770Unrealized foreign exchange loss2,075 –(2,004) ––71Change in non-cash working capital48,427 –124 93(305) 48,339Change in other assets– –(1,445)––(1,445)163,354 –– (1,521)– 161,833Investing activitiesAircraft additions(3,938) ––––(3,938)Other property and equipment and intangible additions(6,817) ––––(6,817)(10,755) ––––(10,755)Financing activitiesRepayment of long-term debt(42,843) ––1,521– (41,322)Decrease in obligations under capital leases(87) ––––(87)Change in other assets77 ––––77Change in non-cash working capital1,679 ––––1,679(41,174)–– 1,521–(39,653)Cash flow from operating, financing and investing activities111,425 ––––111,425Effect of foreign exchange on cash and cash equivalents(1,525) ––––(1,525)Net change in cash and cash equivalents109,900 ––––109,900Cash and cash equivalents, beginning of period1,108,163 ––––1,108,163Cash and cash equivalents, end of period1,218,063 –– –– 1,218,063Notes to Condensed Consolidated Interim Financial StatementsFor the three and nine months ended September 30, 2011 and 2010(Stated in thousands of Canadian dollars, except share and per share data)(Unaudited)WestJet Third Quarter 2011│2713. Transition to IFRS(continued)Reconciliation of Consolidated Statement of CashFlows for the nine month ended September 30, 2010Canadian GAAPbalanceIAS 16IAS 37 IAS 39OtherIFRSbalanceOperating activities:Net earnings88,812 (20,328))11,587( )3,467()401( 53,029Items not involving cash:Depreciation and amortization100,208 27,688–––127,896Change in long-term maintenance provisions– –20,849 –– 20,849Change in other liabilities(1,436) –––906 )530(Amortization of hedge settlements1,049 ––––1,049Loss on derivatives399 ––––399Gain on disposal of property and equipment(264) )480(–––)744(Share-based payment expense12,462 –––45 12,507Income tax credit(1,667) –––– )1,667(Deferred income tax expense39,708 )6,880()3,986( )1,210()115( 27,517Unrealized foreign exchange loss1,408 –)1,186( –– 222Change in non-cash working capital132,681–184 20)435( 132,450Change in other assets– –)4,274( –– )4,274(373,360 ––)4,657(– 368,703Investing activities:Aircraft additions(18,727)––––)18,727(Other property and equipment and intangible additions(12,064) ––––)12,064((30,791) ––––)30,791(Financing activities:Repayment of long-term debt(128,346) ––4,657–)123,689(Decrease in obligationsunder finance leases(505) ––––)505(Change in other assets(4,411) ––––)4,411(Issuance of common shares520––––520Change in non-cash working capital2,621 ––––2,621(130,121) ––4,657–)125,464(Cash flow from operating, financing and investing activities212,448 ––––212,448Effect of foreign exchange on cash and cash equivalents434 ––––434Net change in cash and cash equivalents212,882 ––––212,882Cash and cash equivalents, beginning of year1,005,181 ––––1,005,181Cash and cash equivalents, end of year1,218,063 ––––1,218,063Notes to Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2011 and 2010 (Stated in thousands of Canadian dollars, except share and per share data) (Unaudited)

WestJet Third Quarter 2011 │ 28 13. Transition to IFRS (continued)

Reconciliation of Consolidated Statement of Comprehensive Income for the three months ended September 30, 2010

Canadian GAAP balance Adjustments IFRS balance Net earnings 53,983 ) 10,152 ( 43,831

Other comprehensive income, net of tax:

Amortization of hedge settlements to aircraft leasing 350

− 350 Net unrealized loss on foreign exchange derivatives under cash flow

hedge accounting (i) ) 2,271 (

− ) 2,271 ( Reclassification of net realized loss on foreign exchange derivatives to

net earnings (ii) 145

− 145 Net unrealized loss on fuel derivatives under cash flow hedge accounting (iii) ) 221 (

− ) 221 ( Reclassification of net realized loss on fuel derivatives to net earnings (iv) 2,192

− 2,192 195

− 195

Total comprehensive income 54,178 ) 10,152 ( 44,026

(i) Net of income taxes of $809. (ii) Net of income taxes of $(55). (iii) Net of income taxes of $83. (iv) Net of income taxes of $(825).
Reconciliation of Consolidated Statement of Comprehensive Income for the nine months ended September 30, 2010

Canadian GAAP balance Adjustments IFRS balance Net earnings 88,812 ) 35,783 ( 53,029

Other comprehensive income, net of tax:

Amortization of hedge settlements to aircraft leasing 1,049

− 1,049 Net unrealized loss on foreign exchange derivatives under cash flow

hedge accounting (i) ) 88 (

− ) 88 ( Reclassification of net realized loss on foreign exchange derivatives to

net earnings (ii) 1,246

− 1,246 Net unrealized loss on fuel derivatives under cash flow hedge accounting (iii) ) 2,070 (

− ) 2,070 ( Reclassification of net realized loss on fuel derivatives to net earnings (iv) 5,566

− 5,566 5,703

− 5,703

Total comprehensive income 94,515 ) 35,783 ( 58,732

(i) Net of income taxes of $29. (ii) Net of income taxes of $(469). (iii) Net of income taxes of $779. (iv) Net of income taxes of $(2,095).

# STAYING TRUE

WESTJET ANNUAL REPORT 2010

# STAYING TRUE

WESTJET ANNUAL REPORT 2010

Staying true doesn’t mean staying the same. To WestJet, it means remaining as committed as ever to what matters and selecting opportunities to grow in a measured way.
In 2010, we stayed true by printing less paper for this report. Visit westjet.com/stayingtrue to read the story of how WestJet stayed
true to its solid foundation and the principles that have continued to make our airline successful.

# 2010

TABLE OF CONTENTS

Financial overview 3 President’s message to shareholders 4 Management’s discussion and analysis of fi nancial results 2010 6 Management’s report to shareholders 59 Independent auditor’s report 60

Consolidated fi nancial statements 61

Notes to consolidated fi nancial statements 66 Corporate information Inside Back Cover2 WestJet 2010 Annual ReportWestJet 2010 Annual Report 3 

# FINANCIAL OVERVIEW

RASM vs. CASM *

(cents)
RASM (revenue per available seat mile) CASM (cost per available seat mile) 

## Revenue
(millions of dollars) 

## Cash and cash equivalents
(millions of dollars) 2006 2007 2008 2009 2010 12.1 12.1 12.4 13.2

11.8 14.0 14.6 14.9

13.0 13.4

2006 2007 2008 2009 2010 378 654 820 1,005 1,188

($ in thousands, except per share data) 2010 2009 2008 2007 2006 Consolidated fi nancial information
Revenue $ 2,609,261 $ 2,281,120 $ 2,549,506 $ 2,127,156 $ 1,751,269 Earnings before income taxes * $ 196,667 $ 136,796 $ 254,749 $ 233,313 $ 164,783

Net earnings * $ 136,720 $ 98,178 $ 178,506 $ 189,048 $ 116,631

Cash and cash equivalents $ 1,187,899 $ 1,005,181 $ 820,214 $ 653,558 $ 377,517

Earnings per share * Basic $ 0.94 $ 0.74 $ 1.39 $ 1.46 $ 0.90
Diluted $ 0.94 $ 0.74 $ 1.37 $ 1.44 $ 0.90

Operational highlights Available seat miles (ASM) 19,535,291,313 17,587,640,902 17,138,883,465 14,544,737,340 12,524,379,943 Revenue passenger miles (RPM) 15,613,121,610 13,834,761,211 13,730,960,234 11,739,063,003 9,791,878,403 Load factor 79.9% 78.7% 80.1% 80.7% 78.2% Yield (cents) 16.71 16.49 18.57 18.12 17.88 Revenue per ASM (cents) 13.36 12.97 14.88 14.62 13.98 Cost per ASM (cents) * 12.09 11.77 13.17 12.36 12.10 Cost per ASM, excluding fuel and employee profi t share (cents) * 8.52 8.45 8.29 8.57 8.54

* 2006 to 2008 restated. 2007 excludes reservation system impairment of $31.9 million. 2006 2007 2008 2009 2010 1,751 2,127 2,550

2,281 2,6094 WestJet 2010 Annual Report 

# PRESIDENT’S MESSAGE TO SHAREHOLDERS

Since my appointment as President and Chief Executive Officer in April 2010, my appreciation for the power and effectiveness of an engaged workforce and its ability to execute on a solid business plan has only grown. I am honoured to be associated with and lead a team of exceptional WestJetters, and 2010 was another example of the great results that are achievable by staying true to the things that have made WestJet a success since its inception in 1996.

Along with my new title and responsibilities came questions about what I might plan to change or how I would shake things up with the airline. Well, the fact of the matter is that there is no revolution required at WestJet. The formula of providing caring guest experiences, keeping costs low and offering high value has been working for 15 years and I believe that WestJet will continue to be the envy of the airline industry.

In a year filled with economic uncertainty, 2010 followed one of the worst recessions in recent history. Despite these challenging conditions, the airline industry saw demand for air travel and consumer confidence gradually return. With an operating margin of 9.5 per cent and an earnings before tax margin of 7.5 per cent in 2010, WestJet was again one of the top-performing airlines in
North America.

Our business model, founded on a single fleet type strategy, continued to demonstrate value by staying true to our low-cost philosophy, our people and our guests. We haven’t made cost reduction an official program at WestJet because keeping a close eye on costs is fundamental to the way that WestJetters do business every day.

I’m proud of WestJetters and the caring way that we safely flew more than 15 million guests in 2010. WestJetters are the
foundation of the WestJet brand and we have a steadfast focus on maintaining our strong culture and excellent guest experience. These foundational strengths were exemplified by our 2010 induction into Canada’s Most Admired Corporate Cultures
Hall of F ame and winning the Airline Staff Service Excellence Award North America at the World Airline Awards in Hamburg, Germany. Just last month, we were named a J.D. Power 2011 Customer Service Champion by the prestigious global marketing information services company, J.D. Power and Associates. Last year, we began to capitalize on the significant investments made in our reservations systems, and we started to benefit from some of the revenue growth opportunities that these investments afford us. We implemented our first code-share agreement and added additional interline partners. We launched the WestJet Frequent Guest Program and WestJet Credit Card Program with rewards that are easy to understand and redeem.

We continued growing our WestJet Vacations business and its brand by leveraging our existing scheduled network. With the introduction of many new sun destinations in the last few years, WestJet Vacations has become a significant player in the Canadian tour operator industry. In four short years, WestJet Vacations has become the number one Canadian provider of hotel rooms to Las Vegas, with additional strength into the Orlando, California and Hawaii markets, along with the popular Caribbean and Mexico markets. WestJet Vacations is important to our growth as an airline and will be a key component of our future success.

In 2010, we made the decision to introduce a quarterly dividend and a share buy-back program. These initiatives speak to our confidence to consistently generate positive cash flow while maintaining a healthy balance sheet.

Outlook

As we move forward, we will stay true to our strategy of profitable and measured growth. In 2011, we plan to increase our airline partnerships by implementing three to four code-share agreements and signing on additional interline partners. This will drive more guests into our network and expand our global reach by offering our guests access to new destinations. Our long-term objective is to have a code-share partner from each of the major geographic regions of the world.

In 2011, we will add fare products that increase flexibility for the business traveller and grow our schedule to make it even more convenient through improved frequencies and code-share relationships. With reservation system enhancements and frequent guest programs now firmly in place, we expect 2011 to be a banner year in attracting incremental business travellers.

Over the past several months, as part of our ongoing fleet planning review and strategy, we chose to defer the delivery ofWestJet 2010 Annual Report 5 nine aircraft to 2017 and 2018 that were previously scheduled to be delivered between 2011 and 2015. The entirety of our order with Boeing remains intact, but the revisions allow us to better match the timing of aircraft deliveries with the dates for potential lease returns. This allows us to accelerate or decelerate capacity growth, dependent on economic and market conditions, without deviating from our long-term growth strategy.

Our long-term vision remains the same – to become one of the most successful airlines in the world by 2016. This does not mean that we will be among the largest, fly the most aircraft or go to the most destinations. Rather, we want to be top five in brand strength, on-time performance, profit margin, culture and guest loyalty and satisfaction.

As WestJet continues to grow, having just celebrated our 15th birthday, we will stay true to the business model that has produced 55 out of 57 profitable quarters. A low-cost structure and a caring guest experience will remain the foundations of
success for WestJet as we move toward our 2016 vision. A culture of engagement, where doing the right things for our business happens each day, will be fostered by all WestJetters.

Staying true should not be misinterpreted as status quo. WestJet will continue to evolve as the complexity of the airline business changes with advancements in technology, ongoing consolidation, and ever-changing market and consumer demands. We will embrace change and always stay true to our people, our guests
and our shareholders.

In summary, WestJet’s 2010 results proved again that our measured growth strategy continued to deliver profitable results. We are confident in our business model and our ability to consistently generate positive cash flow, maintain a strong balance sheet and fund our growth objectives. WestJet’s brand strength and visibility are growing with additional frequencies in key Canadian business markets, further expansion in the vacations market and an expanding global reach with airline partnerships. Combined with the commitment of all WestJetters to the strong underlying fundamentals of our low-cost structure and the revenue opportunities that lie ahead with a strengthening economy, we believe that 2011 will be another exciting year of growth, success and profitability for WestJet. On behalf of the Board of Directors, Executive team and more than 8,000 WestJetters, I thank all of our shareholders and guests for their ongoing support and loyalty.

Gregg Saretsky
President and Chief Executive Officer

March 16, 2011

Caution regarding forward-looking statements

Certain information set forth in the above president’s message to shareholders, including information regarding our strategy of profitable and measured growth, increases in our airline partnerships and resulting increases in guest access to our network and geographic reach, new fare products and flight scheduling, our vision and related objectives regarding brand strength, on-time performance, profit margin, culture, and guest loyalty and satisfaction, our cost structure and guest experience, our ability to generate cash flow, maintain a strong balance sheet and fund our growth objectives, and our expectations for growth, success and profitability in 2011, contain forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond WestJet’s control. These forward-looking statements are based on our existing strategy and currently available implementation plans, agreements and bookings, but may vary due to factors including, but not limited to, changes in fuel prices, changes in guest demand, general economic conditions, competitive environment, ability to effectively implement and maintain critical systems, ability to successfully negotiate and effectively implement new partnering relationships and obtain the necessary regulatory approvals relating thereto and other factors described in WestJet’s public reports and filings, which are available on WestJet’s profile at www.sedar.com. Readers are cautioned that undue reliance should not be placed on forward-looking statements as actual results may vary materially from the forward-looking statements. WestJet does not undertake to update, correct or revise any forward-looking statements as a result of any new information, future events or otherwise, except as may be required by applicable law.6 WestJet 2010 Annual Report 

# MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS 2010

Advisories

The following Management’s Discussion and Analysis of Financial Results (MD&A), dated February 8, 2011, should be read inconjunction with the cautionary statement regarding forwardlooking information and statements below, as well as the consolidated financial statements and notes thereto, as at and for the years ended December 31, 2010 and 2009. The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP). All amounts in the following MD&A are in Canadian dollars unless otherwise stated. Certain prior-period balances in the consolidated
financial statements have been reclassified to conform to current period’s presentation and policies. References to “WestJet,” “the Company,” “we,” “us” or “our” mean WestJet Airlines Ltd., its subsidiaries, partnership and special-purpose entities, unless the context otherwise requires. Additional information relating to WestJet filed with Canadian securities commissions, including periodic quarterly and annual reports and Annual Information Forms (AIF), is available on SEDAR at www.sedar.com and our website at www.westjet.com. An additional advisory with respect to the use of non-GAAP measures is set out on page 52 of this MD&A under the heading “Non-GAAP Measures.”

Cautionary statement regarding forward-looking information and statements

This MD&A offers our assessment of WestJet’s future plans and operations and contains “forward-looking statements” as defined under applicable Canadian securities legislation, including our expectation that we will continue to develop our partnership strategy, referred to under the heading “Overview” on page 10; our expectation that our partnership strategy will enable us to meet our strategic objective of becoming one of the top five airlines in the world by 2016, referred to under the heading “Overview” on

page 10; our plans to operate a leased Boeing 757-200 from North American Airlines to provide non-stop services between Calgary and Honolulu, Calgary and Maui, and Edmonton and Maui between February 12 and April 30, 2011, referred to under the heading “Revenue” on page 17; our expectation that our temporary lease agreement will provide additional capacity for non-stop service from Alberta to Hawaii, referred to under the heading “Revenue” on page 17; our plans to have a WestJet service ambassador onboard each 757-200 flight to ensure that the WestJet guest experience is consistently delivered to our standards and expectations, referred to under the heading “Revenue” on page 17; our expectation that our checked baggage policy will help offset the impact of rising fuel costs, referred to under the heading “Revenue” on page 17; our sensitivity to changes in crude oil and fuel pricing referred to under the heading “Aircraft fuel” on page 21; our expected tax rate for 2011, referred to under the heading “Income taxes” on page 27; our expectation that we will continue introducing self-tagging at other airports during 2011, referred to under “Guest experience” on page 27; our belief that the new Aircraft Sector Understanding (ASU) will increase the cost of export-credit access for all eligible airlines, referred to under the heading “Liquidity and capital resources” on page 28; our belief that our strong balance sheet and credit will enable us to continue financing future aircraft deliveries at reasonable rates and terms, referred to under the heading “Liquidity and capital resources” on page 28; our assessment that the outcome of legal proceedings in the normal course of business will not have a material effect upon our financial position, results of operations or cash flow, referred to under the heading “Contingencies” on page 32; our intention to purchase shares pursuant to the normal course issuer bid on the open market through the facilities of the Toronto Stock Exchange (TSX), referred to under the heading “Normal course issuer bid” on page 32; our intention to cancel any shares purchased under the normal course issuer bid, referred to under the heading “Normal course issuer bid” on page 32; our expectation that the relocation firm engaged will actively market the residence of our Chief Executive Officer (CEO), referred to under the heading “Related-party transactions” on page 33; our
intention to remit taxes related to the CEO’s exercise of restricted share units (RSU) in connection with his relocation, referred to under the heading “Related-party transactions” on page 33; our expectation that our next purchased aircraft delivery will be in February 2012, referred to under the heading “Liquidity and capital resources” on page 28 and under the heading “Risks and uncertainties” on page 34; our plans to overhaul four engines and 11 sets of landing gear in 2011, referred to under the heading “Risks and uncertainties” on page 34; our expectation that a portion of our engine overhaul costs will be recoverable, referred to under the heading “Risks and uncertainties” on page 34; our expectations regarding WestJet’s transition to InternationalWestJet 2010 Annual Report 7 Financial Reporting Standards (IFRS) and the impact of adopting IFRS on WestJet’s consolidated financial statements, referred to under the heading “Recent accounting pronouncements and changes” on page 43; our expectation that in 2011 we will continue to build our key strategic initiatives that include expanding airline partnerships, enhancing our focus on the business traveller, growing WestJet Vacations (WVI) revenue and increasing our market penetration for the co-branded WestJet Credit Card and WestJet Frequent Guest programs, referred to under the heading “Outlook” on page 51; our expectation that we will sign additional interline agreements, referred to under the heading “Outlook” on page 51; our expectations regarding first quarter 2011 fuel costs, referred to under the heading “Outlook” on page 51; our anticipation that, in the first quarter of 2011, cost per available seat mile (CASM), excluding fuel and profit share, will be flat year over year, referred to under the heading “Outlook” on page 51; our expectations around year-over-year capacity increases for the first quarter of 2011 and for the full year of 2011, referred to under the heading “Outlook” on page 51; our belief that we will take delivery of three aircraft during the first three months of 2011 and three more throughout the remainder of the year, ending 2011 with a fleet of 97, referred to under the heading “Outlook” on page 51; our anticipation that we will continue to direct additional capacity into the transborder and international markets in the first quarter of 2011, referred to under the heading “Outlook” on page 51; our expectations regarding our overall domestic capacity, referred to under the heading “Outlook” on page 51; our expectations around our total 2011 capital expenditures and the majority of the spending relating to aircraft deposits and rotables, referred to under the heading “Outlook” on page 51; our expectations regarding WestJet’s ability to weather fuel price uncertainty, referred to under the heading “Outlook” on page 51; the expectation that we will continue to capitalize on the recent investments in our new revenue systems, referred to under the heading “Outlook” on page 51; and our confidence in WestJet’s ability to continue to achieve profitable growth, referred to under the heading “Outlook” on page 51. These forward-looking statements typically contain the words “anticipate,” “believe,” “estimate,” “intend,” “expect,” “may,” “will,” “should,” “potential,” “plan” or
other similar terms. Readers are cautioned that our 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. With respect to forward-looking statements contained within this MD&A, we have made the following key assumptions:

• our expectation that we will continue to develop our partnership

strategy was based on our current strategic plan;

• our expectation that our partnership strategy will enable us

to meet our strategic objective of becoming one of the top five airlines in the world by 2016 was based on our past and current experiences and understanding of the airline industry;

• our plan to operate a leased Boeing 757-200 from North

American Airlines to provide non-stop services between Calgary and Honolulu, Calgary and Maui, and Edmonton and Maui between February 12 and April 30, 2011 was based on an agreement entered into with North American Airlines and our current and forecasted commercial schedule;

• our expectation that our temporary lease agreement will

provide additional capacity for non-stop service from
Alberta to Hawaii was based on our current and forecasted commercial schedule;

• our sensitivity to changes in crude oil and fuel pricing was

based on our fuel consumption for our existing schedule and historical fuel burn, as well as a Canadian-US dollar exchange rate similar to the current market rate;

• our plan to have a WestJet service ambassador onboard each

757-200 flight to ensure that the WestJet guest experience is consistently delivered to our standards and expectations was based on our strategic plan with respect to our 757-200 flights;

• our expectation that our checked baggage policy will help

offset the impact of rising fuel costs was based on our preliminary financial analysis;8 WestJet 2010 Annual Report • our expected effective tax rate for 2011 was based on

forecasted financial information, tax rates based on current legislation, and expectations about the timing of when temporary differences between accounting and tax bases will occur;

• our expectation that we will continue introducing self-tagging

at other airports during 2011 was based on our current strategic plan;

• our belief that the new ASU will increase the cost of

export-credit access for all eligible airlines was based on our understanding and analysis of the ASU;

• our belief that our strong balance sheet and credit will

enable us to continue financing future aircraft deliveries
at reasonable rates and terms was based on our current budget and forecasts;

• our assessment that the outcome of legal proceedings in

the normal course of business will not have a material effect upon our financial position, results of operations or cash flow was based on a review of current legal proceedings by management and legal counsel;

• our intention to purchase shares pursuant to the normal

course issuer bid on the open market through the facilities of the TSX was based on our current strategic plan;

• our intention to cancel any shares purchased under the normal

course issuer bid was based on our current strategic plan;

• our expectation that the relocation firm engaged will actively

market the residence of our CEO was based on our terms of engagement with the relocation firm;

• our intention to remit taxes related to the CEO’s exercise

of RSUs in connection with his relocation was based on our relocation agreement with the CEO;

• our expectation that our next purchased aircraft delivery will

be in February 2012 was based on our current fleet plan and delivery schedule from Boeing;

• our plans to overhaul four engines and 11 sets of landing gear

in 2011 was based on our current fleet maintenance plan; • our expectation that a portion of our engine overhaul costs will be recoverable was based on our current lease agreements and our current fleet maintenance plan;

• our expectations regarding WestJet’s transition to IFRS

and the impact of adopting IFRS on WestJet’s consolidated financial statements was based on standards adopted by the International Accounting Standards Board (IASB) thus far and our assessment of Canadian GAAP and IFRS differences;

• our expectation that in 2011 we will continue to build our

key strategic initiatives that include expanding airline partnerships, enhancing our focus on the business traveller, growing WestJet Vacations revenue and increasing our market penetration for the co-branded WestJet Credit Card and WestJet Frequent Guest programs was based on our current strategic plan;

• our expectation that we will sign additional interline

agreements was based on our current strategic plan;

• our expectations regarding first quarter 2011 fuel costs

were based on realized jet fuel prices for January 2011 and forward curve prices for February and March 2011, as well as the exchange rate for the Canadian dollar to the US dollar in the first quarter similar to the current market rate;

• our anticipation that, in the first quarter of 2011, CASM,

excluding fuel and profit share, will be flat year over year was based on our current budget and forecast;

• our expectation around year-over-year capacity for the first

quarter of 2011 and the full year of 2011 was based on our
actual and forecasted commercial schedules as well as the six aircraft to be delivered throughout 2011;

• our belief that we will take delivery of three aircraft during

the first three months of 2011 and three more throughout the remainder of the year, ending 2011 with a fleet of 97, was based on our aircraft delivery schedule;

• our anticipation that we will continue to direct additional

capacity into the transborder and international markets in the first quarter of 2011 is based on our current strategic plan and actual and forecasted commercial schedules and bookings;WestJet 2010 Annual Report 9 • our expectations regarding our overall domestic capacity

were based on our current strategic plan and actual and forecasted commercial schedules and bookings;

• our expectation of our total 2011 capital expenditures, with

the majority of the spending relating to aircraft deposits and rotables, is based on our current budget and forecasts;

• expectations regarding WestJet’s ability to weather fuel

price uncertainty were based on our expectations of fuel price fluctuations and the fuel consumption for our existing schedule and historical fuel burn, our fuel hedging program, as well as a Canadian-US dollar exchange rate similar to the current market rate;

• the expectation that we will continue to capitalize on the

recent investments in our new revenue systems was based on our current experiences and our strategic plan; and

• our confidence in WestJet’s ability to continue to achieve

profitable growth was based on our past financial results and experience.

Our actual results, performance or achievements could differmaterially from those expressed in, or implied by, these forwardlooking statements. We can give no assurance that any of the events anticipated will transpire or occur or, if any of them do, what benefits or costs we will derive from them. By their nature, forward-looking statements are subject to numerous risks and uncertainties including, but not limited to, the impact of general economic conditions, changing domestic and international industry conditions, volatility of fuel prices, terrorism, pandemics, currency fluctuations, interest rates, competition from other industry participants (including new entrants, capacity fluctuations and the pricing environment), labour matters, government regulations, stock-market volatility, the ability to access sufficient capital from internal and external sources and additional risk
factors discussed in our Annual Information Form and other documents we file from time to time with securities regulatory authorities, which are available through the Internet on SEDAR at www.sedar.com or, upon request, without charge from us. Additional risks and uncertainties impacting WestJet and its business and operations are discussed in detail, under the heading “Risks and uncertainties,” commencing on page 34 of this MD&A. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement. Our assumptions relating to the forward-looking statements referred to above are updated quarterly and, except as required by law, we do not undertake to update any other forward-looking statements.

Definition of key operating indicators

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

Flight leg: A segment of a flight involving a stopover, change of aircraft or change of airline from one landing site to another.

Segment guest: Any person who has been booked to occupy a seat on a flight leg and is not a member of the crew assigned to the flight.

Average stage length: The average distance of a non-stop flight leg between take-off and landing as defined by International Air Transport Association (IATA) guidelines.

Available seat miles (ASM): A measure of total guest capacity, calculated by multiplying the number of seats available for guest use in an aircraft by stage length.
Revenue passenger miles (RPM): A measure of guest traffic, calculated by multiplying the number of segment guests by stage length.

Load factor: A measure of total capacity utilization, calculated by dividing revenue passenger miles by total available seat miles.
Yield (revenue per revenue passenger mile): A measure of unit revenue, calculated as the gross revenue generated per revenue passenger mile.
Revenue per available seat mile (RASM): Total revenues divided by available seat miles.
Cost per available seat mile (CASM): Operating expenses divided by available seat miles.

Cycle: One flight, counted by the aircraft leaving the ground and landing.

Utilization: Operating hours per day per operating aircraft.10 WestJet 2010 Annual Report OVERVIEW

Although economic uncertainty persisted throughout 2010, demand for air travel improved, which is reflected in our strong financial results for the year. The increase in demand resulted in improved yields year-over-year, particularly throughout the second half of 2010. Our 2010 earnings before tax (EBT) margin of 7.5 per cent was once again one of the best in the North American airline industry. In 2010 we began to capitalize on new reservations systems for both WestJet and WestJet Vacations, which were implemented in the prior year. In the first quarter of 2010, we launched our WestJet Frequent Guest and WestJet Credit Card programs, which reward our guests and make our airline even more attractive for frequent travellers. We continued to increase our self-service capabilities to enhance our guest experience, while improving efficiencies at our airports. In 2010 we launched four additional interline agreements, including our first with a U.S. carrier, American Airlines. We were also able to further develop one of these interline agreements into our first code-share arrangement with Cathay Pacific Airlines. In February 2011, we announced our second interline agreement with a U.S. carrier, Delta Airlines. We will continue to develop our partnership strategy to enable us to meet our objective of becoming one of the five most successful airlines in the world by 2016. The fourth quarter of 2010 marks our 23rd consecutive quarter of profitability.

2010 highlights

• Recognized total revenues of $2.6 billion, an increase of 14.4

per cent from 2009.

• Recorded RASM of 13.36 cents, up 3.0 per cent from 12.97 cents

in 2009.

• Increased capacity by 11.1 per cent and increased RPMs,

a measure of guest traffic, by 12.9 per cent, compared to the prior year.

• Realized CASM of 12.09 cents, up 2.7 per cent from 11.77 cents

in 2009.

• Realized CASM, excluding fuel and employee profit share,

of 8.52 cents for 2010, up 0.8 per cent over 2009. • Recorded an operating margin of 9.5 per cent, up from 9.2 per cent in 2009.

• Recorded an EBT margin of 7.5 per cent in 2010, an increase

of 1.5 points over the 2009 EBT margin of 6.0 per cent.

• Realized net earnings of $136.7 million, an increase of

39.3 per cent from 2009.

• Excluding special items, realized net earnings of $142.8 million,

an increase of 53.3 per cent from net earnings, excluding special items, in 2009 of $93.1 million.

• Reported diluted earnings per share of $0.94 for 2010,

an increase of 27.0 per cent from $0.74 in 2009.

• Excluding special items, realized diluted earnings per share

of $0.98, an increase of 38.0 per cent from $0.71 in 2009.
• Generated cash flow from operations of $443.3 million,

an increase from $318.7 million in 2009.

• Realized a trailing 12-month return on invested capital

(ROIC) of 9.2 per cent, an increase from 7.8 per cent as at December 31, 2009.

• Declared our first-ever quarterly dividend of $0.05 per common

voting share and variable voting share, paid on January 21, 2011, to shareholders of record on December 15, 2010.

• Filed a notice with the TSX to make a normal course issuer

bid (NCIB) to purchase up to 7.3 million outstanding shares on the open market and, in the fourth quarter of 2010, repurchased 2.3 million shares for total consideration of $31.4 million.

Our culture and people continued to shine in 2010. In February 2010, we were inducted into Canada’s Most Admired Corporate Culture Hall of Fame by Waterstone Human Capital. We are also proud to have been the highest ranked airline based on brand equity in an August 2010 syndicated study conducted by Harris/Decima. The other airlines measured in the study were Air Canada, American Airlines, British Airways, Porter Airlines, Southwest Airlines, United Airlines and Virgin Atlantic. In addition to being the highest ranked airline, we also rated in the top three per centWestJet 2010 Annual Report 11 among all 890 brands studied in overall connection with customers. This category measured emotional connection to the brand, practical and aspirational fit with the brand, and a company’s ability to deliver on brand expectations.

Further, we won the Airline Staff Service Excellence Award for
North America at the 2010 World Airline Awards. These awards are based on the World Airline Survey, and are recognized for being the only truly global, independent passenger survey of
airline standards. WestJet was also named in Travel + Leisure magazine’s annual “World’s Best” awards as one of the top 10 domestic airlines for the second year in a row. These awards are a testament to our over 8,000 WestJetters who remain committed to providing a fun, friendly and caring world-class guest experience. Our receipt of the prestigious
International Make-A-Wish ® Corporate Partner Award also demonstrates our culture of caring and our commitment to community investment.

We have generously rewarded the dedication of our people with approximately $200 million of total profit share distributions since our airline’s inception. Our continued strength, both financially and operationally, would not be possible without each and every
one of our WestJetters.

Operational highlights Three months ended December 31 Twelve months ended December 31
2010 2009 Change 2010 2009 Change
ASMs 5,021,010,134 4,412,573,833 13.8% 19,535,291,313 17,587,640,902 11.1% RPMs 3,941,660,897 3,460,905,058 13.9% 15,613,121,610 13,834,761,211 12.9% Load factor 78.5% 78.4% 0.1 pts. 79.9% 78.7% 1.2 pts. Yield (cents) 17.58 16.47 6.7% 16.71 16.49 1.3% RASM (cents) 13.80 12.92 6.8% 13.36 12.97 3.0% CASM (cents) 12.23 12.10 1.1% 12.09 11.77 2.7% CASM, excluding fuel and employee

profi t share (cents) 8.51 8.67 (1.8%) 8.52 8.45 0.8% Fuel consumption (litres) 242,620,920 216,871,585 11.9% 950,341,292 859,115,698 10.6% Fuel costs per litre (dollars) 0.74 0.69 7.2% 0.71 0.66 7.6% Segment guests 3,803,550 3,515,168 8.2% 15,173,581 14,038,827 8.1% Average stage length (miles) 982 923 6.4% 968 923 4.9% Utilization (hours) 11.7 11.4 2.6% 11.6 11.7 (0.9%) Number of full-time equivalent employees

at period end 6,877 6,291 9.3% 6,877 6,291 9.3% Fleet size at period end 91 86 5.8% 91 86 5.8%

We are pleased with the significant improvement in results from 2009. Our year-over-year RASM increase was 3.0 per cent, on a capacity increase of 11.1 per cent from the prior year.

During the fourth quarter of 2010, we launched seasonal service to three new destinations: New Orleans, Louisiana; Grand Cayman Island; and Santa Clara, Cuba. In addition, we launched service this year to Kindley Field, Bermuda; Windsor, Ontario; and Samana, Dominican Republic, which brought our total number of destinations to 70 as at December 31, 2010. In January 2011, in conjunction with the release of our 2011 summer schedule, we announced new non-stop service from Vancouver and Calgary to Orange County, California, beginning
in the summer of 2011. The summer schedule also includes expanded service across our existing network.

Our 2010 load factor was up by 1.2 points to 79.9 per cent in 2010 from 78.7 per cent in 2009. Our fourth quarter load factor of 78.5 per cent remained relatively consistent, as compared to the same quarter of the prior year. We are encouraged by our12 WestJet 2010 Annual Reportstrong oad factor, particularly with the significant quarterover-quarter capacity increase of 13.8 per cent. This reflects the improvement in the demand environment during the fourth quarter. Our quarterly load factors over the 2009 and 2010 years are depicted on the following chart.

During the fourth quarter of 2010, we broke our record for number of guests flown in one day. On December 23, 2010, we flew over 50,000 guests on 434 flights. In addition, our on-time performance statistic of 75.4 per cent during the fourth quarter of 2010 was our best recorded performance since the fourth quarter of 2007.

Cost control remains a key priority for us, and we have continued with our disciplined approach to cost management. For the year ended December 31, 2010, our realized CASM was 12.09 cents, an increase of 2.7 per cent from a CASM of 11.77 cents in the prior year. Excluding fuel and employee profit share, our CASM increased slightly to 8.52 cents, up 0.8 per cent from 2009.

We maintained one of the strongest balance sheets in the North American airline industry during 2010, as evidenced by our significant cash and cash equivalents balance of $1,187.9 million as at December 31, 2010, an increase of 18.2 per cent from December 31, 2009. The increase in our cash position was a result of our positive cash flow from operations. Our current ratio, defined as current assets over current liabilities, improved to 1.52 compared to 1.48 as at December 31, 2009, and our adjusted debt-to-equity ratio improved by 2.8 per cent to 1.39 from 1.43 as at December 31, 2009. Similarly, our adjusted net debt to earnings before interest, taxes, depreciation, aircraft rent and other items (EBITDAR) ratio improved by 19.1 per cent to 1.78 compared to 2.20 as at December 31, 2009.

Our ROIC calculation is used to assess our efficiency at allocating our capital to generate profitable returns. As at December 31, 2010, our trailing 12-month ROIC improved to 9.2 per cent from 7.8 per cent at December 31, 2009. This increase is primarily attributable to improved earnings in 2010 versus 2009, and is moving towards our target of a 12 per cent ROIC.

Operating cash flow for the year ended December 31, 2010, was $443.3 million, an increase of 39.1 per cent from $318.7 million in 2009. This increase is related primarily to improved earnings from operations, as well as a positive year-over-year change in non-cash working capital. Similarly, our diluted operating cash flow per share increased to $3.05, as compared to $2.41 in 2009, representing an increase of 26.6 per cent year over year.

During 2010, we increased our fleet size by five, ending the year with 91 aircraft. With an average age of 5.2 years, we continue to operate one of the youngest fleets of any large North American
commercial airline. Quarterly load factor

84%

82%

80%

78%

76%

74%

72%

70%

Q1 Q2 Q3 Q4 2009 2010WestJet 2010 Annual Report 13 Please refer to page 52 of this MD&A for a reconciliation of the non-GAAP measures, including CASM, excluding fuel and employee profit share; net earnings and diluted earnings per share, excluding special items; ROIC; adjusted debt-to-equity and adjusted net debt to EBITDAR ratios; and diluted operating cash flow per share, to the nearest measure under Canadian GAAP.

SELECTED ANNUAL AND QUARTERLY FINANCIAL INFORMATION

Annual audited financial information

Quarterly unaudited financial information ($ in thousands, except per share data) 2010 2009 2008 Restated
Total revenues $ 2,609,261 $ 2,281,120 $ 2,549,506 Net earnings $ 136,720 $ 98,178 $ 178,506 Basic earnings per share $ 0.94 $ 0.74 $ 1.39 Diluted earnings per share $ 0.94 $ 0.74 $ 1.37
Total assets $ 3,562,844 $ 3,493,702 $ 3,268,702 Total long-term fi nancial liabilities (i) $ 866,745 $ 1,051,912 $ 1,201,382 Shareholders' equity $ 1,507,679 $ 1,388,928 $ 1,075,990

(i) Includes long-term portion of long-term debt, obligations under capital s and fuel derivative liabilities.

Three months ended ($ in thousands, except per share data) Dec. 31, 2010 Sept. 30, 2010 Jun. 30, 2010 Mar. 31, 2010 Total revenues $ 692,815 $ 684,564 $ 612,117 $ 619,765 Net earnings $ 47,908 $ 53,983 $ 21,029 $ 13,800 Basic earnings per share $ 0.33 $ 0.37 $ 0.14 $ 0.10 Diluted earnings per share $ 0.33 $ 0.37 $ 0.14 $ 0.10

Three months ended ($ in thousands, except per share data) Dec. 31, 2009 Sept. 30, 2009 Jun. 30, 2009 Mar. 31, 2009 Total revenues $ 570,042 $ 600,630 $ 531,163 $ 579,285 Net earnings $ 20,175 $ 31,418 $ 9,153 $ 37,432 Basic earnings per share $ 0.14 $ 0.24 $ 0.07 $ 0.29 Diluted earnings per share $ 0.14 $ 0.24 $ 0.07 $ 0.29

Our business is seasonal in nature with varying levels of activity throughout the year. We experience increased domestic travel in the summer months (second and third quarters) and more demand for sun destinations over the winter period (fourth and first quarters). With our transborder and international destinations, we have been able to partially alleviate the effects of seasonality on our net earnings.14 WestJet 2010 Annual Report FOURTH QUARTER

The 2010 year ended with a strong fourth quarter. We saw significant improvement in our financial results, as reported in our revenues and net earnings, as well as operational strength with a record number of guests flown in one day and improved on-time performance, all resulting in our 23rd consecutive quarter of profitability.

Quarterly highlights

• Recognized total revenues of $692.8 million, an increase of

21.5 per cent from the fourth quarter of 2009.

• Recorded RASM of 13.80 cents, up 6.8 per cent from the

comparable period of 2009.

• Increased capacity by 13.8 per cent and increased RPMs by

13.9 per cent, over the three months ended December 31, 2009.

• Realized CASM of 12.23 cents, up 1.1 per cent from the fourth

quarter of 2009.

• Realized CASM, excluding fuel and employee profit share, of

8.51 cents, down 1.8 per cent over the three months ended December 31, 2009. • Recorded an operating margin of 11.4 per cent, compared to 6.3 per cent in the same period last year.

• Recorded an EBT margin of 9.7 per cent, up 5.7 points from

the 4.0 per cent reported in the fourth quarter of 2009.
• Reported net earnings of $47.9 million, an increase of

137.5 per cent from the three months ended December 31, 2009, and an increase of 216.8 per cent when excluding special items.
• Realized diluted earnings per share of $0.33 for the fourth

quarter of 2010, an increase of 135.7 per cent compared to the same period of 2009.
• Generated cash flow from operations of $69.9 million, an

increase from $64.6 million in the fourth quarter of 2009.

Please refer to page 52 of this MD&A for a reconciliation of non-GAAP measures, including CASM, excluding fuel and employee profit share, and net earnings, excluding special items, to the
nearest measure under Canadian GAAP.

FOURTH QUARTER RESULTS OF OPERATIONS

Fourth quarter 2010 revenue

Three months ended December 31 ($ in thousands) 2010 2009 Change
Guest $ 641,905 $ 528,104 21.5% Other 50,910 41,938 21.4% $ 692,815 $ 570,042 21.5% RASM (cents) 13.80 12.92 6.8%

During the quarter ended December 31, 2010, total revenues increased by 21.5 per cent to $692.8 million from $570.0 million in the same period of 2009, largely attributable to improved pricing
and demand in the market. Guest revenues from our scheduled flight operations increased by 21.5 per cent during the fourth quarter to $641.9 million, compared to $528.1 million in the fourth quarter of 2009. This was due primarily to the 13.8 per cent increase in capacity quarter over quarter, in conjunction with increased traffic of 13.9 per cent and improvement in our yield.WestJet 2010 Annual Report 15 Our RASM increased by 6.8 per cent for the fourth quarter of 2010 to 13.80 cents, compared to 12.92 cents in 2009. This RASM increase related primarily to an increase in yield of 6.7 per cent for the fourth quarter of 2010, as our quarter-over-quarter load factor remained relatively consistent. We had significant capacity
increases into the transborder and international markets in the fourth quarter as compared to the prior year, with domestic capacity remaining relatively flat. Despite this higher percentage of lower-yielding ASMs in the longer-haul routes, our yields improved across our network as compared to the same quarter of the prior year. Please refer to the table below for details on our quarter-over-quarter capacity variances.

For the fourth quarter of 2010, other revenues, which include charter, cargo, ancillary, WestJet Vacations non-air and other revenue, increased by 21.4 per cent to $50.9 million. This increase was attributable primarily to an increase in WestJet Vacations non-air revenue. Since the prior year, WestJet Vacations tour package revenues have increased due to a significant increase in the number of bookings, as well as from improved average value per booking.

We continued to see improvements in our ancillary fees per guest, as seen in our fourth quarter ancillary fee per guest of $6.43, up 23.7 per cent from $5.20 per guest in the same quarter of the prior year. During the fourth quarter of 2010, we redesigned our corporate website, www.westjet.com, and, as a result of amending the booking flow to make the pre-reserved seating option more prominent, we have seen increases in these ancillary fees from the same period of last year. Our reservation system implementation during the fourth quarter of 2009 also resulted in a period whereby certain fees were being temporarily waived to accommodate our guests during the adjustment to the new system. Three months ended December 31 (in millions) 2010 2009 Change ASMs % of total ASMs % of total ASMs Domestic 2,834.2 56.4% 2,850.2 64.6% (0.6%)
Charter and scheduled transborder

and international 2,186.8 43.6% 1,562.4 35.4% 40.0% Total 5,021.0 100.0% 4,412.6 100.0% 13.8%

Fourth quarter 2010 expenses

Three months ended December 31 CASM (cents) 2010 2009 Change
Aircraft fuel 3.57 3.37 5.9% Airport operations 2.00 2.08 (3.8%) Flight operations and navigational charges 1.60 1.66 (3.6%)
Sales and distribution 1.33 1.14 16.7% Marketing, general and administration 1.04 1.24 (16.1%) Aircraft leasing 0.73 0.57 28.1% Depreciation and amortization 0.65 0.83 (21.7%)
Infl

ight 0.64 0.61 4.9% Maintenance 0.52 0.54 (3.7%) Employee profi t share 0.15 0.06 150.0% 12.23 12.10 1.1% CASM, excluding fuel and employee profi t share 8.51 8.67 (1.8%)16 WestJet 2010 Annual Report For the fourth quarter of 2010, our CASM increased by 1.1 per cent to 12.23 cents compared to 12.10 cents in the same quarter of 2009. Our CASM, excluding fuel and employee profit share, decreased by 1.8 per cent to 8.51 cents from 8.67 cents in the same quarter of 2009.

Aircraft fuel

In the fourth quarter of 2010, aircraft fuel expenses increased by 20.4 per cent from the prior year to $179.3 million. We saw a significant increase in jet fuel prices, with the average market price for jet fuel being US $100 per barrel in the fourth quarter of 2010, versus US $84 per barrel in the fourth quarter of 2009, an increase of 19.0 per cent. Our fuel costs per ASM increased by 5.9 per cent to 3.57 cents in the fourth quarter of 2010, up from 3.37 cents in the same period in 2009. Our fourth quarter unhedged fuel costs were $0.73 per litre, an increase of 9.0 per cent from last year. Including costs related to fuel hedging, our fourth quarter fuel costs were $0.74 per litre, up 7.2 per cent from $0.69 per litre in the same quarter of 2009. The increase in our fuel costs were partially offset by favourable foreign exchange rates this quarter, as compared to the same quarter in the prior year.

The following table displays our fuel costs per litre, including and excluding fuel hedging, for the three months ended December 31, 2010 and 2009. Please refer to page 52 of this MD&A for a discussion of the use of non-GAAP measures, including aircraft fuel expense, excluding hedging, which is reconciled to GAAP in the following table.

Three months ended December 31 ($ in thousands, except per litre data) 2010 2009 Change Aircraft fuel expense – GAAP $ 179,276 $ 148,853 20.4% Realized loss on designated fuel derivatives – effective portion (1,512) (3,707) (59.2%) Aircraft fuel expense, excluding hedging – Non-GAAP $ 177,764 $ 145,146 22.5% Fuel consumption (thousands of litres) 242,621 216,872 11.9% Fuel costs per litre (dollars) – including fuel hedging 0.74 0.69 7.2% Fuel costs per litre (dollars) – excluding fuel hedging 0.73 0.67 9.0%

Sales and distribution

Our fourth quarter sales and distribution expense per ASM was 1.33 cents, an increase of 16.7 per cent from 1.14 cents in the same quarter of the prior year. Sales and distribution expenses increased to $67.0 million from $50.4 million in the same period of 2009, representing an increase of 33.1 per cent. The growth of WestJet Vacations represented approximately 40 per cent
of this increase. The increase in WestJet Vacations costs were due to the significant increases in the number of tour package bookings made compared to the same quarter of the prior year. This resulted in increased commissions and incentive payments, as the majority of WVI bookings were made indirectly through the travel agency community. As well, sales expenses increased from the fourth quarter of 2009, which related primarily to increased WestJet travel agency commission and incentive payments. The percentage of our airline’s bookings made through the travel trade has increased, which drives higher commission and incentive expenses, but also contributes higher average fares.
The remainder of the variance was due to increased distribution costs, resulting primarily from increased global distribution system (GDS) fees and credit card fees, which are in line with the rate of increase of our bookings, as well as costs associated with the redesign of our corporate website. These increases are offset by the $2.4 million bad debt provision recorded in the fourth quarter of 2009 related to accounts receivable from our previous cargo service provider. Since January 2010, we have had a new cargo partner in place.

Marketing, general and administration

During the fourth quarter of 2010, our marketing, general and administration expense decreased by $2.4 million from the same quarter of 2009 to $52.3 million. The marketing, general andWestJet 2010 Annual Report 17 During 2010, total revenues increased by 14.4 per cent to $2,609.3 million from $2,281.1 million in 2009. The increase in revenues is primarily attributable to the increased capacity since the prior year, along with positive variances in both load factor and yield. Our traffic growth of 12.9 per cent outpaced our 11.1 per cent capacity growth during the year. One of our key revenue measurements is RASM, as it takes into consideration load factor and yield. Our RASM increased by 3.0 per cent to 13.36 cents for 2010, compared to 12.97 cents in 2009. Average stage length growth of 4.9 per cent from 2009 placed downward pressure on RASM. As average stage length increases, revenue per available seat mile typically decreases. Despite the growth in stage length 2010 RESULTS OF OPERATIONS

Revenue

Twelve months ended December 31 ($ in thousands) 2010 2009 Change
Guest $ 2,405,281 $ 2,067,860 16.3% Other 203,980 213,260 (4.4%) $ 2,609,261 $ 2,281,120 14.4% RASM (cents) 13.36 12.97 3.0% administration charge per ASM decreased by 16.1 per cent to 1.04 cents, compared to 1.24 cents in the same period of 2009. This decrease was mainly attributable to the reclassification in 2010 of our onboard product costs from marketing expense to our airport operations. Our advertising expenses have also decreased, on an ASM basis, from the same quarter of the prior year.

Aircraft leasing

Our aircraft leasing costs in the fourth quarter of 2010 increased by 28.1 per cent to 0.73 cents per ASM from 0.57 cents per ASM in the same quarter of 2009. During the fourth quarter of 2009, we assumed delivery of five leased aircraft and, in addition, during 2010 an additional five leased aircraft were added to our fleet. Leased aircraft now represent 42 per cent of our total fleet, with a total of 38 aircraft under operating lease, as compared to 38 per cent of our fleet at the end of 2009. Our ASM growth from the fourth quarter of the prior year is attributable to the addition of these leased aircraft. As well, our foreign exchange forward hedging program contributed to the decrease in costs per ASM for the fourth quarter of 2010, as compared to the prior year, as we had not hedged the foreign currency exposure on aircraft leasing expenses during the fourth quarter of 2009. Depreciation and amortization

Our depreciation and amortization charge per ASM was 0.65 cents, a reduction of 21.7 per cent from 0.83 cents in the prior year. The decrease in depreciation and amortization expense in the current quarter versus the same quarter of 2009 is primarily attributable to the change in our fleet mix, where a smaller percentage of our total aircraft fleet was comprised of owned aircraft. As such, the number of cycles flown by owned aircraft versus those that are under operating lease has decreased from the prior year.

Income taxes

Our effective consolidated income tax rate for the three months ended December 31, 2010, was 28.5 per cent, as compared to 12.4 per cent for the same period in 2009. This difference in our effective tax rate for the three month period ended December 31, 2010, was primarily due to a corporate income tax rate reduction enacted by the Ontario provincial government occurring in the comparative period. The current period’s effective rate is in line with expectations previously set for the quarter.18 WestJet 2010 Annual Report and the significant increase in ASMs year over year, we saw an improvement in load factor of 1.2 points, as well as an improvement in yield of 1.3 per cent year over year.

Beginning in the third quarter of 2010, we realized year over year yield increases, driven heavily by strong domestic market performance over the busy summer months. Throughout the fourth quarter, we continued to experience strong yields across our network. This trend is encouraging, as it is an indication that the demand environment is improving.

At the end of the second quarter of 2010, we adjusted our fare structure to offer everyday low fares, with the objective of encouraging guests to purchase flights when they are ready to book, rather than waiting for a seat sale. Our top-end fares were reduced by an average of 25 per cent, designed to offer excellent value for guests who need to book close to departure date. The volume of guests booking in these higher fare classes has grown significantly year over year. We believe that our new fare structure provides our guests with value and has contributed to our overall yield improvement.

Our aircraft utilization remained relatively consistent with the prior year, with a slight decrease of 0.9 per cent to 11.6 operating hours per day. The flexibility of our fleet deployment strategy allows us to react to demand changes by adjusting our schedule for more profitable flying. During the year, we continued with tactical adjustments to our schedule. During the peak winter months, we have allocated more than half of our system capacity outside of Canada to the high-demand transborder and international markets, as depicted in the following chart.

Charter and scheduled transborder and international as a percentage of total ASMsApr. 09May 09Jun. 09Jul. 09Aug. 09Sept. 09Oct. 09Nov. 09Dec. 09Jan. 10Feb. 10Mar. 10Apr. 10May 10Jun. 10Jul. 10Aug. 10Sept. 10Oct. 10Nov. 10Dec. 10 60%

55%

50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

0%WestJet 2010 Annual Report 19 Twelve months ended December 31 (in millions) 2010 2009 Change ASMs % of total ASMs % of total ASMs Domestic 12,415.0 63.6% 12,506.9 71.1% (0.7%)
Charter and scheduled transborder and international 7,120.3 36.4% 5,080.7 28.9% 40.1% Total 19,535.3 100.0% 17,587.6 100.0% 11.1%

On average, long-haul routes have lower yields; however, even with the substantial capacity increase in the transborder and international markets, we experienced overall yield improvement. This is due to stronger yields and slightly higher load factors in the domestic market, as compared to the prior year, on a relatively consistent level of capacity in the domestic market. Our guest

t raffic remained relatively consistent year over year in our domestic market, with strong increases in our transborder and international markets consistent with our ASM growth in those markets. Our capacity in the transborder and international markets increased by 40.1 per cent from 2009, with a consistent load factor and a flat year-over-year yield.

As announced in late 2010, we will be operating a leased Boeing 757-200 from North American Airlines to provide non-stop services between Calgary and Honolulu, Calgary and Maui, and Edmonton and Maui between February 12 and April 30, 2011. This temporary lease agreement will allow us to provide additional capacity for non-stop service from Alberta to Hawaii. We will have a WestJet service ambassador onboard each 757-200 flight to ensure that the WestJet guest experience is consistently delivered to our standards and expectations. This initiative once again demonstrates our WestJet spirit and our ability to meet the service needs of our guests.
For 2010, other revenues decreased by 4.4 per cent to $204.0 million from $213.3 million in 2009. We saw significant increases in WestJet Vacations non-air revenue, offset by decreases in our charter revenues due to the termination of our charter agreement with Transat, effective May 10, 2009. Despite the absence of this agreement in 2010, our strong load factor and traffic growth indicate that our increased capacity is being profitably absorbed by the market.

WestJet Vacations experienced significant revenue growth in 2010. Vacation package revenue increased over 70 per cent from the prior year. Growth was largely to our Southern winter destinations in Mexico and the Caribbean, in line with WestJet’s network expansion into these regions. This growth, along withlonger stays in these markets, provided significant year-overyear growth in our other revenues. WestJet Vacations continues to be successful in generating an additional revenue stream and supporting our network expansion to vacation destinations.

Ancillary revenues, which include service fees, onboard sales, and partner and program revenue, provide an opportunity to maximize our profits through the sale of higher-margin goods and services, while enhancing our overall guest experience by providing guests with additional products and services to meet their needs. For 2010, ancillary revenues were $91.1 million, representing a slight decrease from $91.7 million in 2009. Ancillary fees per guest for the year decreased by 9.5 per cent to $6.03 per guest from $6.66 per guest in 2009.

After the October 2009 implementation of our Sabre reservation system, we experienced lower pre-reserved seating, change and cancellation fees. The variance in pre-reserved seating fees was experienced throughout the first three quarters of 2010, as compared to 2009, mainly due to the shift in distribution methods to more indirect channels, such as the use of travel agents. With our new reservation system, we had limited ability to sell pre-reserved seating through these channels. We have implemented plans to increase the availability of pre-reserved seating through all booking channels, and have seen these fees per guest continue to improve throughout 2010. In addition, during the fourth quarter of 2010, our corporate website redesign helped to improve our conversion rates on pre-reserved seating fees, as the booking flow now highlights this option more prominently than in the past. We are now realizing levels of pre-reserved seating fees per guest that are higher than those experienced prior to our reservation system implementation. Lastly, for a period20 WestJet 2010 Annual Report subsequent to our reservation system cutover, certain fees were temporarily waived in order to accommodate guests during the adjustment to the new system. We are now back to normal levels of charging fees; however, there have been fewer change and cancellation fees as a result of our fare structure adjustment in the second quarter of 2010. With everyday low fares, guests are less likely to change their flights prior to departure date.
In November 2010, we announced a charge of $20 to guests checking a second bag, effective for travel on or after January 19, 2011. Concurrent with this change, we reduced our fee for the third and fourth bag from $75 to $50. This checked baggage policy better aligns us with standard industry practice and will help to offset the impact of rising fuel costs.

Also included in ancillary revenues are revenues related to our WestJet Frequent Guest and WestJet Credit Card programs, both of which were launched during the first quarter of 2010. These programs have performed well and continue to contribute to our objective of providing high value to our guests.

Expenses

2010 2009 2008 2007 2006 CASM (cents) Restated Restated Restated Aircraft fuel 3.45 3.24 4.69 3.46 3.40 Airport operations 1.99 2.00 2.00 2.06 2.02 Flight operations and navigational charges 1.67 1.70 1.64 1.77 1.83 Sales and distribution 1.30 0.98 1.00 1.03 0.98 Marketing, general and administration 1.00 1.19 1.23 1.22 1.17 Aircraft leasing 0.73 0.59 0.50 0.52 0.57 Depreciation and amortization 0.68 0.80 0.80 0.87 0.89 Infl ight 0.64 0.64 0.62 0.59 0.54 Maintenance 0.51 0.55 0.50 0.51 0.54 Employee profi t share 0.12 0.08 0.19 0.33 0.16 12.09 11.77 13.17 12.36 * 12.10 CASM, excluding fuel and employee profi t share 8.52 8.45 8.29 8.57 * 8.54

* Excludes reservation system impairment of $31.9 million in 2007.

Twelve months ended December 31 CASM (cents) 2010 2009 Change
Aircraft fuel 3.45 3.24 6.5% Airport operations 1.99 2.00 (0.5%) Flight operations and navigational charges 1.67 1.70 (1.8%)
Sales and distribution 1.30 0.98 32.7% Marketing, general and administration 1.00 1.19 (16.0%) Aircraft leasing 0.73 0.59 23.7% Depreciation and amortization 0.68 0.80 (15.0%)
Infl

ight 0.64 0.64

— Maintenance 0.51 0.55 (7.3%) Employee profi t share 0.12 0.08 50.0% 12.09 11.77 2.7% CASM, excluding fuel and employee profi t share 8.52 8.45 0.8%WestJet 2010 Annual Report 21 During 2010, our CASM increased by 2.7 per cent due to increases in aircraft fuel, sales and distribution, as well as aircraft leasing costs. These increases were largely offset by decreases in marketing, general and administration, as well as depreciation and amortization expense. Our CASM, excluding fuel and employee profit share, grew slightly to 8.52 cents, representing an increase of 0.8 per cent over 2009.

We remain diligent in our efforts to control expenses in order to maintain our low-cost advantage. As part of our ongoing focus to achieve sustainable cost savings, we constantly evaluate alternatives to improve the effectiveness and efficiency of
our airline.

Aircraft fuel
Aircraft fuel expense for 2010 was $674.6 million, representing an increase of 18.2 per cent from the prior year. The average market price for jet fuel rose to US $91 per barrel in 2010 versus US $71 per barrel in 2009, representing an increase of 28.2 per cent. With the Canadian dollar strengthening versus the US dollar in 2010, the average market price for jet fuel in Canadian dollars was $94 per barrel versus $81 per barrel in 2009, an increase of 16.0 per cent.

The increase in fuel costs was primarily due to increases in US-dollar West Texas Intermediate (WTI) crude oil prices and refining costs, partially offset by a higher Canadian dollar and lower fuel hedging charges in 2010. Fuel remains our most significant cost, representing approximately 29 per cent of total operating costs for the year, as compared to approximately 28 per cent in 2009.

Under our fuel price risk management policy, we are permitted to hedge a portion of our future anticipated jet fuel purchases for up to 36 months, as approved by our Board of Directors. The policy establishes hedging limits based on time horizon. Management continually reviews and adjusts its strategy based on market conditions and competitors’ positions. Our hedging program is designed to mitigate the risk of sudden and substantial movements in fuel prices causing volatility in our earnings and cash flows. We do not hold or use any derivative instruments for speculative purposes. Financial derivatives in crude-oil-based commodities (including a variety of crude oil, heating oil and jet benchmarks) that are traded directly on organized exchanges or are available over the counter, can be useful in mitigating the risk of volatile fuel prices. During the year ended December 31, 2010, we purchased Canadian-dollar WTI call options and Canadian-dollar jet fuel swaps, call options and collars. The cash premium paid during the year related to option-style contracts was $6.2 million (2009 – $nil).

As at December 31, 2010, we had a mixture of Canadian-dollar WTI and jet fuel call options and collars to hedge approximately 20 per cent (2009 – 14 per cent) of our anticipated jet fuel requirements for the next 12 months. The following tables outline, per type, as at December 31, 2010, the notional volumes per barrel (bbl.) or per gallon (gal.), along with the weighted average contract prices.

Type Year Instrument Notional volumes (bbl.) WTI average call price (CAD/bbl.)
WTI 2011 Call options 1,230,000 $ 97

Type Year Instrument Notional volumes (gal.) Jet average call price (CAD/gal.) Jet average put price (CAD/gal.)
Jet 2011 Collars 1,260,000 $ 2.50 $ 2.0022 WestJet 2010 Annual Report Upon proper qualification, we account for our fuel derivatives as cash flow hedges. Under cash flow hedge accounting, the effective portion of the change in the fair value of the hedging instrument is recognized in accumulated other comprehensive loss (AOCL), while the ineffective portion is recognized in non-operating income (expense). Upon maturity of the derivative instrument, the effective gains and losses previously recognized in AOCL are recorded in net earnings as a component of aircraft fuel expense.

Our policy for fuel derivatives is to measure effectiveness based on the change in the intrinsic value of the fuel derivatives versus the change in the intrinsic value of the anticipated jet fuel purchase. We elect to exclude time value from the measurement of effectiveness; accordingly, changes in time value are recognized in non-operating income (expense) during the period the change occurs. As a result, a significant portion of the change in fair value of our options may be recorded as ineffective.

Ineffectiveness is inherent in hedging jet fuel with derivative instruments in other commodities, such as crude oil, particularly given the significant volatility observed in the market on crude oil and related products. Because of this volatility, we are unable to predict the amount of ineffectiveness for each period. This may result in increased volatility in our results.

If the hedging relationship ceases to qualify for cash flow hedge accounting, any change in fair value of the instrument from the point it ceases to qualify is recorded in non-operating income (expense). Amounts previously recorded in AOCL will remain in AOCL until the anticipated jet fuel purchase occurs, at which time, the amount is recorded in net earnings under aircraft fuel expense

. If the transaction is no longer expected to occur, amounts previously recorded in AOCL will be reclassified to non-operating income (expense). For the years ended December 31, 2010 and 2009, there were no amounts reclassified as a result of transactions no longer expected to occur.

The following table displays our fuel costs per litre, including and excluding fuel hedging, for the years ended December 31, 2010 and 2009. Please refer to page 52 of this MD&A for a discussion on the use of non-GAAP measures, including aircraft fuel expense, excluding hedging, which is reconciled to GAAP in the
table below.

On an ASM basis, aircraft fuel expense increased by 6.5 per cent to 3.45 cents from 3.24 cents in the prior year. Our fuel costs per litre, including fuel hedging, increased to $0.71 per litre during 2010, representing an increase of 7.6 per cent from $0.66 per litre in 2009. Excluding the effects of the realized loss on fuel derivatives designated in an effective hedging relationship, our fuel costs per litre were $0.70 for 2010, an increase of 11.1 per cent from 2009.

The following table presents the financial impact and statement presentation of our fuel derivatives on the consolidated balance sheet as at December 31, 2010 and 2009. Twelve months ended December 31 ($ in thousands, except per litre data) 2010 2009 Change Aircraft fuel expense – GAAP $ 674,608 $ 570,569 18.2% Realized loss on designated fuel derivatives – effective portion (9,172) (28,411) (67.7%) Aircraft fuel expense, excluding hedging – Non-GAAP $ 665,436 $ 542,158 22.7% Fuel consumption (thousands of litres) 950,341 859,116 10.6% Fuel costs per litre (dollars) – including fuel hedging 0.71 0.66 7.6% Fuel costs per litre (dollars) – excluding fuel hedging 0.70 0.63 11.1%WestJet 2010 Annual Report 23 ($ in thousands) Statement presentation 2010 2009 Receivable from counterparties for fuel derivatives Prepaid expenses, deposits and other $ 445 $ 96
Fair value of fuel derivatives Prepaid expenses, deposits and other 5,244 — Fair value of fuel derivatives Accounts payable and accrued liabilities — (7,521) Payable to counterparties for fuel derivatives Accounts payable and accrued liabilities (800) (1,242) Unrealized (gain) loss from fuel derivatives AOCL – before tax impact (11) 6,713

($ in thousands) Statement presentation 2010 2009 Realized loss on designated fuel derivatives –

effective portion Aircraft fuel $ (9,172) $ (28,411) Gain on designated fuel derivatives Gain (loss) on derivatives 44 5,617 The following table presents the financial impact and statement presentation of our fuel derivatives on the consolidated statement of earnings for the years ended December 31, 2010
and 2009.

During the year ended December 31, 2010, we net settled fuel derivatives in favour of the counterparties for $9.0 million (2009 – $29.6 million). The estimated amount reported in AOCL that is expected to be reclassified to net earnings as a component of aircraft fuel expense, when the underlying jet fuel is consumed during the next 12 months, is a gain before tax of $0.01 million (2009 – loss before tax of $6.7 million).

The fair value of the fuel derivatives designated in an effective hedging relationship is determined using inputs, including quoted forward prices for commodities, foreign exchange rates and interest rates, which can be observed or corroborated in the marketplace. The fair value of the fixed swap agreements is estimated by discounting the difference between the contractual strike price and the current forward price. The fair value of the collar structures and call option contracts are estimated by the use of a standard option valuation technique. As at January 31, 2011, for the period we are hedged, the closing forward curve for crude oil ranged from approximately US $92 to US $100 per barrel with the average foreign exchange rate being
1.0051 Canadian to US dollars.

For 2011, excluding the impact of fuel hedging, we estimate our sensitivity of fuel costs to changes in crude oil to be approximately $6 million annually for every one US-dollar change per barrel of WTI crude oil. Additionally, we estimate our sensitivity to changes in fuel pricing to be approximately $10 million for every one-cent change per litre of fuel.

Sales and distribution

Included in sales and distribution expenses are commissions and incentives paid to travel agents, credit card settlement fees, GDS fees, transaction fees related to our reservation system, costs of our call centre, as well as sales and distribution costs
associated with WestJet Vacations.
Sales and distribution expenses increased to $255.8 million in 2010, representing an increase of 48.4 per cent from $172.3 million in 2009. Our costs per ASM rose by 32.7 per cent to 1.30 cents in 2010, as compared to 0.98 cents in the prior year. Sales and distribution expenses related to WestJet Vacations contributed to approximately 40 per cent of the dollar increase. Increased distribution expenses year over year contributed to approximately 40 per cent of the increase, with the balance attributable to the increase in our sales expenses. The increases in WestJet Vacations sales and distribution expenses, as well as the increases in the airline’s sales expenses, are due largely to increases in commissions and incentive payments paid to travel agents. The
increase in commissions is due to an increase in travel trade sales since the prior year. The implementation of our new reservations systems allows for greater ease of use by travel24 WestJet 2010 Annual Report agents and, as such, a higher proportion of our sales are sourced through this indirect channel. The increase in incentive payments during the year is directly related to the improvement in the economy and in our revenues. Incentive payments are structured so that certain revenue targets must be achieved by the agents and, with the economic recession in 2009, targets were rarely achieved in the prior year. The growth of WestJet Vacations from the prior year has contributed to a significant year-over-year increase in WVI sales and distribution expenses; however, we are realizing margin improvements from the prior year. The increase in distribution expense relates to costs associated with our new reservation system, such as system transaction fees, as well as higher GDS fees from the increased use of indirect sales
channels.

Marketing, general and administration

Marketing largely consists of expenses such as advertising and promotions and live satellite television licensing fees. General and administration costs consist of our corporate office departments, professional fees and insurance costs.

Marketing, general and administration expenses decreased from the prior year by $13.1 million, from $208.3 million in 2009 to $195.2 million in 2010, representing a decrease of 6.3 per cent. On an ASM basis, our marketing, general and administration expenses decreased by 16.0 per cent, to 1.00 cent in 2010. Marketing expenses decreased from the prior year primarily due to a reclassification of our onboard product costs to airport operations. We also incurred lower information technology (IT) costs from the prior year due to lower IT consulting and software costs. In 2009, we had significant IT consulting expenses related to the implementation of our new reservation system. Software support costs were also reduced due to the reservation system implementation, as our new system is outsourced to a third party and, therefore, our internal IT support costs are reduced. The reservation system transaction fees are now recorded under the sales and distribution expense line item. These decreases were offset by an increase in general and administrative expenses due to increased compensation expense related to the change in our CEO during the year, as well as higher general and administrative consulting costs year over year. Aircraft leasing

Our most significant infrastructure cost is our aircraft. To support our growth initiatives, we investigate various alternatives for financing, with the intention of achieving optimal balance sheet flexibility while realizing the benefits of low-cost financing. Leasing is often an attractive alternative to debt-financed aircraft
for reasons such as alleviation of obsolescence risk and the significantly reduced up-front cash outlay required for deposits on purchased aircraft. During the year ended December 31, 2010, we assumed delivery of two leased 737-700 aircraft and three leased 737-800 aircraft. As at December 31, 2010, we had a total of 38 leased aircraft. This represents approximately 42 per cent of our total fleet. At the end of 2009, we had a total of 33 aircraft under operating leases, representing approximately 38 per cent of our total registered fleet.

Our aircraft leasing costs per ASM increased by 23.7 per cent in 2010 to 0.73 cents, from 0.59 cents in 2009. The variance was due to incremental leasing costs on the five leased aircraft delivered since the end of 2009, as well as a full period of aircraft leasing costs for the 10 leased aircraft delivered during 2009. This was partially offset by a stronger Canadian dollar versus the US dollar compared to the prior year. We have an active foreign exchange hedging program to offset our US-dollar-denominated aircraft lease payments on a portion of our leased aircraft. Please refer to Results of operations – Foreign exchange on page 26 of this
MD&A for further information.

Depreciation and amortization

During the year ended December 31, 2010, depreciation and amortization expense decreased by $8.4 million or 6.0 per cent to $132.9 million. On an ASM basis, the depreciation and amortization charge was 0.68 cents, as compared to 0.80 cents in the prior year. The decrease in depreciation and amortization expense per ASM from the prior year is attributable to the fact that our ASM growth during 2010 has been a result of incremental leased aircraft in our fleet, rather than owned aircraft. As at December 31, 2010, our percentage of owned aircraft to aircraft under operating lease was 58 per cent, a decrease from 62 per cent as at the end of 2009. As this percentage decreases, the numberWestJet 2010 Annual Report 25 Salaries and benefits are determined via a framework of job levels based on internal experience and external market data. During 2010, salaries and benefits increased by 12.0 per cent to $439.8 million from $392.7 million in 2009. This increasewas due primarily to an increase in our total number of fulltime equivalent employees of 9.3 per cent to 6,877 employees; higher pilot salaries and benefits resulting from the new pilot agreement effective July 1, 2009; a cash payout of $1.5 million related to the departure of our previous CEO; and annual market and merit increases. Salaries and benefits expense for each department is included in the respective department’s operating expense line item.
Employee share purchase plan (ESPP)

Our ESPP encourages employees to become owners of WestJet shares. Under the terms of the ESPP, WestJetters may acquire voting shares of WestJet at the current fair market value up to a maximum of 20 per cent of their gross pay, and these acquisitions are matched by WestJet. As at December 31, 2010, 84 per cent of our eligible active employees participated in the ESPP, contributing an average of 13 per cent. During the year ended December 31, 2010, we matched contributions for every dollar contributed by our employees. Under the terms of the ESPP, we have the option to acquire voting shares on behalf of employees through open market purchases or to issue shares from treasury at the current market price, which is determined based on the volume-weighted average trading price of the common shares for the five trading days preceding the issuance. For the year ended December 31, 2010, all ESPP matching shares were acquired through the open market. For the year ended 2010, our matching expense was $52.6 million, an 11.9 per cent increase from 2009, driven primarily by an increase in salary expense, as well as a greater number of participating WestJetters in the ESPP versus a year ago.

Employee profit share

All employees are eligible to participate in the employee profit sharing plan. As the profit share system is a variable cost, employees receive larger awards when we are more profitable. Conversely, the amount distributed to employees is reduced and adjusted in less profitable periods. Our profit share expense for the year ended December 31, 2010, was $22.2 million, a 51.4 per cent increase from $14.7 million in 2009. This increase was directly attributable to higher earnings eligible for profit share versus the prior year. As a result of our continued profitability, we were pleased that our WestJetters earned a bonus payout of over 5 per cent of their salaries and benefits in 2010. This brings our total profit share payout since 1996 to approximately $200 million. Twelve months ended December 31 ($ in thousands) 2010 2009 Change
Salaries and benefi ts $ 439,750 $ 392,749 12.0% Employee share purchase plan 52,643 47,030 11.9% Employee profi t share 22,222 14,675 51.4% Stock option plan 11,103 12,045 (7.8%) Key employee and pilot plan 977 — N/A Executive share unit plan 3,588 1,395 157.2% $ 530,283 $ 467,894 13.3% of our aircraft cycles flown attributable to our owned aircraft is reduced as a percentage of our total cycles flown.

Compensation

Our compensation philosophy is designed to align corporate and personal success. We have designed a compensation plan whereby a portion of our expenses are variable and are tied to our financial results. Our compensation strategy encourages employees to become owners in WestJet, which creates a personal vested interest in our financial results and accomplishments.26 WestJet 2010 Annual Report Stock option plan

Pilots, senior executives and certain non-executive employees participate in the stock option plan. As new options are granted, the fair value of these options, as determined by the Black-Scholes option pricing model on the date of grant, is expensed over the vesting period, with an offsetting entry to contributed surplus. Stock-based compensation expense related to stock options for the year ended December 31, 2010, was $11.1 million, representing a decrease of 7.8 per cent over 2009. This decrease in stock option expense was related primarily to the introduction of the key employee and pilot plan (KEP), as described below. Non-executive employees and pilots eligible under the KEP plan are now granted restricted share units (RSU) in lieu of a portion of the stock options that they would have otherwise been granted. This decrease was also related to the implementation of a new retirement policy in the prior year, which resulted in a greater number of employees being eligible for retirement. Under the accounting policy for stock-based compensation, for any employees eligible to retire during the vesting period of the award, the compensation expense is recognized over the period from the grant date to the retirement eligibility date. In instances where an employee is eligible to retire on the grant date of the stock-based award, compensation expense is recognized immediately. As a result of the new retirement policy, a one-time catch-up adjustment was recognized during 2009 in relation to retirement-eligible employees. Stock-based compensation expense related to pilots’ options is included in flight operations and navigational charges, while the expense related to senior executives’ and certain non-executive employees’ options is included in marketing, general and administration expense.
Key employee and pilot plan (KEP)

During the year ended December 31, 2010, the KEP plan, a new stock-based compensation plan, was approved by our shareholders, whereby RSUs are issued to certain non-executive employees and pilots. In 2010, $1.0 million of compensation expense was recognized in relation to the KEP plan.
Executive share unit (ESU) plan

We have an equity-based ESU plan, whereby RSUs and performance share units (PSU) may be issued to our senior executive officers. Each RSU and PSU entitles the senior executive to receive payment upon exercise in the form of voting shares. We determine compensation expense for the RSUs and PSUs based on the fair market value of our voting shares at the time of grant, which is equal to the weighted average trading price of our voting shares for the five trading days immediately preceding the grant date. The RSUs time vest at the end of a three-year period, with compensation expense being recognized in net earnings over the vesting period. PSUs time vest at the end of a three-year term and incorporate performance criteria based on achieving compounded average diluted earnings per share growth rate targets established at the time of grant. For PSUs, compensation expense is recognized in net earnings over the vesting period based on the number of units expected to vest. For the year ended December 31, 2010, $3.6 million in compensation expense was recognized in relation to the ESU plan, an increase of $2.2 million from 2009. The increase was primarily attributable to the acceleration of expense due to the former CEO leaving the Company; additional share units granted under the plan, including units granted in relation to our current CEO’s relocation; as well as revised probabilities related to performance criteria achievement for the PSUs. Stock-based compensation expense related to the ESU plan is included in marketing, general and administration expense.

Foreign exchange

Foreign exchange risk is the risk that the fair value of recognized
assets and liabilities or future cash flow would fluctuate as a result of changes in foreign exchange rates. We are exposed to foreign currency exchange risks arising from fluctuations in exchange rates on our US-dollar-denominated net monetary assets and certain operating expenditures, mainly aircraft fuel, aircraft leasing expense, certain maintenance costs and a portion of airport operations costs. During the year ended December 31, 2010, the average US-dollar exchange rate was 1.0302 (2009 – 1.1425), with the year-end exchange rate at 0.9946 (2009 – 1.0510).

The gain or loss on foreign exchange included in our consolidated statement of earnings is mainly attributable to the effect of the changes in the value of our US-dollar-denominated net monetary assets. As at December 31, 2010, US-dollar-denominated net monetary assets totalled approximately US $53.0 millionWestJet 2010 Annual Report 27 (2009 – US $19.9 million). These net monetary assets consist mainly of US-dollar cash and cash equivalents and security deposits on various leased and financed aircraft, US-dollar accounts payable and accrued liabilities, and our US-dollar long-term debt facility signed in the fourth quarter of 2009. We
hold US-dollar-denominated cash and short-term investments to reduce the foreign currency risk inherent in our US-dollar expenditures. We reported a foreign exchange loss of $0.8 million in 2010, as compared to a foreign exchange loss of $12.3 million in 2009, on the revaluation of our US-dollar-denominated net monetary assets.
We periodically use financial derivatives to manage our exposure to foreign exchange risk. As at December 31, 2010, we entered into foreign exchange forward contracts for an average US $11.5 million per month for the period of January to December 2011. These contracts totalled US $138.4 million at a weighted average contract rate of 1.0264 per US dollar to offset a portion of our US-dollar-denominated aircraft lease payments. Upon proper qualification, we designated the forward contracts as effective cash flow hedges for accounting purposes. Under cash flow hedge accounting, the effective portion of the change in the fair value of the hedging instrument is recognized in AOCL, while the ineffective portion is recognized in non-operating income (expense). Upon maturity of the derivative instrument, the effective gains and losses previously recognized in AOCL are recorded in net earnings as a component of aircraft leasing expense. As at December 31, 2010, no portion of the forward contracts was
considered ineffective.

As at December 31, 2010, the fair value of the foreign exchange forward contracts was $3.6 million (2009 – $1.2 million), included in accounts payable and accrued liabilities and $nil (2009 – $0.2 million) recorded in prepaid expenses, deposits and other. For the year ended December 31, 2010, we realized a loss before tax on the forward contracts of $2.1 million (2009 – gain of $5.6 million), included in net earnings as an increase (2009 – decrease) to aircraft leasing expense. The estimated amount reported in AOCL that is expected to be reclassified to net earnings as a component of aircraft leasing expense in the next 12 months is a loss before tax of $3.6 million (2009 – $1.0 million). The fair value of the foreign exchange forward contracts is measured based on the difference between the contracted rate and the current forward price obtained from the counterparty, which can be observed and corroborated in the marketplace.

Income taxes

Our operations span several Canadian tax jurisdictions, subjecting our income to various rates of taxation. As such, the computation of the provision for income taxes involves judgments based on the analysis of several different pieces of legislation and regulation.

Our effective consolidated income tax rate for 2010 was 30.5 per cent, as compared to 28.2 per cent in 2009. The variance was driven primarily by corporate income tax rate reductions enacted by various provincial governments in 2009, offset by unfavourable revisions to the measurement of previously recognized future tax assets also in the comparative period.

Although our year-to-date effective rate fell within our expected range of 29 to 31 per cent at the beginning of the year, revisions to the measurement of future income tax assets and liabilities, revised expectations of when certain temporary differences are anticipated to reverse, and the acceleration of non-deductible stock-based compensation expense due to the departure of the former CEO resulted in a net $2.0 million unfavourable increase to future income tax expense. Excluding these items, our effective rate would have been reduced to 29.5 per cent, which is still within our expected range. For 2011, our expected effective tax rate should remain within the range of 29 to 31 per cent.

Guest experience

At WestJet, we are focused on meeting the needs of our guests while maintaining the highest safety standards. We are committed to delivering a positive guest experience at every stage of our service, from the time the flight is booked to its completion.

Key performance indicators

On-time performance and completion rates are calculated based on the U.S. Department of Transportation’s standards of measurement for the North American airline industry. Our bag ratio represents the number of delayed or lost baggage claims made per 1,000 guests.28 WestJet 2010 Annual Report On-time performance, indicating the percentage of flights that arrive within 15 minutes of their scheduled time, is a key factor in measuring our guest experience. During 2010, our on-time performance declined slightly by 0.8 points. Our fourth quarter 2010 on-time performance improved by 11.6 points to 75.4 per cent, which represents our highest level of on-time performance since the fourth quarter of 2007. In the fourth quarter of 2009, our new reservation system cutover contributed to a decline in our on-time performance. We experienced delays due to increased times at our check-in counters and at our boarding gates while we adapted to our new system. As well, we saw fewer flight departure delays due to weather conditions in this quarter versus the same quarter last year.

During 2010, we introduced a new self-service option for baggage tagging in Calgary, Toronto, Vancouver, Montreal and Edmonton. Self-serve baggage tagging allows for our guests to use mobile, web or airport kiosk to check in for their flight and print their own baggage tags when they arrive at the airport. Once the tags have been attached, guests drop baggage off at the appropriate location. This self-serve option improves efficiencies at our airport counters and allows our guest service agents a greater opportunity for meaningful interactions with our guests. We expect to continue introducing self-tagging at other airports during 2011. Our focus on providing self-service tools enhances the travel experience of our guests while improving operational efficiencies.

Our completion rates remained strong for 2010 at 99.1 per cent versus 98.9 per cent in 2009. This indicator represents the percentage of flights completed from flights originally scheduled. We also saw a significant improvement in our bag ratio for the fourth quarter compared to the same period in the prior year. LIQUIDITY AND CAPITAL RESOURCES

The airline industry is highly sensitive to unpredictable circumstances and, as such, maintaining a strong financial position is imperative to an airline’s success. We continued
to maintain one of the most favourable balance sheets in the airline industry and produced our 23rd consecutive quarter of profitability in the fourth quarter of 2010.

We completed 2010 with a significant cash and cash equivalents balance of $1,187.9 million, compared to $1,005.2 million as at December 31, 2009. This increase resulted primarily from improved cash flow from operations. Part of our cash and cash equivalents balance relates to cash collected with respect to advance ticket sales, for which the balance at December 31, 2010, was $308.0 million, as compared to $286.4 million at December 31, 2009. Typically, we have cash and cash equivalents on hand to have sufficient liquidity to meet our liabilities, when due, under both normal and stressed conditions. As at December 31, 2010, we had cash on hand of 3.86 (2009 – 3.51) times the advance ticket sales balance. Additionally, the increase in our working capital ratio to 1.52 from 1.48 as at December 31, 2009, further demonstrates our financial stability and strong financial position. Credit risk associated with cash and cash equivalents is managed by ensuring that these financial assets are invested primarily in debt instruments from highly rated financial institutions, many with provincial-government-backed guarantees. As at December 31, 2010, we have not been required to post collateral with respect to any of our outstanding derivative contracts.

We monitor capital on a number of measures, including adjusted debt-to-equity and adjusted net debt to EBITDAR ratios. Our adjusted debt-to-equity ratio improved by 2.8 per cent to 1.39, as

at December 31, 2010, which took into consideration $1,066.8 million in off-balance-sheet aircraft operating leases. This compared Three months ended December 31 Twelve months ended December 31

2010 2009 Change 2010 2009 Change On-time performance 75.4% 63.8% 11.6 pts. 77.8% 78.6% (0.8 pts). Completion rate 99.2% 99.1% 0.1 pts. 99.1% 98.9% 0.2 pts. Bag ratio 3.02 4.36 30.7% 3.39 3.57 5.0%WestJet 2010 Annual Report 29 favourably to our adjusted debt-to-equity ratio of 1.43 at December 31, 2009, mainly due to the increase in shareholders’ equity as a result of net earnings more than offsetting the net increase in our aircraft financing. As at December 31, 2010, our adjusted net debt to EBITDAR ratio improved by 19.1 per cent to 1.78, compared to 2.20 as at December 31, 2009, mainly attributable to the increase in cash and cash equivalents and EBITDAR. Both of these ratios remain strong, relative to the airline industry, and have exceeded our internal targets for December 31, 2010 and 2009, of an adjusted debt-to-equity measure and an adjusted
net debt to EBITDAR ratio of no more than 3.00.

Operating cash flow

Our ability to generate positive cash flow from operations has allowed us to meet our working capital requirements throughout the year. During 2010, cash from operations increased to $443.3 million compared to $318.7 million in 2009, representing an improvement of 39.1 per cent. This year-over-year increase is related primarily to higher earnings from operations and a positive year-over-year change in non-cash working capital.

Financing cash flow
During 2010, our financing cash outflow of $210.2 million consisted primarily of long-term debt repayments of $171.1 million, largely related to our aircraft, as well as share repurchases of $31.4 million. In the prior year, the financing cash inflow of $34.7 million was attributable to the net proceeds from the equity offering of $165.0 million and the proceeds from the US $32.0 million term loan, offset by $165.8 million in long-term debt repayments.

As at December 31, 2010, we had 38 remaining purchased aircraft commitments, for delivery between 2011 and 2017. In January 2011, subsequent to year end, we took delivery of the one purchased aircraft planned for 2011, which was funded by cash from operations. Our next purchased aircraft delivery is scheduled for February 2012. We regularly review financing alternatives available
to us for our future direct aircraft deliveries.

We have grown through aircraft acquisitions financed by low-interest-rate debt supported by the Export-Import Bank of the United States (Ex-Im Bank). The loan guarantees from the U.S. government represent approximately 85 per cent of the purchase price of these aircraft. The total number of aircraft financed with loan guarantees is 52, with an outstanding debt balance of $1,005.7 million associated with those aircraft. All of
this debt has been financed in Canadian dollars at fixed interest rates, eliminating all future foreign exchange and interest rate exposure on these US-dollar aircraft purchases.

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

The rules applying to export credit support granted for the purchase and sale of aircraft is governed by a gentlemen’s agreement between a number of participating Organisation for Economic Co-operation and Development (OECD) and non-OECD countries, commonly known as the Aircraft Sector Understanding (ASU). The ASU sets forth a number of key terms and conditions related to export credit for aircraft, including minimum premium and interest rates, the maximum allowable term of the export-credit supported loan and the advance rate (or loan to value), among other standards. We are aware that the ASU has been renegotiated and a new ASU has been adopted as of February 1, 2011. The new ASU will likely increase the cost of export-credit access for all eligible airlines, including WestJet; however, we are confident that our strong balance sheet and credit will enable us to finance
future aircraft deliveries at reasonable rates and terms.

We have entered into nine arrangements whereby we participate under contract in fuel facility corporations, along with other airlines, to procure fuel services at major Canadian airports. The fuel facility corporations operate on a cost-recovery basis. The purpose of these corporations is to own and finance the system that distributes fuel to the contracting airlines, including the leasing of land rights, while providing the contracting airlines with preferential service and pricing over non-participating entities. The operating costs, including the debt service requirements, of the fuel facility corporations are shared pro rata among the contracting airlines. The nine fuel facility corporations are
considered variable interest entities and have not been consolidated within our accounts. In the remote event that all other contracting airlines withdraw from the arrangements and we remained as30 WestJet 2010 Annual Report sole member, we would be responsible for the costs of the fuel facility corporations, including debt service requirements. As at November 30, 2010, the nine fuel facility corporations have combined total assets of approximately $345.5 million and debt of approximately $312.6 million.

Investing cash flow
Cash used in investing activities for 2010 totalled $48.6 million, as compared to $166.7 million in 2009. In 2009, cash was used for aircraft additions of $118.7 million for the purchase of one leased aircraft during the year as well as deposits paid to Boeing on future owned aircraft deliveries. In 2010, we incurred $29.9 million in aircraft addition costs related to deposits paid, as no additional aircraft were purchased during the year. Furthermore, in 2010, we incurred $18.7 million in other property and equipment additions as compared to $48.0 million in the prior year.

Free cash flow

Free cash flow is a measure that represents the cash that a company is able to generate after meeting its requirements to maintain or expand its asset base. It is a calculation of operating cash flow, less the amount of cash used in investing activities related to property and equipment. Our free cash flow for the year ended December 31, 2010, was $394.7 million, as compared to $152.0 million in the prior year, representing an increase of 159.7 per cent. This increase was due to higher operating cash flow relative to the prior year, as well as lower investments in property and equipment as compared to 2009. Our 2010 free cash flow per share was $2.72, as compared to $1.15 in 2009, a year-over-year increase of 136.5 per cent.

Please refer to page 52 of this MD&A for a reconciliation of the non-GAAP measures listed above, including free cash flow and free cash flow per share, to the nearest measure under
Canadian GAAP.

Contractual obligations and commitments

Our contractual obligations for each of the next five years, which do not include commitments for goods and services required in the ordinary course of business, are indicated in the following table:

($ in thousands) Total 2011 2012 2013 2014 2015 Thereafter Long-term debt repayments $ 1,047,177 $ 183,681 $ 169,642 $ 169,358 $ 169,626 $ 132,170 $ 222,700 Capital lease obligations (i) 5,878 282 245 245 245 245 4,616 Operating leases and commitments (ii) 1,366,015 206,983 202,085 195,222 190,423 166,189 405,113 Purchase obligations (iii) 1,647,046 72,217 182,961 270,436 287,597 401,406 432,429 Total contractual obligations $ 4,066,116 $ 463,163 $ 554,933 $ 635,261 $ 647,891 $ 700,010 $ 1,064,858

(i) Includes weighted average imputed interest at 5.28 per cent totalling $2,521. (ii) Relates to operating l eases and commitments for aircraft, land, buildings, equipment, computer hardware, software licences and satellite programming. The obligations of

these operating leases, where applicable, in US dollars are: 2011 – $186,454; 2012 – $188,807; 2013 – $185,535; 2014 – $184,359; 2015 – $161,149; and thereafter $361,979. (iii) Relates to purchases of aircraft, as well as amounts to be paid for live satellite television systems on purchased and leased aircraft. These purchase obligations in

US dollars are: 2011 – $72,607; 2012 – $183,949; 2013 – $271,896; 2014 – $289,150; 2015 – $403,574; and thereafter $434,764.

We currently have 38 aircraft under operating leases. We have entered into agreements with independent third parties to lease
three additional 737-700 aircraft and three additional 737-800 aircraft for terms ranging between eight and 10 years, to be delivered throughout 2011 and 2012. Although the current obligations related to our aircraft operating lease agreements are not recognized on our balance sheet, we include these commitments in assessing our overall leverage through our adjusted debt-to-equity and adjusted net debt to EBITDAR ratios. We signed an agreement with Bell ExpressVu to provide satellite programming. The agreement commenced in 2004, expires in July 2011 , and can be renewed for an additional four years. During 2009, we amended our agreement with LiveTV to install, maintain and operate live satellite television for all of our aircraft
f or a term of 10 years. The minimum commitment amounts associated with these agreements have been included in the operating leases and commitments caption in the table above.WestJet 2010 Annual Report 31 In 2008, we signed an agreement with Sabre to provide us with a licence to access and use its reservation system, SabreSonic, for a term of eight years. The minimum contract amounts associated with the reservation system have been included in the operating leases and commitments caption in the table on the previous page.

As at December 31, 2010, our future payments to 2016 and thereafter relating to operating leases and commitments were $1,366.0 million (US $1,268.3 million), to be funded through our operating cash flow.

Subsequent to year end, we deferred the deliveries of six aircraft from the years 2012 to 2015, into 2017 and 2018. The total number of our aircraft purchase commitments remains unchanged at 38
aircraft. These deferrals have not been reflected in the table on the previous page under “Purchase obligations.”

Capital resources

During 2010, we took delivery of five leased aircraft, two 737-700s and three 737-800s, increasing our total registered fleet to 91 aircraft as at December 31, 2010. During the fourth quarter of 2010, we amended the terms of one of our lease agreements for the delivery of a 737-700 aircraft in the fourth quarter of 2011 to instead take delivery of a 737-800 series aircraft. Under our current fleet plan, we have 33 aircraft leases expiring between 2013 and 2018, each with the option to renew, and commitments to take delivery of an additional 44 aircraft, as depicted in the table below. This provides us with the flexibility to end 2018 with a fleet size between 102 and 135 aircraft, dependent on the exercise of the lease renewal options.

Subsequent to year end, in January 2011, we purchased a new 737-700 series aircraft, funded by cash from operations. Further, as part of our ongoing fleet planning process, we announced the deferral of six aircraft deliveries from 2012 (2), 2013 (1), 2014 (2) and 2015 (1) to 2017 (3) and 2018 (3). The deferral of these aircraft deliveries increases the flexibility in our fleet plan, as the revised delivery schedule allows us to better match the timing of the deliveries with the dates for potential lease returns. The entirety of our order with Boeing remains intact. The table below illustrates our fleet commitments to 2018, based on the revised schedule.

Series Lease expires with option to

renew 600s 700s 800s Total fl eet Leased Owned Total Leased Owned Total Leased Owned Total Leased Owned Total Total Fleet at December 31, 2009 — 13 13 25 38 63 8 2 10 33 53 86 — Fleet at December 31, 2010 — 13 13 27 38 65 11 2 13 38 53 91 — Commitments: 2011 — — — 3 1 * 4 2 — 2 5 1 6

— 2012 — — — — 2 * 2 1 — 1 1 2 3 — 2013 — — — — 5 * 5 — — — — 5 5 (3)
2014 — — — — 4 * 4 — — — — 4 4

— 2015 — — — — 9 * 9 — — — — 9 9 (12)
2016 — — — — 8 * 8

— — — — 8 8 (8)
2017 — — — — 6 * 6 — — — — 6 6 (6)
2018

— — — — 3 * 3 — — — — 3 3 (4)
Total commitments

— — — 3 38 41 3 — 3 6 38 44 Committed fl eet as of 2018 — 13 13 30 76 106 14 2 16 44 91 135 (33)

* We have an option to convert any of these future aircraft to 737-800s.32 WestJet 2010 Annual Report We have available a three-year revolving operating line of credit with a syndicate of three Canadian banks. The line of credit is available to a maximum of $80.8 million (December 31, 2009 – $85 million); it is secured by our Campus facility and expires in May 2012. The line of credit bears interest at prime plus 0.50 per cent per annum, or a banker’s acceptance rate at 2.0 per cent annual stamping fee, and is available for general corporate expenditures and working capital purposes. We are required to pay an annual standby fee of 15 basis points, based on the average unused portion of the line of credit for the previous quarter, payable quarterly. As at December 31, 2010, no amounts were drawn on this facility.

Contingencies

We are party to certain legal proceedings that arise during the ordinary course of business. It is the opinion of management that
the ultimate outcome of these matters will not have a material effect upon our financial position, results of operations or cash flow.

Quarterly dividend policy

On November 2, 2010, the Board of Directors authorized us to initiate a quarterly dividend of $0.05 per common voting share and variable voting share. In the fourth quarter of 2010, we declared our initial quarterly dividend of $0.05 per common voting share and variable voting share to shareholders of record on December 15, 2010. This dividend was paid on January 21, 2011.

On February 8, 2011, our Board of Directors declared our second quarterly dividend of $0.05 per common voting share and variable voting share to shareholders of record on March 16, 2011, to be paid on March 31, 2011.

We believe that this dividend policy is consistent with our objective of creating and returning value to shareholders.

Normal course issuer bid

On November 2, 2010, we filed a notice with the TSX to make a normal course issuer bid to purchase outstanding shares on the open market. As approved by the TSX, we are authorized to purchase up to 7,264,820 common voting shares and variable voting shares (representing 5 per cent of our issued and outstanding shares at the time of the bid) during the period of November 5, 2010 to November 4, 2011, or until such time as the bid is completed or terminated at our option. Any shares purchased under this bid will be purchased on the open market through the facilities of the TSX at the prevailing market price at the time of the transaction. Shares acquired under this bid will be cancelled.

A shareholder may obtain a copy of the notice filed with the TSX in relation to the bid, free of charge, by contacting the Vice-President, Legal Services of WestJet, 22 Aerial Place N.E., Calgary, Alberta, T2E 3J1, (telephone (403) 444-2600 or by faxing a written request to (403) 444-2604).

During 2010, we repurchased 2,338,730 shares under the bid for total consideration of $31.4 million. The book value of the shares repurchased of $10.6 million was charged to share capital, with the $20.8 million excess of the market price over the average book value, including transaction costs, charged to retained earnings.WestJet 2010 Annual Report 33 Share capital

Our issued and outstanding voting shares, along with voting shares potentially issuable, are as follows:

Related-party transactions

We have debt financing and investments in short-term deposits with a financial institution that is related through two common directors, one of whom is also the president of the financial institution. As at December 31, 2010, total long-term debt includes an amount of $5.6 million (2009 – $6.4 million) due to the financial institution. Included in cash and cash equivalents, as at December 31, 2010, are short-term investments of $164.7 million (2009 – $143.3 million) owing from the financial institution. In 2008, we signed a three-year revolving operating line of credit agreement with a banking syndicate, of which one of the members is the related-party financial institution. These transactions occurred in the normal course of operations on terms consistent with those offered to arm’s-length parties and are measured at the exchange amount.

During 2010, we engaged a relocation firm to purchase a single-family residence from the CEO for a guaranteed price of US $1.5 million in accordance with our relocation policy. The relocation firm will actively market the residence to locate an outside buyer. If the proceeds of the sale of the home to a third party are less than or greater than the guaranteed price, the difference between the guaranteed price and the proceeds will accrue to us. We paid the relocation firm fees and expenses in connection with this transaction, and also agreed to reimburse the officer for certain related tax and relocation expenses. The
residence is located in the United States and the transaction was as a result of the officer’s move to Canada in conjunction with his appointment to President and CEO, effective April 1, 2010. In connection with the relocation, we granted 38,256 RSUs pursuant to the ESU plan with a total value of US $0.5 million, which are scheduled to wholly vest on April 1, 2011, the anniversary of the officer’s appointment to President and CEO. Upon exercise of the RSUs, we will remit, on his behalf, an amount sufficient to satisfy any withholding or other tax requirements of such RSUs, limited to the withholding tax on the original award amount. Transactions have been measured at the exchange amount. Number of shares January 31, 2011 December 31, 2010 Issued and outstanding: Common voting shares 137,583,946 137,489,456 Variable voting shares 5,380,752 5,468,958 Total voting shares issued and outstanding 142,964,698 142,958,414

Voting shares potentially issuable: Stock options 8,047,082 8,083,431 RSUs – KEP Plan 168,286 171,129 RSUs – ESU Plan 187,875 187,875 PSUs 199,486 199,486 Total voting shares potentially issuable 8,602,729 8,641,921
Total outstanding and potentially issuable voting shares 151,567,427 151,600,33534 WestJet 2010 Annual Report RISKS AND UNCERTAINTIES

The risks described below are not intended to be an exhaustive list of all risks facing the Company. Other risks of which we are not currently aware or which we currently deem immaterial may surface and have a material adverse impact on our business. Management performs a risk assessment on a continual basis to ensure that significant risks related to our airline have been
reviewed and assessed.

RISKS RELATING TO THE BUSINESS

We are dependent on the price and availability of jet fuel. Continued periods of high fuel costs, volatility of fuel prices and/or significant disruptions in the supply of fuel could adversely affect our results of operations.

Fuel price volatility continues to represent a significant risk, as the cost of fuel has seen historically elevated levels throughout the past few years and is largely unpredictable. Fuel prices are affected by a host of factors outside our control, such as significant weather events, geopolitical tensions, refinery capacity and global demand and supply. A small change in the price of fuel can significantly affect profitability. Our ability to react to fuel price volatility may be delayed and affected by factors outside
our control.

Our fuel costs constitute our largest single expense category, representing approximately 29 per cent of operating costs in 2010 and approximately 28 per cent in 2009. Therefore, the price of fuel has affected, and could continue to affect, the timing and nature of our growth initiatives.

In the event of a fuel supply shortage or significantly higher fuel prices, a curtailment of scheduled service could result. A significant increase in the price of aircraft fuel could result in a disproportionately higher increase in our average total costs in comparison to those of our competitors, if their hedging programs are more effective in mitigating the risk of the increasing costs of jet fuel. Failure to achieve our growth strategy could have a material adverse effect on our financial condition and results of operations.

Our growth strategy involves increasing the number of markets served and increasing the frequency of flights to the markets we already serve. During the initial phases of implementing service in a new market, we are more vulnerable to the effects of fare discounting in that market by competitors already operating in that market or by new entrants. There can be no assurance that we will be able to identify and successfully establish new markets.

The failure of critical systems on which we rely could harm
our business.

We depend on automated systems to operate our business and support our initiatives, including our computerized airline reservation systems, telecommunication systems, aircraft maintenance system and website. Our website and reservation systems must be able to accommodate a high volume of traffic and deliver important and accurate flight information. Any disruption in these systems could result in the loss of important data, reallocation of personnel, failure to meet critical deadlines, increased expenses, and could generally harm our business.

Key technology systems, including our revenue accounting system and reservation systems, are outsourced to third parties on whom we are reliant for timely and accurate processing of information
critical to our business.

Integration of complex systems and technology presents significant challenges in terms of costs, human resources and development of effective internal controls. In the ordinary course of business, our systems will require modifications and refinements to address our growth and business requirements. We could be adversely affected if we are unable to modify our systems as necessary.

As a company that processes, transmits and stores credit card data, we are subject to compliance with certain requirements established by credit card companies. Non-compliance with these requirements, whether through system breaches or limitations, may result in substantial fines or temporary or permanent exclusion from one or more credit card acceptance programs. The inabilityWestJet 2010 Annual Report 35 to process one or more credit card brands could have a material adverse impact on our guest bookings, revenue and profitability.

We are dependent on single aircraft and engine suppliers. Any interruption in the provision of goods and services from these suppliers, or other significant third party suppliers, as well as mechanical or regulatory issues associated with their equipment, could have a material adverse effect on our business, operating
results and financial condition.

We secure goods and services from a number of third party suppliers. Any significant interruption in the provision of goods and services from such suppliers, some of which would be beyond our control, could have a material adverse effect on our business, operating results and financial condition.

We are dependent on Boeing as our sole supplier for aircraft and many of our aircraft parts. If we were unable to acquire additional aircraft from Boeing, or if Boeing was unable or unwilling to provide adequate support for its products, our operations would be materially adversely affected. If Boeing was unable to adhere to its contractual obligations in meeting scheduled delivery dates for our owned and leased aircraft, we would be required to find another supplier of aircraft to fulfill our growth plans. Acquiring aircraft from another supplier would require significant transition costs and, additionally, aircraft may not be available at similar prices or received during the same scheduled delivery dates, which could adversely affect our business, operating results and financial condition. In addition, we would be materially adversely affected in the event of a mechanical or regulatory issue associated with the Boeing 737 aircraft type, including negative perceptions from the travelling community.

We are also dependent on General Electric as our sole supplier of aircraft engines and would therefore be materially adversely affected in the event of a mechanical or regulatory issue associated with our engines.

Inability to retain key personnel could harm our business.

Our success will depend, in part, on the retention of members of our management and key personnel. If any of these individuals become unable to continue in their present role, we may have difficulty replacing these individuals, which could adversely affect
our business.

Our business is labour intensive and requires large numbers of pilots, flight attendants, mechanics and other personnel. Our growth and general turnover requires us to locate, hire, train and retain a significant number of new employees each year. There can be no assurance that we will be able to locate, hire, train and retain the qualified employees that we need to meet our growth plans or replace departing employees. If we are unable to hire and retain qualified employees at a reasonable cost, our business, operating results and financial condition could be adversely affected.

Our financial results are affected by foreign exchange and
interest rate fluctuations.

We are exposed to foreign exchange risks arising from fluctuations in exchange rates on our US-dollar-denominated net monetary assets and our operating expenditures, mainly aircraft fuel, aircraft leasing expense, certain maintenance costs and a portion of airport operations costs. Since our revenues are received primarily in Canadian dollars, we are exposed to fluctuations in the US-dollar exchange rate with respect to these payment obligations.

We are exposed to fluctuations in the US-dollar exchange rate relating to the purchase of the remaining 37 737 aircraft for which we have purchase commitments. Historically, the purchase of our aircraft is financed by funds drawn in Canadian dollars; however, the aircraft are paid for in US funds at the date of each aircraft delivery. As a result, we are exposed to foreign currency fluctuations prior to each delivery date. In July 2008, we took delivery of the final aircraft under our previous facility with Ex-Im Bank, which was subsequently closed. We took delivery of one purchased 737-700 in January 2011, which was funded by cash from operations. We continually review financing alternatives
available to us for our future direct aircraft deliveries. Our next purchased aircraft delivery is not expected until February 2012. There is no guarantee we will be able to secure similar financing arrangements for the remaining 37 aircraft to be delivered
between 2012 to 2018.36 WestJet 2010 Annual Report We are also exposed to general market fluctuations of interest rates, as we have future aircraft purchase commitments that will be financed at prevailing market rates.

Our maintenance costs will increase as our fleet ages.

The average age of our fleet as at December 31, 2010, was 5.2 years. These aircraft require less maintenance now than they will in the future. We have incurred lower maintenance expenses on these aircraft because most of the parts on these aircraft are under multi-year warranties. Our maintenance costs will increase as our fleet ages and warranties expire. At December 31, 2010, 63 aircraft have come off warranty, with an additional seven coming off warranty in 2011.

In 2011, we expect to overhaul four engines and 11 sets of landing gear, at an estimated cost of US $14 to $16 million. The engines that are scheduled for overhaul in 2011 are leased, and in conjunction with our lease agreements, we have paid maintenance reserve amounts related to the maintenance of these engines. As such, a portion of these costs is expected to be recoverable from the lessor.

A significant change in our unique corporate culture or guest experience could have adverse operational and financial consequences.

Our strong corporate culture is one of our fundamental competitive advantages. We strive to maintain an innovative culture where all employees are committed to, and passionately pursue, our values, mission and vision. We also foster a unique culture of caring and compassion for our guests and fellow employees that sets us apart from our competitors. Failure to maintain our unique corporate culture or guest experience could adversely affect our
business and financial results.

We have significant financial obligations and will incur significantly more fixed obligations, which could harm our ability to meet our growth strategy.

Our debt and other fixed obligations could impact our ability to obtain additional financing to support capital expansion plans and working capital requirements on suitable terms. Our ability to make scheduled payments on our debt and other fixed obligations will depend on our future operating performance and cash flow. The failure to generate sufficient operating cash flow to meet our fixed obligations could harm our business. Changes in the conditions of the equity capital markets, the debt capital markets and the commercial bank market, as well as regulatory or other government-imposed changes, could adversely impact WestJet’s access to and cost of financing which could harm our ability to meet our growth strategy.

A limited number of our current financing agreements require us to comply with specific financial covenants. There is no assurance that we can comply with these covenants in the future. These covenants may limit our ability to finance future operations or capital needs. If we were to default on these covenants and were unsuccessful in obtaining a waiver of the default, all amounts owing under the defaulted agreement could become immediately due and payable. In this event, we would require sufficient cash to meet the repayment obligation or require additional debt or equity financing, which may not be available. If unable to repay the debt, we would be required to liquidate certain assets in order to obtain the necessary funds or be subject to the risk of having our aircraft repossessed, which could adversely impact our business.

Loss of contracts, changes to our pricing agreements or access to travel suppliers’ products and services could have an adverse impact on WestJet Vacations.

We depend on third parties to supply us with certain components of the travel packages sold through WestJet Vacations. We are dependent, for example, on a large number of hotels in our sun destinations in the United States, Mexico and the Caribbean. In general, these suppliers can terminate or modify existing agreements with us on relatively short notice. The potential inability to replace these agreements, to find similar suppliers or to renegotiate agreements at competitive rates could have an adverse effect on the results of WestJet Vacations. Furthermore, any decline in the quality of products or services provided by these suppliers, or any perception by travellers of such a decline, could adversely affect our reputation or the demand for the products and services of WestJet Vacations.WestJet 2010 Annual Report 37 As the airline industry is labour intensive, significant increases in labour costs could have an adverse impact on WestJet.

The airline business is labour intensive. Salaries and benefits represented approximately 19 per cent of WestJet’s operatingexpenses for the year ended December 31, 2010. Employmentrelated issues that may impact WestJet’s results of operations include hiring/retention rates, pay rates, outsourcing costs and the costs of employee benefits. Significantly increased labour costs, combined with curtailed growth, could negatively impact WestJet’s competitive position.

RISKS RELATING TO THE AIRLINE INDUSTRY

Any major safety incident involving our aircraft or similar aircraft of other airlines could materially and adversely affect our service, reputation and profitability.

A major safety incident involving our aircraft during operations could cause substantial repair or replacement costs to the damaged aircraft, a disruption in service, significant claims relating to injured guests and others, and a negative impact on our reputation for safety, all of which may adversely affect our ability to attract and retain guests. We have an Emergency Response Plan (ERP) in the event of an incident occurring.

An air carrier’s liability is limited by applicable conventions, including the Montreal and Warsaw Conventions. Any changes
to these or other conventions or treaties could increase our potential liability to guests.

We carry insurance similar to other scheduled airlines operating
in the North American market. While we believe our insurance is adequate, there can be no assurance that such coverage will fully protect us against all losses that we might sustain, which could have a material adverse effect on our results of operations.
There is no assurance that we will be able to obtain insurance on the same terms as we have in the past.

There is a possibility that a significant terrorist attack, pandemic or geological event could have a material impact on our operations, which could also negatively impact the insurance market and our ability to obtain coverage at current terms. There is a risk that the Government of Canada may not continue to provide indemnity for third party war risk coverage, which it currently provides to certain scheduled carriers, including WestJet.
In the event that the Government of Canada does not continue to provide such coverage, such coverage may not be available to us in the commercial markets, and the costs and impact of such costs are, as yet, undetermined.

Worldwide economic conditions may adversely affect our business, operating results and financial condition. A
weak economy could decrease our bookings. A reduction in discretionary spending could decrease amounts our guests are willing to pay.

General worldwide economic conditions have experienced a downturn due to the effects of the subprime lending crisis in the United States, general credit market crisis, collateral effects on the finance and banking industries, concerns about inflation, slower economic activity, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns. The airline industry is particularly sensitive to changes in economic conditions, which affect guest travel patterns and related revenues. For example,
the recent unfavourable worldwide economic conditions have reduced spending for both leisure and business travel. As such, a weak economy could reduce our bookings, and a reduction in discretionary spending could also decrease amounts our guests are willing to pay. Unfavourable economic conditions can also impact the ability of airlines to raise fares to help offset increased fuel, labour and other costs. These factors could adversely affect our revenues and results of operations.

The airline industry is intensely competitive. Reduced market growth rates can create heightened competitive pressures, impacting the ability to increase fares and increasing competition
for market share.

The airline industry is highly competitive and particularly susceptible to price discounting, since airlines incur only nominal costs to provide services to guests occupying otherwise unsold seats. We primarily compete with a small number of Canadian38 WestJet 2010 Annual Report airlines in our domestic market, and the same Canadian airline
and numerous U.S. carriers in the transborder and international markets. We face significant competition from other airlines that are serving most of our existing and potential markets. Other airlines regularly meet or price their fares below our fares, potentially preventing us from attaining a share of the guest traffic necessary to maintain profitable operations. Our ability to meet price competition depends on our ability to operate at costs lower than that of our competitors or potential competitors over the medium to long term.

In addition, consumers are able to more effectively shop for travel services through websites and, particularly, wholesale travel sellers to more effectively compare pricing information. The growth and competitiveness of Internet distribution channels have pushed air carriers to more aggressively price their products. This, in turn, reduces yield and may have an impact on our revenue and profitability, as more and more
consumers utilize this distribution network.

With the aggressive and competitive nature of our industry, we turn inwards to realize cost efficiencies and competitive advantages. Conventional airline profits are sensitive to the general level of economic activity, taxes, interest rates, demographic changes, price levels, special circumstances or events occurring in the locations served, and to external factors such as foreign exchange rates and international political events. A significant portion of an airline’s costs, such as labour, aircraft ownership and facilities charges, cannot be easily adjusted in the short term to respond to market changes.

Government intervention, regulations, rulings or decisions rendered that impose additional requirements and restrictions on operations could increase operating costs or disrupt our operations.

The airline industry is subject to extensive laws relating to, among other things, airline safety and security, provision of services, competition, environment and labour concerns. Government entities such as Transport Canada, the Competition Bureau, the Canadian Transportation Agency, and other domestic or foreign government entities may implement new laws or regulatory schemes, or render decisions, rulings or changes in policy that could have a material adverse impact on the airline industry in general by significantly increasing the cost of airline operations, imposing additional requirements on operations or reducing the
demand for air travel.

Laws relating to data collection on guests and employees for security purposes and counterbalancing privacy legislation have increased costs of operations. Any material changes that add additional requirements to collecting, processing and filing data with, or otherwise reporting data to, government agencies may materially impact our business.

The increase in security measures and clearance times required for guest travel could have a material adverse effect on guest demand and the number of guests we carry. A reduction in guest numbers could have a negative impact on our revenues and results of operations.

Numerous jurisdictions around the world have implemented or announced measures to penalize for greenhouse gas emissions as a means to deal with climate change. Certain of these measures cover the airline industry or may do so in the future. We may be directly exposed to such measures, which could result in additional costs that could adversely affect our margins and results of operations.

Terrorist attacks or military involvement in unstable regions may harm the airline industry.

After the terrorist attacks of September 11, 2001, the airline industry experienced a substantial decline in guest traffic and revenue, and increased security and insurance costs. In late 2009, certain incidents again heightened the concern regarding terrorist attacks. Any future incidents causing a heightened concern over potential terrorist attacks could cause a further decrease in guest traffic and yields, and an increase in security measures and related costs for the airline industry generally. Additional terrorist attacks would likely have a further significant negative impact on our business and the airline industry. Should such an attack occur in Canada, the adverse impact could be very significant.WestJet 2010 Annual Report 39 Our operations are affected by a number of external factors that are beyond our control such as weather conditions and special circumstances or events occurring in the locations we serve.

Delays or cancellations due to weather conditions and work stoppages or strikes by airport workers, baggage handlers, air traffic controllers and other workers not employed by us could have a material adverse impact on our financial condition and operating results. Delays contribute to increased costs and decreased aircraft utilization, which negatively affect profitability.

Our business is dependent on its ability to operate without interruption at a number of key airports, including Toronto Pearson International Airport and Calgary International Airport. An interruption or stoppage in service at a key airport could have a material adverse impact on our business, results from operations
and financial condition.

A localized epidemic or a global pandemic may adversely affect
our business.

A widespread outbreak of influenza, SARS, the H1N1 influenza virus or any other widespread illness (whether domestic or international) or any governmental or World Health Organization travel advisories (whether relating to Canadian or international cities or regions) could affect our ability to continue full operations and could materially adversely affect demand for air travel. We cannot predict the likelihood of such a public health emergency or the effect that it may have on our business or the market price of our securities. However, any significant reduction in guest
traffic on our network could have a material adverse effect on our business, results from operations and financial condition.

Governmental fee increases discourage air travel.

All commercial service airports in Canada are regulated by the federal government. Airport authorities continue to implement or increase various user fees that impact travel costs for guests, including landing fees for airlines and airport improvement fees. Airport authorities generally have the unilateral discretion to implement and adjust such fees. The combined increased fees, and increases in rents under various lease agreements between airport authorities and the Government of Canada, which in many instances are passed through to air carriers and air travellers, may negatively impact travel, in particular, discretionary travel.

Increases in air navigation fees in Canada could have a negative impact on our business and our financial results.

Please refer to Accounting – Financial instruments and risk management below for a further discussion on risks.

ACCOUNTING

Financial instruments and risk management

Our financial assets and liabilities consist primarily of cash and cash equivalents, accounts receivable, derivatives both designated and not designated in an effective hedging relationship, deposits, accounts payable and accrued liabilities, long-term debt, and capital lease obligations.

We are exposed to market, credit and liquidity risks associated with our financial assets and liabilities. From time to time, we use various financial derivatives to reduce market risk exposures from changes in foreign exchange rates, interest rates and jet fuel prices. We do not hold or use any derivative instruments for trading or speculative purposes.

Overall, our Board of Directors has responsibility for the establishment and approval of our risk management policies. Management continually performs risk assessments to ensure

t hat all significant risks related to us and our operations have been reviewed and assessed to reflect changes in market conditions and our operating activities.

Fuel risk

The airline industry is inherently dependent upon jet fuel to operate and, therefore, we are exposed to the risk of volatile fuel prices. Fuel prices are affected by a host of factors outside our control, such as significant weather events, geopolitical tensions, refinery capacity, and global demand and supply. To provide management with reasonable foresight and predictability into operations and future cash flows, we periodically use short-term and long-term financial derivatives. Upon proper qualification, we designate our fuel derivatives as cash flow hedges for accounting purposes. For a discussion of the nature and extent of our use of40 WestJet 2010 Annual Report fuel derivatives for the years ended December 31, 2010 and 2009, including the business purposes they serve; risk management activities; the financial statement classification and amount of income, expense, gain and loss associated with the instruments; and the significant assumptions made in determining their fair value, please refer to Results of operations – Aircraft fuel on page 16 of this MD&A.

Foreign exchange risk

Foreign exchange risk is the risk that the fair value of recognized
assets and liabilities or future cash flows would fluctuate as a result of changes in foreign exchange rates. We are exposed to foreign exchange risks arising from fluctuations in exchange rates on our US-dollar-denominated net monetary assets and our operating expenditures, mainly aircraft fuel, aircraft leasing expense, certain maintenance costs and a portion of airport operations costs. To manage our exposure, we periodically use financial derivative instruments, including US-dollar foreign exchange forward contracts and option arrangements. Upon proper qualification, we designate our foreign exchange forward contracts as cash flow hedges for accounting purposes. For
a discussion of the nature and extent of our use of US-dollar foreign exchange forward contracts and option arrangements, including the business purposes they serve; risk management activities; the financial statement classification and amount of income, expense, gain and loss associated with the instruments; and the significant assumptions made in determining their fair value, please refer to Results of operations – Foreign exchange on page 26 of this MD&A.

Interest rate risk

Interest rate risk is the risk that the value of financial assets
and liabilities or future cash flows will fluctuate as a result of changes in market interest rates. We are exposed to interest rate
fluctuations on short-term investments included in our cash and cash equivalents balance. We are also exposed to interest rate fluctuations on our deposits that relate to purchased aircraft and airport operations which, as at December 31, 2010, totalled $28.3 million (2009 – $27.3 million). The fixed-rate nature of the majority of our long-term debt reduces the risk of interest rate fluctuations over the term of the outstanding debt. Additionally, we are exposed to interest rate fluctuations on our variable-rate long-term debt, which as at December 31, 2010, totalled $6.8 million (2009 – $8.6 million) or 0.6 per cent (2009 – 0.7 per cent) of our total long-term debt.

Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. As at December 31, 2010, our credit exposure consisted primarily of the carrying amounts of cash and cash equivalents, accounts receivable, deposits, as well as the fair value of derivative financial assets. Cash and cash equivalents consist of bank balances and short-term investments with terms of up to one year, with the majority having terms of less than 91 days. Credit risk associated with cash and cash equivalents is minimized substantially by ensuring that these financial assets are invested primarily in debt instruments with highly rated financial institutions, many with provincial-government-backed guarantees. Furthermore, we manage our exposure risk by assessing the financial strength of our counterparties and by limiting the total exposure to any one individual counterparty. As at December 31, 2010, we had a total principal amount invested of $913.2 million (2009 – $813.2 million) in Canadian-dollar short-term investments with terms ranging between five and 365 days, and a total of US $45.2 million (2009 – US $nil) invested in US-dollar short-term investments. We perform an ongoing review to evaluate our risk associated with cash and cash equivalent counterparties. As at December 31, 2010, we do not expect any counterparties to fail to meet their obligations.

As at December 31, 2010, our trade receivables accounted for $12.4 million (2009 – $8.7 million) of total receivables. The remainder is related to receivables from travel agents, interline agreements with other airlines and partnerships. All significant services and counterparties are reviewed and approved for credit on a regular basis. Receivables are short-term in nature, generally being settled within 30 to 60 days.

We recognize that we are subject to credit risk arising from derivative transactions that are in an asset position at the balance sheet date. We carefully monitor this risk by closely considering the size, credit rating and diversification of the counterparty.WestJet 2010 Annual Report 41 As at December 31, 2010, fuel derivatives of $5.7 million (2009 – $0.1 million) and foreign exchange derivatives of $nil (2009 – $0.2 million) outstanding with our counterparties were in an asset position. We do not expect these counterparties to fail to meet their obligations.

We are not exposed to counterparty credit risk on our deposits that relate to purchased aircraft, as the funds are held in a security trust separate from the assets of the financial institution. While we are exposed to counterparty credit risk on our deposits relating to airport operations, we consider this risk as remote because of the nature of the deposit and the credit risk rating of the counterparty. Liquidity risk

Liquidity risk is the risk that we will encounter difficulty in meeting obligations associated with financial liabilities. We maintain a strong liquidity position and sufficient financial resources to meet our obligations as they fall due.

The table below presents a maturity analysis of our undiscounted
contractual cash flow for our non-derivative and derivative financial liabilities as at December 31, 2010. The analysis, based on foreign exchange and interest rates in effect at the balance sheet date, includes both principal and interest cash flows for long-term debt and obligations under capital leases.

A portion of our cash and cash equivalents balance relates to cash collected on advance ticket sales, for which the balance at December 31, 2010, was $308.0 million (2009 – $286.4 million). Typically, we have cash and cash equivalents on hand to have sufficient liquidity to meet our liabilities when due, under both normal and stressed conditions. As at December 31, 2010, we had cash on hand of 3.86 (2009 – 3.51) times the advance
ticket sales balance. We aim to maintain a current ratio of at least 1.00. As at December 31, 2010, our current ratio was 1.52 (2009 – 1.48). As at December 31, 2010, we have not been required to post collateral with respect to any of our outstanding
derivative contracts. Fair value of financial instruments

Fair value represents a point-in-time estimate. The carrying amount of cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities included in the balance sheet approximate their fair values because of the short-term nature of the instruments. The fair value of deposits, which relate to purchased aircraft and airport operations, approximates their carrying amounts as they are at a floating market rate of interest. At December 31, 2010, the fair value of our fixed-rate long-term debt was approximately $1,142.0 million (2009 – $1,323.1 million). ($ in thousands) Carrying Amount Within 1 year 1–3 years 4–5 years Over 5 years Accounts payable and accrued liabilities (i) $ 299,204 $ 299,204 $ — $ — $ — Foreign exchange derivatives 3,579 3,579

— — — Fuel derivatives 800 800

— — — Long-term debt 1,232,319 235,215 414,455 341,920 240,729 Obligations under capital leases 5,878 282 490 490 4,616 Total $ 1,541,780 $ 539,080 $ 414,945 $ 342,410 $ 245,345

(i) Excludes foreign exchange derivatives of $3,579 and fuel derivatives of $800.42 WestJet 2010 Annual Report The fair value of our fixed-rate long-term debt is determined by discounting the future contractual cash flow under current financing arrangements at discount rates obtained from the lender, which represent borrowing rates presently available to us for loans with similar terms and remaining maturities. As at December 31, 2010, rates used in determining the fair value ranged from 2.00 per cent to 2.74 per cent (2009 – 2.28 per cent to 3.27 per cent). The fair value of our variable-rate long-term debt approximates its carrying value, as it is at a floating market rate of interest. Please refer to Results of operations – Aircraft fuel and Results of operations – Foreign exchange on pages 21 and 26, respectively, of this MD&A for a discussion of the significant assumptions made in determining fair value of derivatives both designated and not designated in an effective hedging relationship.

Critical accounting estimates

Our significant accounting policies are described in note 1 to our consolidated financial statements for the year ended December 31, 2010. The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions regarding significant items that affect the amounts reported in the consolidated financial statements and accompanying notes. Changes in facts and circumstances may result in revised estimates, and actual results may differ
from these estimates.

We have identified the following areas that contain critical accounting estimates utilized in the preparation of our consolidated
financial statements:

Depreciation and amortization, asse t retirement obligations and impairment assessments of long-lived assets

We make estimates about the expected useful lives, depreciation and amortization methods, projected residual values, asset retirement obligations, and the potential for impairment of our property and equipment and intangible assets.

In estimating the useful lives and expected residual values of our property and equipment and intangible assets, we rely on third party industry market valuations, recommendations from Boeing and actual experience with the asset. Revisions to the estimates for our fleet can be caused by changes in the utilization of the aircraft or changing market prices of used aircraft of the same type.

We provide for asset retirement obligations to return leased aircraft to certain standard conditions specified within our lease agreements.

We evaluate our estimates and potential impairment on all property and equipment and intangible assets when events or changes in circumstances indicate that the carrying value may
not be recoverable.

Non-refundable guest credits

We make estimates in accounting for our liability related to certain types of non-refundable guest credits. We issue future travel credits to guests for flight changes and cancellations, as well as for gift certificates. Where appropriate, future travel credits are also issued for flight delays, missing baggage and other inconveniences. All credits are non-refundable and expire based on the nature of the credit, except for gift certificates, which do not expire. We record a liability depending on the nature of
the credit at either the full value or at the incremental cost of a one-way flight in the period the credit is issued. The utilization of guest credits is recorded as revenue when the guest has flown or upon expiry.

Future income tax

We use the asset and liability method of accounting for future income taxes. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year. Future income tax assets and liabilities are recognized for temporary differences between the tax and accounting bases of assets and liabilities, calculated using the currently enacted or substantively enacted tax rates anticipated to apply in the period that the temporary differences are expected to reverse. Future income tax inflow and outflow are subject to estimation in terms of both timing and amount of future taxable earnings. Should these estimates change, the carrying value of income tax assets or liabilities may change.WestJet 2010 Annual Report 43 Stock-based compensation expense

Grants under our stock-based compensation plans are accounted for in accordance with the fair-value-based method of accounting. For stock-based compensation plans that will settle through the issuance of equity, the fair value of the option or unit is determined on the grant date using a valuation model and recorded as compensation expense over the period that the stock option or unit vests, with a corresponding increase to contributed surplus. The fair value of stock options is estimated on the date of grant using the Black-Scholes option pricing model, and the fair value of our other equity-based share unit plans is determined based on the market value of our voting shares on the date of the grant. Upon the exercise of stock options or units, consideration received, together with amounts previously recorded in contributed surplus, are recorded as an increase in share capital. The Black-Scholes option pricing model was developed for use in estimating the fair value of short-term traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of somewhat subjective assumptions, including expected share price volatility. Changes in estimates and assumptions would change the fair value of the options and the related compensation expense recognized each period.

Valuation of derivative financial instruments

The fair values of derivative financial instruments are calculated
on the basis of information available at the balance sheet date. The fair value of the foreign exchange forward contracts is measured
based on the difference between the contracted rate and the current forward price obtained from the counterparty, which can be observed and corroborated in the marketplace.

The fair value of the fuel derivatives designated in an effective hedging relationship is determined using inputs, including quoted forward prices for commodities, foreign exchange rates and interest rates, which can be observed or corroborated in the marketplace. The fair value of the call options and collars is estimated by the use of a standard option valuation technique. Ineffectiveness is inherent in hedging jet fuel with derivative instruments in other commodities, such as crude oil, given the significant volatility observed in the market on crude oil and related products. Because of this volatility, we are unable to predict the amount of ineffectiveness for each period. This may result in increased volatility in our results.

Fair value of awards and breakage associated with the frequent guest program (FGP)

It is necessary for management to utilize judgment and estimates in preparing the accounting transactions for the FGP. Fair value is management’s estimate of the expected awards for which the credit will be redeemed and is reduced by the proportion of
credits that have been redeemed relative to the total number expected to be redeemed (breakage). Estimates are required in calculating the fair value of the dollars awarded, the revenue to be deferred, in estimating the expected redemption rates of the credits including accounting for breakage, and in determining the fair value of free companion flights. Given the nature and significance of many of the assumptions used in determining the accounting for the FGP, it may be common to have changes in estimates that affect the recorded amounts of the obligations or deferred revenue. Changes in estimates will be accounted for prospectively.

Recent accounting pronouncements and changes

IFRS
On February 13, 2008, the Accounting Standards Board (AcSB) confirmed that the changeover to IFRS from Canadian GAAP will be required for publicly accountable enterprises for interim and annual financial statements, effective for fiscal years beginning on or after January 1, 2011, including comparatives for 2010. The objective is to improve financial reporting by having one single set of accounting standards that are comparable with other
entities on an international basis.

We commenced our IFRS conversion project during 2008 and established a formal project governance structure, including an44 WestJet 2010 Annual Report IFRS Steering Committee, to monitor the progress and critical decisions in the transition to IFRS. The Steering Committee consists of senior levels of management from Finance, Treasury and Investor Relations, among others. An external advisor has been engaged to work with our conversion project team to complete the conversion. Additionally, we have engaged our external auditors to review accounting policy determinations as they are assessed by the project team. Regular reporting is provided by the project team to senior management, the Steering Committee
and the Audit Committee of the Board of Directors.

We have an IFRS transition plan that includes a timetable for assessing the impact on systems, internal controls over financial reporting (ICFR) and business activities. Our IFRS conversion project consists of three phases: Diagnostic, Solution Development, and Implementation and Execution. We completed the Diagnostic phase, which involved a high-level preliminary assessment of the differences between Canadian GAAP and IFRS, and the potential effects of IFRS to accounting and reporting processes, information systems, business processes and external disclosures. This assessment provided insight into the most significant differences applicable to us. We have also completed the second phase, Solution Development, which involved an in-depth analysis and evaluation of the financial impact of various alternatives provided for under IFRS; identification of effects on operational and business processes, analysis of disclosure requirements, analysis of the optional exemptions and mandatory exceptions of First-Time Adoption of International Financial Reporting Standards (IFRS 1) for full retrospective application upon transition to IFRS; and development of solutions to address the issues identified.

Phase three, Implementation and Execution, is substantially complete. It involves the design and execution of changes to information systems and business processes, completion of formal authorization processes to approve recommended accounting policy changes, training programs across the Finance Department and other affected areas of the business, and addressing opening IFRS balances for January 1, 2010. This phase also involves the collection of financial information necessary to prepare comparative IFRS financial statements and reconciliations for 2011 for approval by the Audit Committee, and embedding IFRS into day-to-day business processes.

Please see the table on page 45 for certain elements of our IFRS transition plan and an assessment of progress towards achieving these milestones. Given the progress of the project and outcomes identified, we could change our intentions between the time of communicating these key milestones and the changeover date. Further, changes in regulation or economic conditions at the date of the changeover or throughout the project could result in changes to the transition plan being communicated here.WestJet 2010 Annual Report 45 Key activity Key milestones Status Financial statement preparation • Identify differences in Canadian GAAP/IFRS

accounting policies • Select ongoing IFRS policies • Select IFRS 1 choices • Develop fi nancial statement format • Quantify effects of change in initial

IFRS disclosure and 2010 comparative fi nancial statements Senior management and Steering Committee sign-off for all key IFRS accounting policy choices to occur in early 2010. Development of draft fi nancial statement format to occur during the fi rst half of 2010. Completed the IFRS Diagnostic phase during 2008, which involved a high-level review of the major differences between Canadian GAAP and IFRS. The Solution Development phase is complete, and the Implementation and Ex ecution phase is substantially complete, as previously discussed. Our preliminary assessment of the impact of the changeover to IFRS on fi nancial results is disclosed in this MD&A.
Our external auditors have carried out certain initial audit procedures on the IFRS opening balance sheet, and have started their review of the IFRS 2010 quarterly impacts. Training Defi ne and introduce appropriate level of IFRS expertise for each of the following: • Finance Department • Audit Committee Training for the Finance Department throughout 2010. Regular Audit Committee updates are provided once per quarter. Project team expert resources and our external advisor were identifi ed to provide insights and training. Training for project team members is occurring throughout the project, and a detailed training plan created for the Finance Department was delivered in 2010. Additional ongoing training for the Finance Department and other departments will be delivered as needed. Information technology (IT) infrastructure Confi rm that business processes and systems are IFRS compliant, including: • Program upgrades (including any interfaces)

and changes • Gathering data for disclosures Confi rm that systems can address 2010 dual reporting requirements in the fourth quarter of 2009. Confi rm that business processes and systems are IFRS compliant throughout the project. IT proof of concept for dual reporting during 2010 has been completed, and testing and implementation occurred throughout 2010. We are confi dent that there are no signifi cant IT issues that cannot be addressed by our current systems.
We continue to work with affected business units to address business process and IT changes required to embed IFRS into day-to-day processes.

Control environment • For all accounting policy changes

identifi ed, assess control design and effectiveness implications • Implement appropriate changes All key IFRS control design and effectiveness implications to be assessed as part of the key IFRS differences and accounting policy choices through to the end of 2010. New control requirements have been developed for the opening balance sheet, dual reporting period and the maintenance of IFRS after the changeover date. The internal audit team is currently performing testing of these identifi ed controls.

External communications Assess the effects of key IFRS-related accounting policy and fi nancial statement changes on external communications, in particular: • Confi rm 2011 investor communications are IFRS compliant regarding guidance and fi nancial impact • Monitor external communications package • Confi rm investor relations process can respond to IFRS-related queries Analyze and publish the effect of IFRS on the fi nancial statements throughout the project. IFRS disclosure will be updated throughout the project. Investor Relations is represented on the IFRS Steering Committee. An investor relations communications strategy has been formulated, and includes a strategy to analyze effects on management and employee compensation arrangements and plans, and the related communications necessary if changes are required.46 WestJet 2010 Annual Report The transition from Canadian GAAP to IFRS is a significant undertaking that will materially affect our reported financial position and results of operations. We continue to monitor standards development as issued by the IASB and the AcSB, as well as regulatory developments as issued by the Canadian Securities Administrators (CSA), which may affect the timing, nature or disclosure of our adoption of IFRS.

Our preliminary assessment of the impact of adopting IFRS based on the current standards has identified the following areas as potentially having the most significant impact on our consolidated financial statements. This should not be regarded as a complete list of changes that will result from the transition to IFRS, but rather is intended to highlight the areas we believe to be the most significant. As we finalize the Implementation and Execution phase, we will confirm additional changes

. These assessments are based on available information and our expectations as of the date of this MD&A and, thus, are subject to change based on new facts and circumstances.

IFRS 1 provides entities adopting IFRS for the first time with a number of optional exemptions and mandatory exceptions, in certain areas, to the general requirement of full retrospective application of IFRS. Most adjustments required on transition to IFRS will be made retrospectively against opening retained earnings in the first comparative balance sheet. We do not anticipate any changes to the previously reported cash flows as a result of adopting IFRS.WestJet 2010 Annual Report 47 Canadian GAAP IFRS adjustments IFRS

Assets Current assets (i) $ 1,118 $ 12 $ 1,129 Property, equipment and intangibles (ii) 2,322 (199) 2,122 Long-term assets (iii) 54 44 98 $ 3,494 $ (144) $ 3,350

Liabilities Current liabilities (iv) $ 754 $ 1 $ 756 Long-term debt (v) 1,052 (20) 1,032 Other long-term liabilities (vi) 20 81 101 Future income tax (vii) 279 (54) 225 $ 2,105 $ 8 $ 2,113 Shareholders’ equity Share capital and AOCL $ 618 $ — $ 618 Contributed surplus (viii) 72 4 76 Retained earnings 699 (156) 543 $ 1,389 $ (152) $ 1,237 $ 3,494 $ (144) $ 3,350
(i) Total adjustment to current assets includes an increase of $9 million related to the current portion of maintenance reserves recoverable, an increase of $6 million related to expendable inventories not previously recognized, offset by a $3 million reclassifi cation of future income taxes from current to long term. (ii) The property and equipment decrease is due to componentization of aircraft, as well as the change in depreciation methods. (iii) The increase to other long-term assets is due to the recognition of the maintenance reserves recoverable. (iv) Total adjustment to current liabilities is an $8 million increase related to the current portion of maintenance provisions, offset by a $6 million reduction in current portion of long-term debt related to the change in accounting for transaction costs, and a reduction of $1 million in non-refundable guest credits related to the change in accounting for soft dollar credit fi les. (v) The reduction in long-term debt is related to the change in the accounting treatment for transaction costs. (vi) Total adjustment to other long-term liabilities includes an increase of $86 million related to maintenance provisions, offset by a decrease of $5 million related to the removal of the deferred gain on a sale-leaseback transaction. (vii) The reduction in future income tax liability results from the future tax impact of all accounting changes on changeover t o IFRS, as well as the reclassifi cation of $3 million from current to long-term future income tax liability. (viii) The increase to contributed surplus is related to the difference in the service period used to recognize share-based payments. Preliminary unaudited consolidated condensed balance sheet January 1, 2010 ($ in millions)

Below is a summary of the preliminary unaudited estimated impact of IFRS adjustments on our 2010 opening consolidated
balance sheet:48 WestJet 2010 Annual Report Preliminary unaudited impact to certain line items on the 2010 statement of earnings
($ in millions)

The following illustrates our preliminary unaudited estimated pre-tax impact to specific items on our 2010 statement of earnings. This table does not present all of our 2010 IFRS adjustments, rather, only the most significantly affected expenses are included. The remaining adjustments are not expected to have a material net impact on our 2010 IFRS earnings before tax.

As noted in the table below, our estimated 2010 IFRS depreciation and maintenance charges are expected to be higher than those recorded under Canadian GAAP. This increase is due strictly to timing of expense recognition, and overall expenses related to the maintenance of our fleet will ultimately be the same under
IFRS and Canadian GAAP.

The increases in 2010 are related to the timing and recognition of major engine maintenance costs for both our owned and leased aircraft. Under Canadian GAAP, the costs of major engine maintenance are recognized as incurred. Because of the young age of our fleet, we have not performed significant levels of engine overhauls prior to 2011. Under our current maintenance plan, we anticipate that increasing levels of major maintenance will be performed beginning in 2013. For leased aircraft, under IFRS, these costs are recognized over the term of the lease based on usage of the aircraft, rather than being based on the actual maintenance event occurring. As a result, there will be timing differences in expense recognition between IFRS and Canadian GAAP, where in years when significant major maintenance events occur, IFRS maintenance costs would be otherwise lower, assuming a consistent fleet size and composition, than those recognized under Canadian GAAP.

Depreciation expense under IFRS is also increased as compared to that recognized under Canadian GAAP in 2010, due to the fact that major maintenance events are recognized as a separate component of the overall aircraft cost, and depreciated
over a shorter useful life until the next scheduled overhaul. Under Canadian GAAP, these overhaul expenses would not have been capitalized, rather, they would have been recognized as maintenance expense when incurred.

These differences are related to the accounting recognition of expenditures; therefore, we do not expect any changes in cash flows as a result of adopting IFRS.

We expect that income tax expense for 2010 will decrease as a result of lower expected 2010 earnings before income tax under IFRS, as compared to under Canadian GAAP.

Significant accounting policy differences

We have identified the following significant differences between our current accounting policies and those required or expected to apply in preparing IFRS financial statements. The estimated impact for 2010 is discussed for certain of these differences. 1. Property, plant and equipment

Componentization

Canadian GAAP – Maintenance and repair costs for owned aircraft, including major overhauls, are currently charged to expense at the time maintenance is performed.

IFRS – Each item of property and equipment with a significant cost in relation to the total cost and/or a different useful life is required to be depreciated separately. The costs of activities ($ in millions) Note Canadian GAAP IFRS adjustments IFRS Depreciation and amortization 1 $ 133 $ 35–40 $ 168–173 Maintenance expense 2 100 15–20 115–120 Interest expense 2, 4 60 8–12 68–72 $ 58–72WestJet 2010 Annual Report 49 that restore the service potential of airframes, engines and landing gear will be considered components of the aircraft and will be added to the carrying amount of the asset and amortized over the period until the next overhaul.

Depreciation

Canadian GAAP – Currently, depreciation of our owned aircraft is based on aircraft cycles.

IFRS – As a result of componentization as described above, we have made an election to change the depreciation method of our aircraft to the straight-line method, which most closely reflects the expected pattern of consumption of the future economic benefits embodied in the assets, as we estimate that the aircraft will be retired after a specified time period rather than a specified number of cycles flown. Our policy will be to depreciate our aircraft on a straight-line basis over a period of 20 years.

Estimated 2010 impact

Depreciation and amortization expense for the 2010 period is estimated to increase by approximately $35 to $40 million due to the increased depreciation expense related to the componentization of our aircraft, as well as the change in depreciation method from a units-of-production (cycles) to a straight-line method.

2. Provisions, contingent liabilities and contingent assets

Maintenance provision for leased aircraft

Canadian GAAP – For our aircraft under operating leases provisions for future maintenance expenses related to aircraft lease return conditions are not currently recognized. Expenses for maintenance are recognized as incurred.

IFRS – A provision will be recognized during the lease term for the future obligation to return the aircraft to the lessor at or better than contractually specified maintenance levels.

Maintenance Reserves

Canadian GAAP – A number of aircraft leases also require WestJet to pay maintenance reserves to the lessor. The purpose of these payments is to provide the lessor with collateral
should an aircraft be returned in a condition that does not meet the maintenance requirements of the lease. These payments are currently expensed when due under contract. If a maintenance event occurs that qualifies for reimbursement, a receivable is recognized at the same time the maintenance
costs are recorded.

IFRS – As maintenance reserves are either refunded when qualifying maintenance is performed, these payments will be recognized as an asset. As qualifying maintenance is performed and reimbursed, the asset will be drawn down. At any time, where the amount of maintenance reserves paid exceeds the estimated amount recoverable from the lessor, the non-recoverable amount will be expensed.

Soft dollar credit files

Canadian GAAP – Soft dollar credit files are credits provided to guests as a sign of goodwill to be used towards future travel. These are recorded as an expense and as a liability at the issue date, and measured at incremental cost.

IFRS – The issuance of discretionary credit files does not require a performance obligation to be fulfilled by WestJet, nor is the issuance part of a sales transaction and, therefore, no obligation exists at the time of the issue. As such, soft dollar credit files will no longer be recognized as a liability upon issuance but rather recognized as a reduction to revenue upon redemption.

Estimated 2010 impact

Maintenance expense for the 2010 period is expected to increase by approximately $15 to $20 million due to the recognition of maintenance provisions over the term of the aircraft lease, offset by the maintenance reserves recoverable related to the maintenance provisions.

Interest expense for 2010 is expected to increase by approximately $3 to $5 million related to the accretion of the maintenance provision.50 WestJet 2010 Annual Report 3. Leases

Canadian GAAP – The profit on sale-leaseback transactions from 2005 is currently being deferred and recognized on a straight-line basis over the lease term.

IFRS – There is a requirement to recognize the profit from these types of sale-leaseback transactions immediately into
income.

4. Financial instruments – recognition and measurement

Canadian GAAP – Transaction costs which are incremental and directly attributable to the acquisition, issue or disposal of a financial asset or liability are currently being expensed as incurred. Specifically, this difference relates to transaction costs on our long-term debt.

IFRS – Transaction costs are required to be added to the initial measurement and recognition of the financial instrument. Using the effective interest method, the amount would then be recognized as a deduction to net earnings over the remaining terms of the long-term debt as interest expense.

Estimated 2010 impact

We expect that interest expense for 2010 will be increased by approximately $5 to $7 million due to the timing of expense recognition for transaction costs.

5. Income taxes

The impact of IFRS on WestJet will be derived directly from the accounting policy decisions made under other standards.

6. Share-based payments

Canadian GAAP – Share-based awards are currently measured at fair value, with compensation expense being recognized over the vesting period. For equity-settled plans, we recognize a corresponding increase in equity, and for our cash-settled plans, we recognize a corresponding increase in a liability.

IFRS – The recognition period under IFRS is based on a service period and may commence prior to the date of a share-based grant. This represents a difference in the timing of expense recognition and ultimately does not impact the overall expense. MANAGEMENT’S ANNUAL REPORT ON DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

Disclosure controls and procedures (DC&P)

Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to management, including the CEO and the Chief Financial Officer (CFO), on a timely basis so that appropriate decisions can be made regarding public disclosure.

An evaluation of the design and operation of our DC&P was conducted, as at December 31, 2010, by management under the supervision of the CEO and the CFO. Based on this evaluation, the CEO and the CFO have concluded that, as at December 31, 2010, our DC&P, as defined by the CSA in National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings,
were effective.
Internal control over financial reporting (ICFR)

ICFR is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Canadian GAAP. Management is responsible for establishing and maintaining adequate ICFR.

Our ICFR includes policies and procedures that pertain to the maintenance of records that provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with Canadian GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and directors; that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of our assets; and that are designed to provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have
a material effect on our annual and interim consolidated
financial statements.

Because of its inherent limitations, ICFR can provide only reasonable assurance and may not prevent or detect misstatements. Furthermore, projections of an evaluation of effectiveness to futureWestJet 2010 Annual Report 51 periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Management, under the supervision of the CEO and the CFO, has evaluated the design and operating effectiveness of our ICFR using the framework and criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, the CEO and the CFO have concluded that, as at December 31, 2010, our ICFR as defined by the CSA in National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings, was effective.

Changes in internal controls over financial reporting

During the year ended December 31, 2010, we implemented a new Human Resource Information System (HRIS). The HRIS integrates the majority of the human resource and payroll functions into two new modules of our existing enterprise reporting software solution. Payroll processing was previously outsourced to a third party. The change in the human resource and payroll systems and the related processes has resulted in a change that materially
affects our ICFR.

Management has designed and implemented controls to ensure that all related accounting transactions associated with the system change have received the relevant designation requirements; a reasonable methodology has been established to determine the effectiveness of the HRIS; all related transactions have been accurately measured, reviewed and recorded; and all relevant presentation and disclosure requirements have been included in
the financial statements in accordance with Canadian GAAP.

There have been no other changes to our ICFR during the year ended December 31, 2010, that have materially affected, or are reasonably likely to materially affect, our ICFR. OUTLOOK

Following one of the deepest recessions in recent history, 2010 was a year characterized by economic uncertainty and speculation of a possible double-dip recession. But in the midst of this environment, consumer confidence showed signs of improvement, as did the overall demand for airline travel. We were happy with our 2010 financial results, in particular, the year-over-year growth we realized in our revenue and net earnings figures and our ability to keep our controllable costs relatively flat.

In 2010, we began to capitalize on the investment in our new reservation systems. In 2011, we will continue this trend by building on our key strategic initiatives that include expanding our airline partnerships, enhancing our focus on the business traveller, growing WestJet Vacations revenue, and increasing our market penetration for the co-branded WestJet Credit Card and WestJet Frequent Guest programs.

Expanding the number of our airline partnerships will afford WestJet and its guests an enhanced global reach and also attract more guests into our network. We implemented our first code-share agreement with Cathay Pacific Airways in the fourth quarter of 2010, and we are making good progress towards our goal of completing an additional three to four code-share agreements by the end of 2011. We also expect to sign additional interline agreements and our long-term goal is to partner with airlines from each of the major geographic regions around the world.

The business traveller will benefit from a broader network afforded by the expanding number of airline partnerships. Additional initiatives aimed at enhancing the business traveller’s experience include higher daily frequencies in key business markets, additional flexibility for itinerary changes and the launch of fare-bundling options. By improving convenience and flexibility, our goal is to drive up our higher yielding traffic by increasing loyalty from existing guests and attracting new business
travellers. We have started to see some traction in this area with the signing of some key corporate accounts during 2010.

We expect our first-quarter 2011 fuel costs, excluding the impact of hedging, to range between $0.82 and $0.84 per litre, which represents a year-over-year increase of 21 to 24 per cent from52 WestJet 2010 Annual Report the first quarter of 2010. As at December 31, 2010, we have hedged approximately 20 per cent of our anticipated jet fuel requirements for the next 12 months.

For the first quarter of 2011, we anticipate that CASM, excluding fuel and profit share, will be flat to down year-over-year on an IFRS-comparable basis. From our inception, maintaining a low-cost structure has been one of the keys to success at WestJet and is ingrained in the way we do business. Throughout 2011, we will roll out more self-tagging baggage functionality at nine additional domestic airports and also exploit some cost-saving opportunities we have identified in the procurement process.

We expect year-over-year capacity to increase between 9 and 10 per cent for the first quarter of 2011, and full-year capacity to increase between 6 and 8 percent as compared to 2010. We will take delivery of three aircraft during the first three months of 2011 and three more throughout the remainder of the year, ending 2011 with a fleet of 97. The additional capacity in the first quarter will continue to be directed into the transborder and international markets with domestic capacity slightly down. Our full-year domestic capacity is expected to grow modestly (1 to 2 per cent) in 2011, with increased frequencies within the eastern triangle, which includes Toronto, Montreal and Ottawa, and core transcontinental routes, including Vancouver-Toronto and Calgary-Toronto. We have also introduced year-round
service on the Ottawa-Halifax and Ottawa-Vancouver routes. These capacity extensions align with our code-share and business traveller strategies.
For 2011, we anticipate total capital expenditures of $95 to $105 million, with the majority of the spending related to aircraft deposits and rotables. We purchased an aircraft in the first quarter of 2011, which is the key reason for the increase in capital expenditures, when compared to 2010 when we added only
leased aircraft.

As we move forward into 2011, we are encouraged by the strengthening yield trend that emerged in the second half of 2010 and the growing optimism surrounding an economic recovery. We expect that first quarter year-over-year RASM improvements will be roughly in line with the positive change seen in the fourth quarter of 2010. We realize fuel costs may be a headwind in 2011, but we firmly believe that our fundamental low-cost structure and strong balance sheet positions us well to weather fuel price uncertainty. We will continue to capitalize on the recent investment in our new reservations systems. Momentum is building and our WestJet brand is stronger than ever. For 2011, we are confident in our ability to continue to achieve profitable growth, driven by the commitment of each and every one of our over 8,000 WestJetters.

NON-GAAP MEASURES

To supplement our consolidated financial statements presented in accordance with Canadian GAAP, we use various non-GAAP performance measures as discussed below. These measures are provided to enhance the reader’s overall understanding of our current financial performance; they are included to provide investors and management with an alternative method for assessing our operating results in a manner that is focused on the performance of our ongoing operations and to provide a more consistent basis for comparison between quarters. These measures are not in accordance with, or an alternative to, Canadian GAAP and do not have standardized meanings. Therefore, they are not likely to be comparable to similar measures presented by other entities.

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

Adjusted debt: The sum of long-term debt, obligations under capital leases and off-balance-sheet aircraft operating leases. Our practice, consistent with common industry practice, is to multiply the trailing 12 months of aircraft leasing expense by 7.5 to derive a present value debt equivalent. This measure is used in the calculation of adjusted debt-to-equity and adjusted net debt to EBITDAR, as defined below.

Adjusted equity : The sum of share capital, contributed surplus and retained earnings, excluding AOCL. This measure is used in the calculation of adjusted debt-to-equity.WestJet 2010 Annual Report 53 Adjusted net debt: Adjusted debt less cash and cash equivalents. This measure is used in the calculation of adjusted net debt to EBITDAR, as defined below.

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

Net earnings and diluted earnings per share, excluding special
items: We believe excluding special items is useful for investors to evaluate our recurring operational performance.

CASM, excluding fuel and employee profit share: We exclude the effects of aircraft fuel expense and employee profit share expense to assess the operating performance of our business. Fuel expense is excluded from our operating results because fuel prices are affected by a host of factors outside our control, such as significant weather events, geopolitical tensions, refinery capacity, and global demand and supply. Excluding this expense allows us to analyze our operating results on a comparable basis. Employee profit share expense is excluded from our operating results because of its variable nature and excluding this expense allows for greater comparability.

Aircraft fuel expense, excluding hedging: As presented in the
non-GAAP measures to GAAP reconciliation on 20 of this MD&A under the heading Results of operations – Aircraft fuel, we believe it is useful to reflect aircraft fuel expense excluding hedging, which excludes the effective portion of realized losses on fuel derivatives and ineffectiveness. Since fuel expense is highly volatile, we believe presenting the cost of fuel, both including and excluding the effects of hedging, is useful to a reader. This reconciliation table has not been repeated in this section.

Return on invested capital: ROIC is a measure commonly used to assess the efficiency with which a company allocates its capital to generate returns. Return is calculated based on our earnings before tax, excluding special items, interest expense, and implied interest on our off-balance-sheet aircraft operating leases. Invested capital includes average long-term debt, average capital lease obligations, average shareholders’ equity and off-balance-sheet aircraft operating leases.

Free cash flow: Operating cash flow less capital expenditures.
This measure is used to calculate the amount of cash available that can be used to pursue other opportunities after maintaining and expanding the asset base.

Free cash flow per share: Free cash flow divided by the diluted weighted average number of shares outstanding.

Operating cash flow per share: Cash flow from operations divided by the diluted weighted average number of shares outstanding.54 WestJet 2010 Annual Report Reconciliation of non-GAAP measures to GAAP

($ in thousands, except ratio amounts) 2010 2009 Change Adjusted debt-to-equity Long-term debt (i) $ 1,047,177 $ 1,219,777 $ (172,600) Obligations under capital leases (ii) 3,357 4,102 (745)
Off-balance-sheet aircraft leases (iii) 1,066,815 779,655 287,160 Adjusted debt $ 2,117,349 $ 2,003,534 $ 113,815 Total shareholders’ equity 1,507,679 1,388,928 118,751 Add: AOCL 10,470 14,852 (4,382) Adjusted equity $ 1,518,149 $ 1,403,780 $ 114,369 Adjusted debt-to-equity 1.39 1.43 (2.8%)

Adjusted net debt to EBITDAR (iv) Net earnings $ 136,720 $ 98,178 $ 38,542
Add: Net interest (v) 50,254 62,105 (11,851)
Taxes 59,947 38,618 21,329 Depreciation and amortization 132,894 141,303 (8,409) Aircraft leasing 142,242 103,954 38,288 Other (vi) 814 10,478 (9,664)
EBITDAR $ 522,871 $ 454,636 $ 68,235 Adjusted debt (as above) 2,117,349 2,003,534 113,815 Less: Cash and cash equivalents (1,187,899) (1,005,181) (182,718) Adjusted net debt $ 929,450 $ 998,353 $ (68,903) Adjusted net debt to EBITDAR 1.78 2.20 (19.1%)

(i) As at December 31, 2010, long-term debt includes the current portion of long-term debt of $183,681 (2009 – $171,223) and long-term debt of $863,496 (2009 – $1,048,554). (ii) As at December 31, 2010, obligations under capital leases includes the current portion of obligations under capital leases of $108 (2009 – $744) and obligations under capital leases of $3,249 (2009 – $3,358). (iii) Off-balance-sheet aircraft leases is calculated by multiplying the trailing twelve months of aircraft leasing expense by 7.5. As at December 31, 2010, the trailing twelve months of aircraft leasing costs totalled $142,242 (2009 – $103,954). (iv) The trailing twelve months are used in the calculation of EBITDAR. (v) As at December 31, 2010, net interest includes the trailing twelve months of interest income of $9,910 (2009 – $5,601) and the trailing twelve months of interest expense of $60,164 (2009 – $67,706). (vi) As at December 31, 2010, other includes the trailing twelve months foreign exchange loss of $780 (2009 – loss of $12,306) and the trailing twelve months non-operating loss on derivatives of $34 (2009 – gain of $1,828).WestJet 2010 Annual Report 55 ($ in thousands, except per share data) Three months ended December 31 Twelve months ended December 31
2010 2009 2010 2009 Net earnings, excluding special items Net earnings – GAAP $ 47,908 $ 20,175 $ 136,720 $ 98,178 Adjusted for: CEO departure (net of tax) — — 3,700 — Income tax rate reductions and estimate change — (5,051) 2,372 (5,051) Net earnings, excluding special items $ 47,908 $ 15,124 $ 142,792 $ 93,127 Diluted earnings per share, excluding special items $ 0.33 $ 0.11 $ 0.98 $ 0.71

($ in thousands, except per share data) 2010 2009 Change Operating cash fl ow per share Cash fl ow from operating activities $ 443,283 $ 318,661 $ 124,622 Diluted operating cash fl ow per share $ 3.05 $ 2.41 26.6%

($ in thousands, except per unit data) Three months ended December 31 Twelve months ended December 31
2010 2009 2010 2009 CASM, excluding fuel and employee profi t share Operating expenses – GAAP $ 614,011 $ 533,938 $ 2,361,716 $ 2,070,564 Adjusted for: Aircraft fuel expense (179,276) (148,853) (674,608) (570,569) Employee profi t share expense (7,442) (2,297) (22,222) (14,675) Operating expenses, excluding above items – Non-GAAP $ 427,293 $ 382,788 $ 1,664,886 $ 1,485,320 ASMs (in thousands) 5,021,010 4,412,574 19,535,291 17,587,641 CASM, excluding above items – Non-GAAP (cents) 8.51 8.67 8.52 8.4556 WestJet 2010 Annual Report ($ in thousands, except percentage amounts) 2010 2009 Change Return on invested capital Earnings before income taxes $ 196,667 $ 136,796 $ 59,871
Add: Special items before tax (i) 5,368

— 5,368 Interest expense 60,164 67,706 (7,542) Implicit interest in operating leases (ii) 74,677 54,576 20,101 $ 336,876 $ 259,078 $ 77,798 Invested capital: Average long-term debt (iii) $ 1,133,477 $ 1,285,840 $ (152,363) Average obligations under capital leases (iv) 3,730 2,605 1,125 Average shareholders' equity 1,448,304 1,232,459 215,845 Off balance-sheet operating leases (v) 1,066,815 779,655 287,160 $ 3,652,326 $ 3,300,559 $ 351,767 Return on invested capital 9.2% 7.8% 1.4 pts.

(i) For the year ended December 31, 2010 special items before tax includes $4,136 for CEO departure and $1,232 for revisions to the calculation of capital taxes. (ii) Interest implicit in operating leases is equal to 7.0 per cent of 7.5 times the trailing 12 months of aircraft lease expense. 7.5 is a proxy and does not necessarily represent actual for any given period. (iii) Average long-term debt includes the current portion and long-term portion. (iv) Average capital lease obligations includes the current portion and long-term portion. (v) Off-balance-sheet aircraft leases is calculated by multiplying the trailing 12 months of aircraft leasing expense by 7.5. As at December 31, 2010, the trailing 12 months of aircraft leasing costs totalled $142,242 (2009 – $103,954).

($ in thousands, except per share data) 2010 2009 Change
Free cash fl ow Cash fl ow from operating activities $ 443,283 $ 318,661 $ 124,622 Adjusted for capital expenditures: Aircraft additions (29,884) (118,659) 88,775 Other property and equipment and intangible additions (18,675) (48,021) 29,346 Free cash fl ow $ 394,724 $ 151,981 $ 242,743
Diluted free cash fl ow per share $ 2.72 $ 1.15 136.5%WestJet 2010 Annual Report 57 

# CONSOLIDATED FINANCIAL STATEMENTS AND NOTES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 200958 WestJet 2010 Annual ReportWestJet 2010 Annual Report 59 

# MANAGEMENT’S REPORT TO THE SHAREHOLDERS

The consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles. When a choice between accounting methods exists, management has chosen those they deem conservative and appropriate in the circumstances. Financial statements will, by necessity, include certain amounts based on estimates and judgments. Management has determined such amounts
on a reasonable basis to ensure that the consolidated financial statements are presented fairly in all material respects. Financial information contained in this report is consistent, where appropriate, with the information and data contained in
the consolidated financial statements. All information in this report is the responsibility of management.

Management has established systems of internal control, including disclosure controls and procedures and internal controls over financial reporting, which are designed and operated to provide reasonable assurance that financial and non-financial information that is disclosed is timely, complete, relevant and accurate. These systems of internal control also serve to safeguard the Corporation’s assets. The systems of internal control are monitored by management, and further supported by an internal audit department whose functions include reviewing internal controls and their applications.

T he Board of Directors is responsible for the overall stewardship and governance of the Corporation, including ensuring management fulfills its responsibility for financial reporting and internal control, and reviewing and approving the consolidated financial statements. The Board carries out this responsibility principally through its Audit Committee.

The Audit Committee of the Board of Directors, composed of independent Directors, meets regularly with management, the internal auditors and the external auditors to satisfy itself that each is properly discharging its responsibilities, and to review the consolidated financial statements and management’s discussion and analysis. The Audit Committee reports its findings to the Board of Directors prior to the approval of such statements
for issuance to the shareholders. The Audit Committee also recommends, for review by the Board of Directors and approval of shareholders, the reappointment of the external auditors. The internal and external auditors have full and free access to the
Audit Committee.

The consolidated financial statements have been audited by KPMG LLP, the independent external auditors, in accordance with generally accepted auditing standards on behalf of the shareholders. The auditors’ report outlines the scope of their examination and sets forth their opinion.

Gregg Saretsky
President and Chief Executive Officer

Vito Culmone Executive Vice-President, Finance and
Chief Financial Officer

Calgary, Canada February 8, 201160 WestJet 2010 Annual Report 

# INDEPENDENT AUDITOR’S REPORT

To the Shareholders

We have audited the accompanying consolidated financial statements of WestJet Airlines Ltd. (the Company), which comprise the balance sheets as at December 31, 2010 and 2009, and the consolidated statements of earnings, shareholders’ equity, comprehensive income and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform an audit to obtain reasonable
assurance about whether the consolidated financial statements
are free from material misstatement.

An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of WestJet Airlines Ltd. as at December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

Chartered Accountants

Calgary, Canada February 8, 2011WestJet 2010 Annual Report 61 

# CONSOLIDATED STATEMENT OF EARNINGS

For the years ended December 31 (Stated in thousands of Canadian dollars, except per share amounts)

2010 2009

Revenues: Guest $ 2,405,281 $ 2,067,860
Other 203,980 213,260 2,609,261 2,281,120 Expenses: Aircraft fuel 674,608 570,569 Airport operations 388,392 352,333 Flight operations and navigational charges 325,754 298,762 Sales and distribution 255,777 172,326 Marketing, general and administration 195,185 208,316 Aircraft leasing 142,242 103,954 Depreciation and amortization 132,894 141,303 Infl ight 124,303 112,054 Maintenance 100,339 96,272 Employee profi t share 22,222 14,675 2,361,716 2,070,564 Earnings from operations 247,545 210,556

Non-operating income (expense):
Interest income 9,910 5,601 Interest expense (60,164) (67,706) Loss on foreign exchange (780) (12,306) Gain (loss) on disposal of property and equipment 190 (1,177) Gain (loss) on derivatives (note 13) (34) 1,828 (50,878) (73,760) Earnings before income taxes 196,667 136,796

Income tax expense (note 9) : Current 1,573 2,690 Future 58,374 35,928 59,947 38,618 Net earnings $ 136,720 $ 98,178

Earnings per share (note 10) : Basic $ 0.94 $ 0.74
Diluted $ 0.94 $ 0.74

The accompanying notes are an integral part of the consolidated fi nancial statements.62 WestJet 2010 Annual Report 

# CONSOLIDATED BALANCE SHEET

As at December 31 (Stated in thousands of Canadian dollars)

2010 2009

Assets Current assets: Cash and cash equivalents (note 4) $ 1,187,899 $ 1,005,181 Accounts receivable 17,518 27,654 Prepaid expenses, deposits and other (note 14) 41,716 56,239 Inventory 20,181 26,048 Future income tax (note 9) 1,396 2,560 1,268,710 1,117,682

Property and equipment (note 5) 2,226,685 2,307,566

Intangible assets (note 6) 13,018 14,087

Other assets (note 14) 54,431 54,367 $ 3,562,844 $ 3,493,702

Liabilities and shareholders’ equity Current liabilities: Accounts payable and accrued liabilities $ 303,583 $ 231,401
Advance ticket sales 308,022 286,361 Non-refundable guest credits 36,778 64,506 Current portion of long-term debt (note 7) 183,681 171,223 Current portion of obligations under capital leases (note 8) 108 744 832,172 754,235

Long-term debt (note 7) 863,496 1,048,554

Obligations under capital leases (note 8) 3,249 3,358

Other liabilities (note 14) 18,838 19,628

Future income tax (note 9) 337,410 278,999 2,055,165 2,104,774

Shareholders’ equity: Share capital (note 10) 647,637 633,075 Contributed surplus 62,534 71,503 Accumulated other comprehensive loss (note 14) (10,470) (14,852) Retained earnings 807,978 699,202 1,507,679 1,388,928

Commitments and contingencies (note 12) $ 3,562,844 $ 3,493,702

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

On behalf of the Board:

Gregg Saretsky, Director Hugh Bolton, Director On behalf of the Board:

Gre gg Saretsky Di rec torWestJet 2010 Annual Report 63 

# CONSOLIDATED STATEMENT OF CASH FLOWS

For the years ended December 31 (Stated in thousands of Canadian dollars)

2010 2009

Operating activities: Net earnings $ 136,720 $ 98,178 Items not involving cash: Depreciation and amortization 132,894 141,303 Amortization of other liabilities (1,891) (7,595) Amortization of hedge settlements 1,400 1,400 Issuance of shares pursuant to employee share purchase plan

— 11,071 (Gain) loss on derivatives 34 (2,406) (Gain) loss on disposal of property and equipment (167) 1,504 Stock-based compensation expense 15,668 13,440 Income tax credit (1,667) (1,952) Future income tax expense 58,374 35,928 Unrealized foreign exchange loss 3,696 8,440 Change in non-cash working capital 98,222 19,350 443,283 318,661

Financing activities: Increase in long-term debt

— 33,855 Repayment of long-term debt (171,115) (165,757) Decrease in obligations under capital leases (744) (406)
Issuance of common shares 520 172,463 Share issue costs

— (7,468) Shares repurchased (31,391)

— Change in other assets (2,947) 3,427 Change in non-cash working capital (4,526) (1,463) (210,203) 34,651

Investing activities: Aircraft additions (29,884) (118,659) Other property and equipment and intangible additions (18,675) (48,021) (48,559) (166,680)
Cash fl ow from operating, fi nancing and investing activities 184,521 186,632 Effect of foreign exchange on cash and cash equivalents (1,803) (1,665) Net change in cash and cash equivalents 182,718 184,967

Cash and cash equivalents, beginning of year 1,005,181 820,214

Cash and cash equivalents, end of year $ 1,187,899 $ 1,005,181 Cash interest paid $ 61,280 $ 67,973 Cash taxes paid $ 2,958 $ 3,369

The accompanying notes are an integral part of the consolidated fi nancial statements.64 WestJet 2010 Annual Report 

# CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the years ended December 31 (Stated in thousands of Canadian dollars)

2010 2009

Share capital (note 10) : Balance, beginning of year $ 633,075 $ 452,885 Transfer of stock-based compensation expense on issued shares 24,637 2,130 Issuance of shares pursuant to stock option plans 520

— Shares repurchased (10,595)

— Issued on public offering

— 172,463 Share issue costs

— (7,468)
Tax effect of share issue costs

— 1,994 Issuance of shares pursuant to employee share purchase plan

— 11,071 647,637 633,075

Contributed surplus: Balance, beginning of year 71,503 60,193 Stock-based compensation expense (note 10) 15,668 13,440 Transfer of stock-based compensation expense on issued shares (24,637) (2,130) 62,534 71,503

Accumulated other comprehensive loss (note 14) : Balance, beginning of year (14,852) (38,112) Other comprehensive income 4,382 23,260 (10,470) (14,852)

Retained earnings: Balance, beginning of year 699,202 611,171 Change in accounting policy

— (10,147) Net earnings 136,720 98,178 Shares repurchased (note 10) (20,796) — Dividends declared (7,148)

— 807,978 699,202

Total accumulated other comprehensive loss and retained earnings 797,508 684,350

Total shareholders’ equity $ 1,507,679 $ 1,388,928

The accompanying notes are an integral part of the consolidated fi nancial statements.WestJet 2010 Annual Report 65 

# CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the years ended December 31 (Stated in thousands of Canadian dollars)

2010 2009

Net earnings $ 136,720 $ 98,178 Other comprehensive income: Amortization of hedge settlements to aircraft leasing 1,400 1,400 Net unrealized loss on foreign exchange derivatives under cash fl ow hedge accounting (i) (3,460) (911)
Reclassifi cation of net realized (gain) loss on foreign exchange derivatives to net earnings (ii) 1,557 (3,977) Net unrealized gain (loss) on fuel derivatives under cash fl ow hedge accounting (iii) (1,778) 6,709 Reclassifi cation of net realized loss on fuel derivatives to net earnings (iv) 6,663 20,039 4,382 23,260

Total comprehensive income $ 141,102 $ 121,438

(i) Net of income taxes of $1,224 (2009 – $447). (ii) Net of income taxes of $(586) (2009 – $1,576). (iii) Net of income taxes of $670 (2009 – $(2,878)). (iv) Net of income taxes of $(2,509) (2009 – $(8,372)).

The accompanying notes are an integral part of the consolidated fi nancial statements.66 WestJet 2010 Annual Report 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

1. Summary of signifi cant accounting policies (a) Basis of presentation The accompanying consolidated fi nancial statements of WestJet Airlines Ltd. (the Corporation) have been prepared in accordance with Canadian generally accepted accounting principles (GAAP). Amounts presented in the Corporation’s consolidated fi nancial statements and the notes
thereto are in Canadian dollars unless otherwise stated. (b) Principles of consolidation
The accompanying consolidated fi nancial statements include the accounts of the Corporation and its wholly owned subsidiaries, as well as the accounts of fi ve special-purpose entities, which are utilized to facilitate the fi nancing of aircraft. The Corporation has no equity ownership in the special-purpose entities; however, the Corporation is the primary benefi ciary of the special-purpose entities’ operations. All intercompany
balances and transactions have been eliminated.
(c) Use of estimates
The preparation of fi nancial statements in conformity with Canadian GAAP requires management to make estimates and assumptions regarding signifi cant items such as amounts relating to depreciation and amortization, residual values, non-refundable guest credits, the frequ ent guest program, asset retirement obligations, allowance for doubtful accounts, future income taxes, stock-based compensation expense, impairment assessments of property and equipment and intangible assets, and the valuation of derivative fi nancial instruments that affect the amounts reported in the consolidated fi nancial statements and the notes thereto. Changes in facts and circumstances may result in revised estimates, and actual results may differ from these estimates. (d) Revenue recognition
(i) Guest
Guest revenues, including the air component of vacation packages, are recognized when air transportation is provided. Ticket s sold but not yet used are reported in the consolidated balance sheet as advance ticket sales.
(ii) Other
Other revenues include charter revenue, cargo revenue, net revenues from the sale of the land component of vacation packages , ancillary
revenues and other.
Charter and cargo revenue is recognized when air transportation is provided.
Revenue from the land component of vacation packages is generated from providing agency services equal to the amount paid by the guest for products and services less, payment to the travel supplier, and are reported at the net amounts received. Revenue from the land component is deferred as advance ticket sales and recognized in earnings on completion of the vacation.
Ancillary revenues are recognized when the services and products are provided to the guests. Included in ancillary revenues are fees associated with guest itinerary changes or cancellations, excess baggage fees, buy-on-board sales, pre-reserved seating fees, and ancillary revenue from the frequent guest program.
Included in other revenue is revenue from expired non-refundable guest credits recognized at the time of expiry. (e) Non-refundable guest credits
The Corporation issues future travel credits to guests for fl ight changes and cancellations, as well as for gift certifi cates. Where appropriate, future travel credits are also issued for fl ight delays, missing baggage and other inconveniences. All credits are non-refundable and have expiry dates dependent upon the nature of the credit, except for gift certifi cates which do not contain an expiry date. The Corporation records a liability, depending on the nature of the credit, at either the face value or by applying an incremental cost percentage to the value of t he credit in the period the credit is issued. The utilization of guest credits is recorded as revenue when the guest has fl own or upon expiry.WestJet 2010 Annual Report 67 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

1. Summary of signifi cant accounting policies (continued) (f) Frequent guest program (FGP)
The Corporation has a frequent guest program that allows guests to accumulate credits that entitle them to a choice of various rewards, primarily discounted travel. Revenue received in relation to credits issued is deferred as a liability at fair value until a reward is ul timately utilized, at which time it is recognized in guest revenue. Fair value is management’s estimate of the expected awards for which the credit will be redeemed and is reduced by the proportion of credits that have been redeemed relative to the total number expected to be redeemed. The Corporation also has a co-branded MasterCard with the Royal Bank of Canada (RBC). RBC issues FGP credits to cardholders as a percentage of their total retail spend. The fair value of these credits is deferred and recognized on redemption as described above. Ancil lary revenue from
the issuance of FGP credits on the credit card is measured as the difference between the cash received and the fair value of th e credit and is recognized in other revenue on their issuance. Revenue related to new cards issued is recognized in other revenue immediately upon activation. (g) Financial instruments
A fi nancial instrument is any contract that gives rise to a fi nancial asset of one entity and a fi nancial liability or equity instrument to another entity. Financial assets and fi nancial liabilities, including derivatives, are recognized on the consolidated balance sheet at the time the Corporation becomes a party to the contractual provisions. Upon initial recognition, fi nancial instruments are measured at fair value and, for the purpose of subsequent measurement, fi nancial instruments are allocated to one of the following fi ve categories: held-for-trading, held-to-maturity, loans and receivables, available-for-sale or other fi nancial liabilities.
The Corporation’s fi nancial assets and fi nancial liabilities consist primarily of cash and cash equivalents, deposits, accounts receivable, accounts payable and accrued liabilities, long-term debt, capital lease obligations and derivative instruments. The Corporation has designated its fi nancial
instruments as follows:

Financial instrument Category Measurement method Cash and cash equivalents Held-for-trading Fair value Deposits Held-for-trading Fair value Accounts receivable Loans and receivables Amortized cost Accounts payable and accrued liabilities Other fi nancial liabilities Amortized cost Long-term debt Other fi nancial liabilities Amortized cost Obligations under capital leases Other fi nancial liabilities Amortized cost Derivative instruments Held-for-trading Fair value

Held-for-trading instruments are fi nancial assets and fi nancial liabilities typically acquired with the intention of generating revenues in the short term. However, an entity is allowed to designate any fi nancial instrument as held-for-trading on initial recognition even if it would otherwise not satisfy the defi nition. As at December 31, 2010, the Corporation does not hold any fi nancial instruments that do not satisfy the defi nition. Financial assets and fi nancial liabilities required to be classifi ed or designated as held-for-trading are measured at fair value, with gains and losses recorded in net earnings for the period in which the change occurs. The Corporation uses trade-date accounting for its held-for-trading fi nancial assets.
Financial assets classifi ed as loans and receivables are measured at amortized cost using the effective interest method.

Other fi nancial liabilities are measured at amortized cost using the effective interest method and include all liabilities other than derivatives or liabilities that have been identifi ed as held-for-trading.68 WestJet 2010 Annual Report 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

1. Summary of signifi cant accounting policies (continued) (g) Financial instruments (continued)
The Corporation will, from time to time, use various fi nancial derivatives to reduce market risk exposure from changes in foreign exchange rates and jet fuel prices. Derivatives are recorded at fair value on the balance sheet with changes in fair value recorded in the sta tement of earnings unless designated as effective hedging instruments. Similarly, embedded derivatives are recorded at fair value on the balance s heet with the changes in fair value recorded in the statement of earnings, unless exempted from derivative treatment as a normal purchase and sale, or the host contract and derivative are deemed to be clearly and closely related. The Corporation selected January 1, 2003, as its tra nsition date for embedded derivatives; as such, only contracts entered into or substantively modifi ed after the transition date have been examined for embedded
derivatives. When fi nancial assets and liabilities are designated as part of a hedging relationship and qualify for hedge accounting, they are subject to measurement and classifi cation requirements outlined under cash fl ow hedges. The Corporation’s policy is not to utilize derivative
fi nancial instruments for trading or speculative purposes.
At each reporting period, the Corporation will assess whether there is any objective evidence that a fi nancial asset, other than those classifi ed as held-for-trading, is impaired.
The Corporation immediately expenses any transaction costs incurred in relation to the acquisition of fi nancial assets and liabilities.
(h) Cash fl ow hedges
The Corporation uses various fi nancial derivative instruments, such as forwards, swaps, collars and call options, to manage fl uctuations in foreign exchange rates and jet fuel prices.
The Corporation’s derivatives that have been designated and qualify for hedge accounting are classifi ed as cash fl ow hedges. The Corporation formally documents all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking the hedge transaction. This process includes linking all derivatives that are designated in a cash fl ow hedging relationship to a specifi c fi rm commitment or forecasted transaction. The Corporation also formally assesses, both at inception and at every reporting date

, whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in cash fl ows of hedged items and whether those derivatives may be expected to remain highly effective in future periods.
Under cash fl ow hedge accounting, the effective portion of the change in the fair value of the hedging instrument is recognized in other comprehensive income (OCI), while the ineffective portion is recognized in non-operating income (expense). Upon maturity of the fi nancial derivative instrument, the effective gains and losses previously recognized in accumulated other comprehensive income (AOCI) are recorded in net earnings under the same caption as the hedged item.
If the hedging relationship ceases to qualify for cash fl ow hedge accounting, any change in fair value of the instrument from the point it ceases to qualify is recorded in non-operating income (expense). Amounts previously recorded in AOCI will remain in AOCI until the antici pated transaction occurs, at which time, the amount is recorded in net earnings under the same caption as the hedged item. If the transaction is no longer expected to occur, amounts previously recorded in AOCI will be reclassifi ed to non-operating income (expense). (i) Foreign currency
Monetary assets and liabilities, denominated in foreign currencies, are translated into Canadian dollars at the rate of exchan ge in effect at the balance sheet date, with any resulting gain or loss being included in the consolidated statement of earnings. Non-monetary assets, non-monetary liabilities, and revenues and expenses arising from transactions denominated in foreign currencies are translated into Canadian dollars at the rates prevailing at the time of the transaction. (j) Cash and cash equivalents
Cash and cash equivalents consist of cash and short-term investments that are highly liquid in nature and have a maturity date of one year or less, with the majority having a term of less than 91 days.WestJet 2010 Annual Report 69 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

1. Summary of signifi cant accounting policies (continued) (k) Inventory
Inventories are valued at the lower of cost and net realizable value, with cost being determined on a fi rst-in, fi rst-out basis. The Corporation’s inventory balance consists of aircraft fuel, de-icing fl uid and retail merchandise. Aircraft expendables and consumables are expensed as acquired. (l) Property and equipment
Property and equipment is stated at cost and depreciated to its estimated residual value. Assets under capital leases are init ially recorded at the present value of minimum lease payments at the inception of the lease.

Asset class Basis Rate Aircraft, net of estimated residual value Cycles Cycles fl own Live satellite television included in aircraft Straight-line 10 years/Term of lease Ground property and equipment Straight-line 3 to 25 years Spare engines and parts, net of estimated residual value Straight-line 20 years Buildings Straight-line 40 years Leasehold improvements Straight-line Term of lease Assets under capital leases Straight-line Term of lease

Aircraft are depreciated over a range of 30,000 to 50,000 cycles. One cycle is defi ned as one fl ight, counted by the aircraft leaving the ground and landing. Estimated residual values of the Corporation’s aircraft range between $4,000 and $6,000.
Property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value ma y not be recoverable. When events or circumstances indicate that the carrying amount of property and equipment may not be recoverable, t he long-lived assets are tested for recoverability by comparing the undiscounted future cash fl ows to the carrying amount of the asset or group of assets. If the total of the undiscounted future cash fl ows is less than the carrying amount of the property and equipment, the amount of any impairment loss is determined as the amount by which the carrying amount of the asset exceeds the fair value of the asset. The impairment loss is then recognized in net earnings. Fair value is defi ned as the amount of the consideration that would be agreed upon in an arm’s-length transaction between knowledgeable, willing parties who are under no compulsion to act. (m) Intangible assets
Included in intangible assets are costs related to software. Software is carried at cost less accumulated amortization and is amortized on a straight-line basis over its useful life of fi ve years. Intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Should the carrying amount of the asset exceed the fair value, the Corporation would recognize an impairment loss and reduce the carrying amount to fair value.
(n) Maintenance costs
Maintenance and repairs, including major overhauls, are charged to maintenance expense as they are incurred.
Aircraft parts that are deemed to be beyond economic repair are disposed of, and the remaining net book values of these parts are included in maintenance expense.
Recovery of costs associated with parts and labour covered under warranty are recognized as an offset to maintenance expense.
(o) Leases
The Corporation classifi es leases as either a capital lease or an operating lease. Leases that transfer substantially all of the benefi ts and risks of ownership to the Corporation are accounted for as capital leases. Assets under capital leases are depreciated on a straight- line basis over the term of the lease. Rental payments under operating leases are expensed as incurred.70 WestJet 2010 Annual Report 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

1. Summary of signifi cant accounting policies (continued)
(o) Leases (continued)
The Corporation provides for asset retirement obligations to return leased aircraft to certain standard conditions as specifi ed within the Corporation’s lease agreements. The lease return costs are accounted for in accordance with the asset retirement obligation req uirements; they are initially measured at fair value and capitalized to property and equipment as an asset retirement cost and depreciated over the term of
the lease. (p) Capitalized costs
Costs associated with assets under development, which have probable future economic benefi t, can be clearly defi ned and measured, and are incurred for the construction or development of new assets or technologies, are capitalized. These costs are not amortized unti l the asset is substantially complete and ready for its intended use, at which time, they are amortized over the life of the underlying asset.
Interest attributable to funds used to fi nance property and equipment is capitalized to the related asset until the point of commercial use. (q) Future income tax
The Corporation uses the asset and liability method of accounting for future income taxes. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year. Future income tax assets and liabilities are recognized for temporary differences between the tax and accounting bases of assets and liabilities, calculated using the currently enacted or substanti vely enacted tax rates anticipated to apply in the period that the temporary differences are expected to reverse. Future income tax infl ows and outfl ows are subject to estimation in terms of both timing and amount of future taxable earnings. Should these estimates change, the carrying value of income tax assets or liabilities may change. (r) Stock-based compensation plans
Grants under the Corporation’s stock-based compensation plans are accounted for in accordance with the fair-value-based method of accounting. For stock-based compensation plans that will settle through the issuance of equity, the fair value of the option or unit is determined on the grant date using a valuation model and recorded as compensation expense over the period that the stock option or unit ve sts, with a corresponding increase to contributed surplus. The fair value of stock options is estimated on the date of grant using the Blac k-Scholes option pricing model, and the fair value of the Corporation’s equity-based share units is determined based on the market value of the Corporation’s voting shares on the date of the grant. Upon the exercise or settlement of stock options and units, consideration received, tog ether with amounts previously recorded in contributed surplus, are recorded as an increase in share capital.
Stock-based compensation plans that will be settled in cash are accounted for as liabilities based on the intrinsic value of the awards. Compensation expense is accrued over the vesting period of the award, based on the difference between the market value of the Corporation’s voting shares and the exercise price of the award, if any. Fluctuations in the market value of the Corporation’s voting shares, determined based on the closing voting share price on the last trading day of each reporting period, will result in a change to the accrued compensation expense, whic h is recognized in the period in which the fl uctuation occurs.
The Corporation does not incorporate an estimated forfeiture rate for stock options or share units that will not vest, but rat her accounts for actual forfeitures as they occur.
For employees eligible to retire during the vesting period, compensation expense is recognized over the period from the grant date to the retirement eligibility date. In instances where an employee is eligible to retire on the grant date, compensation expense is recognized immediately.
(s) Per share amounts
Basic per share amounts are calculated using the weighted average number of shares outstanding during the year. Diluted per sh are amounts are calculated based on the treasury stock method, which assumes that the total proceeds obtained on the exercise of options an d share units and the unamortized portion of stock-based compensation on stock options and share units would be used to purchase shares at th e average price during the period. The weighted average number of shares outstanding is then adjusted by the net change.WestJet 2010 Annual Report 71 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

1. Summary of signifi cant accounting policies (continued) (t) Comparative amounts
Certain prior-period balances have been reclassifi ed to conform to the current period’s presentation.
2. Recent accounting pronouncements and changes

International fi nancial reporting standards (IFRS) On February 13, 2008, the Accounting Standards Board (AcSB) confi rmed that the changeover to IFRS from Canadian GAAP will be required for publicly accountable enterprises for interim and annual fi nancial statements, effective for fi scal years beginning on or after January 1, 2011, including comparatives for 2010. The objective is to improve fi nancial reporting by having a single set of accounting standards that are comparable with other entities on an international basis. The transition from current Canadian GAAP to IFRS is a signifi cant undertaking that will materially affect the Corporation’s reported fi nancial position and results of operations. The Corporation continues to monitor standards developments issued by the International Accounting Standards Board and the AcSB, as well as regulatory developments issued by the Canadian Securities Administrators, which may affect the timing, nature or disclosure of its adoption of IFRS.
3. Capital management
The Corporation’s policy is to maintain a strong capital base in order to maintain investor, creditor and market confi dence and to sustain the future development of the airline. The Corporation manages its capital structure and makes adjustments to it in light of change s in economic conditions and the risk characteristics of the underlying assets.
In order to maintain or adjust the capital structure, the Corporation may, from time to time, purchase shares for cancellation pursuant to normal course issuer bids, issue new shares, pay dividends and adjust current and projected debt levels. In the management of capital, the Corporation includes shareholders’ equity (excluding accumulated other comprehensive loss (A OCL)), long-term debt, capital leases, cash and cash equivalents and the Corporation’s off-balance-sheet obligations related to its aircraft ope rating leases, all of which are presented in detail below.
The Corporation monitors its capital structure on a number of bases, including adjusted debt-to-equity and adjusted net debt t o earnings before interest, taxes, depreciation and aircraft rent (EBITDAR). EBITDAR is a non-GAAP fi nancial measure commonly used in the airline industry to evaluate results by excluding differences in the method by which an airline fi nances its aircraft. In addition, the Corporation will adjust EBITDAR for one-time special items, for non-operating gains and losses on derivatives and for gains and losses on foreign exchange. The calculation of EBITDAR is a measure that does not have a standardized meaning prescribed under GAAP and is therefore not likely to be comparab le to similar measures presented by other issuers. The Corporation adjusts debt to include its off-balance-sheet aircraft operating leases. C ommon industry practice is to multiply the trailing 12 months of aircraft leasing expense by 7.5 to derive a present-value debt equivalent. The Corporation defi nes adjusted net debt as adjusted debt less cash and cash equivalents. The Corporation defi nes equity as the sum of share capital, contributed surplus and retained earnings, and excludes AOCL.72 WestJet 2010 Annual Report 3. Capital management (continued) 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

2010 2009 Change Adjusted debt-to-equity Long-term debt (i) $ 1,047,177 $ 1,219,777 $ (172,600) Obligations under capital leases (ii) 3,357 4,102 (745)
Off-balance-sheet aircraft leases (iii) 1,066,815 779,655 287,160 Adjusted debt $ 2,117,349 $ 2,003,534 $ 113,815 Total shareholders’ equity 1,507,679 1,388,928 118,751 Add: AOCL 10,470 14,852 (4,382) Adjusted equity $ 1,518,149 $ 1,403,780 $ 114,369 Adjusted debt-to-equity 1.39 1.43 (2.8%)

Adjusted net debt to EBITDAR (iv) Net earnings $ 136,720 $ 98,178 $ 38,542
Add: Net interest (v) 50,254 62,105 (11,851)
Taxes 59,947 38,618 21,329 Depreciation and amortization 132,894 141,303 (8,409) Aircraft leasing 142,242 103,954 38,288 Other (vi) 814 10,478 (9,664)
EBITDAR $ 522,871 $ 454,636 $ 68,235 Adjusted debt (as above) 2,117,349 2,003,534 113,815 Less: Cash and cash equivalents (1,187,899) (1,005,181) (182,718) Adjusted net debt $ 929,450 $ 998,353 $ (68,903) Adjusted net debt to EBITDAR 1.78 2.20 (19.1%)
(i) As at December 31, 2010, long-term debt includes the current portion of long-term debt of $183,681 (2009 – $171,223) and long-term debt of $863,496 (2009 – $1,048,554). (ii) As at December 31, 2010, obligations under capital leases includes the current portion of obligations under capital leases of $108 (2009 – $744) and obligations under capital leases of $3,249 (2009 – $3,358). (iii) Off-balance-sheet aircraft leases is calculated by multiplying the trailing 12 months of aircraft leasing expense by 7.5. As at December 31, 2010, the trailing 12 months of aircraft leasing costs totalled $142,242 (2009 – $103,954). (iv) The trailing 12 months are used in the calculation of EBITDAR. (v) As at December 31, 2010, net interest includes the trailing 12 months of interest income of $9,910 (2009 – $5,601) and the trailing 12 months of interest expense of $60,164 (2009 – $67,706). (vi) As at December 31, 2010, other includes the trailing 12 months foreign exchange loss of $780 (2009 – loss of $12,306) and the trailing 12 months of non-operating loss on derivatives of $34 (2009 – gain of $1,828).

As at December 31, 2010 and 2009, the Corporation’s internal targets were an adjusted debt-to-equity measure of no more than 3 .00 and an adjusted net debt to EBITDAR of no more than 3.00. As at December 31, 2010, the Corporation’s adjusted debt-to-equity ratio imp roved by 2.8% when compared to 2009, mainly due to the increase in shareholders’ equity as a result of net earnings more than offsetting the net increase in the Corporation’s aircraft fi nancing. As at December 31, 2010, the Corporation’s adjusted net debt to EBITDAR improved by 19.1% when compared to 2009, mainly attributable to the increase in cash and cash equivalents and EBITDAR.
As part of the long-term debt agreements for the Calgary hangar facility and one fl ight simulator, the Corporation monitors certain fi nancial covenants to ensure compliance with these debt agreements. As at December 31, 2010, the Corporation was in compliance with these fi nancial covenants. There are no fi nancial covenant compliance requirements for the facilities guaranteed by the Export-Import Bank of the United States (Ex-Im Bank).WestJet 2010 Annual Report 73 3. Capital management (continued)
During the year ended December 31, 2010, the Corporation announced a dividend program and declared an initial quarterly divide nd of $0.05 per common voting share and variable voting share to be paid on January 21, 2011, to shareholders of record on December 15, 2010.
Furthermore, during the year ended December 31, 2010, the Corporation initiated a normal course issuer bid to purchase outstan ding shares in the open market. See note 10, Share capital for further disclosure.
There were no other changes in the Corporation’s approach to capital management during the year ended December 31, 2010.
4. Cash and cash equivalents As at December 31, 2010, cash and cash equivalents includes bank balances of $229,817 (2009 – $191,966) and short-term investm ents of $958,082 (2009 – $813,215). Included in these balances, as at December 31, 2010, the Corporation has US-dollar cash and cash eq uivalents totalling US $66,194 (2009 – US $32,858) and short-term investments of US $45,157 (2009 – US $nil). As at December 31, 2010, cash and cash equivalents includes total restricted cash of $28,583 (2009 – $10,192). Included in thi s amount is $21,578 (2009 – $4,564), representing cash held in trust by WestJet Vacations Inc., a wholly owned subsidiary of the Corporation, in accordance with regulatory requirements governing advance ticket sales for certain travel-related activities; $6,691 (2009 – $4,491) for security on the Corporation’s facilities for letters of guarantee; and, in accordance with U.S. regulatory requirements, US $315 (2009 – US $1,082) in restricted cash, representing cash not yet remitted for passenger facility charges.
5. Property and equipment 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

2010 Cost Accumulated depreciation Net book value
Aircraft $ 2,471,806 $ 622,997 $ 1,848,809 Ground property and equipment 121,814 61,895 59,919 Spare engines and parts 106,198 28,251 77,947 Buildings 135,817 13,154 122,663 Leasehold improvements 9,965 3,348 6,617 Assets under capital leases 4,413 1,170 3,243 2,850,013 730,815 2,119,198 Deposits on aircraft 98,344

— 98,344 Assets under development 9,143

— 9,143 $ 2,957,500 $ 730,815 $ 2,226,685

2009 Cost Accumulated depreciation Net book value
Aircraft $ 2,456,988 $ 513,521 $ 1,943,467 Ground property and equipment 120,031 52,804 67,227 Spare engines and parts 100,567 24,360 76,207 Buildings 136,228 9,843 126,385 Leasehold improvements 9,910 2,877 7,033 Assets under capital leases 5,882 2,210 3,672 2,829,606 605,615 2,223,991 Deposits on aircraft 83,489

— 83,489 Assets under development 86

— 86 $ 2,913,181 $ 605,615 $ 2,307,56674 WestJet 2010 Annual Report 5. Property and equipment (continued) For the year ended December 31, 2010, the Corporation recognized $128,284 (2009 − $135,702) of depreciation expense in relatio n to property and equipment. Included in aircraft costs are asset retirement costs for aircraft under operating leases totalling $5,411 (2009 – $4,710) and associated accumulated depreciation of $1,912 (2009 – $1,314). These amounts are being depreciated on a straight-line basis ove r the term of each lease. During the year ended December 31, 2010, the Corporation recognized depreciation expense of $598 (2009 – $468) in r elation to the
asset retirement costs.
6. Intangible assets 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

Cost Accumulated amortization Net book value
2010 Software $ 43,549 $ 30,531 $ 13,018
2009 Software $ 40,392 $ 26,305 $ 14,087

2010 2009 Term loans – purchased aircraft (i) $ 1,005,678 $ 1,168,381 Term loan – purchased aircraft (ii) 25,997 33,631 Term loan – fl ight simulator (iii) 5,575 6,392 Term loan – live satellite television equipment (iv) 41 493 Term loan – Calgary hangar facility (v) 8,707 9,202 Term loan – Calgary hangar facility (vi) 1,179 1,678
1,047,177 1,219,777 Current portion 183,681 171,223 $ 863,496 $ 1,048,554 All of the Corporation’s intangible assets relate to purchased software. Included in the balance of software is $2,151 (2009 − $4,085) for acquired software that is being developed and is not yet being amortized. For the year ended December 31, 2010, the Corporation recognized $4,610 (2009 – $5,601) of amortization expense in relation to intangible assets.
7. Long-term debt

(i) 52 individual term loans, amortized over a 12-year term, each repayable in quarterly principal instalments ranging from $668 to $955, plus
fi xed interest at a weighted average rate of 5.30%, maturing between 2014 and 2020. These facilities are guaranteed by Ex-Im Ban k and secured by one 800-series aircraft, 38 700-series aircraft and 13 600-series aircraft.
(ii) Term loan of US $26,137 repayable in quarterly instalments of US $1,788, including fi xed interest at a rate of 4.315%, maturing in 2014. This facility is secured by one 800-series aircraft.
(iii) Term loan repayable in monthly instalments of $93, including fl oating interest at the bank’s prime rate plus 0.88%, with an effective interest rate of 3.88% as at December 31, 2010, maturing in July 2011 with a fi nal payment of $5,123, secured by one fl ight simulator.
(iv) Term loan amortized over a fi ve-year term, repayable in quarterly principal instalments of $41, plus fl oating interest at the Canadian LIBOR rate plus 0.08%, with an effective interest rate of 1.30% as at December 31, 2010, maturing in January 2011. This facility is f or the purchase of live satellite television equipment, is guaranteed by the Ex-Im Bank and is secured by one 700-series aircraft.
(v) Term loan repayable in monthly instalments of $108, including fi xed interest at 9.03%, maturing in April 2011 with a fi nal payment of $8,575, secured by the Calgary hangar facility.WestJet 2010 Annual Report 75 7. Long-term debt (continued)
(vi) Term loan repayable in monthly instalments of $50, including fl oating interest at the bank’s prime rate plus 0.50%, with an effective interest rate of 3.50% as at December 31, 2010, maturing in 2013, secured by the Calgary hangar facility. The net book value of the property and equipment pledged as collateral for the Corporation’s secured borrowings was $1,819,095 as at December 31, 2010 (2009 – $1,925,672).
Future scheduled repayments of long-term debt are as follows: 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

2011 $ 183,681
2012 169,642 2013 169,358 2014 169,626 2015 132,170 2016 and thereafter 222,700 $ 1,047,177

2011 $ 282
2012 245 2013 245 2014 245 2015 245 2016 and thereafter 4,616 Total minimum lease payments $ 5,878 Less: Weighted average imputed interest at 5.28% (2,521) Net minimum lease payments 3,357 Less: Current portion of obligations under capital leases (108) Obligations under capital leases $ 3,249 Held within the special-purpose entities, as identifi ed in note 1, Summary of signifi cant accounting policies, are liabilities of $1,005,719 (2009 – $1,168,907) related to the acquisition of the 52 purchased aircraft and live satellite television equipment, which are included above in the long-term debt balances.
8. Obligations under capital leases
The Corporation has entered into capital leases relating to a fuel storage facility and ground handling equipment. The obligat ions are as follows:76 WestJet 2010 Annual Report 9. Income taxes
The provision for income taxes differs from that which would be expected by applying the combined federal and provincial statu tory rates.
A reconciliation of the difference is as follows: 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

2010 2009 Earnings before income taxes $ 196,667 $ 136,796
Income tax rate 29.39% 30.62% Expected income tax provision 57,800 41,887

Add (deduct): Non-deductible expenses 2,380 5,545 Non-deductible stock-based compensation 4,584 4,112 Effect of tax rate changes (5,609) (18,206)
Other 792 5,280 Actual income tax provision $ 59,947 $ 38,618

2010 2009 Future income tax liability: Property and equipment $ (350,506) $ (327,783) Deferred partnership income (43,437) (11,913)

Future income tax asset: Share issue costs 1,143 1,561 Net unrealized loss on effective portion of derivatives designated in a hedging relationship 919 2,120 Non-capital losses 45,010 50,200 Credit carryforwards 10,857 9,376 $ (336,014) $ (276,439) The net future tax liability is presented on the consolidated
balance sheet as follows: Future income tax Current assets 1,396 2,560 Future income tax Long-term liabilities (337,410) (278,999) $ (336,014) $ (276,439) The Corporation has included in its reconciliation an amount of $5,609 (2009 – $18,206) for the effect of tax rate changes. This amount refl ects the impact of changes to the timing around when the Corporation expects certain temporary differences to reverse, and differences between current statutory rates used in the reconciliation and future rates at which the future income tax liability is recorded.
The components of the net future tax liability are as follows:

The Corporation has recognized a benefi t on $168,663 (2009 – $188,474) of non-capital losses that are available for carryforward to reduce taxable income in future years. These losses will begin to expire in 2014. The Corporation has also recognized a benefi t of $10,857 (2009 – $9,376) for unused corporate minimum tax credits, which are available for carryforward to reduce taxes payable in future years. These credits begin to expire in 2013.WestJet 2010 Annual Report 77 10. Share capital
(a) Authorized
Unlimited number of common voting shares
The common voting shares may be owned and controlled only by Canadians and shall confer the right to one vote per common votin g share at all meetings of shareholders of the Corporation.
If a common voting share becomes benefi cially owned or controlled by a person who is not a Canadian, such common voting share shall be converted into one variable voting share automatically and without any further act of the Corporation or the holder.
Unlimited number of variable voting shares
The variable voting shares may be benefi cially owned and controlled only by a person who is not Canadian; they are entitled to one vote per variable voting share unless (i) the number of issued and outstanding variable voting shares exceeds 25% of the total number of all issued and outstanding variable voting shares and common voting shares collectively, including securities currently convertible into such a share and currently exercisable options and rights to acquire such shares (or any higher percentage the Governor in Council may specify pursuant to the Canada Transportation Act ); or (ii) the total number of votes cast by or on behalf of the holders of variable voting shares at any meeting exceeds 25% (or any higher percentage the Governor in Council may specify pursuant to the Canada Transportation Act ) of the total number of votes cast that may be cast at such meeting.
If either of the thresholds described in the paragraph above is surpassed at any time, the vote attached to each variable voti ng share will decrease automatically and without further act or formality to equal the maximum permitted vote per variable voting share. In the circum stance described in (i) in the paragraph above, the variable voting shares as a class cannot carry more than 25% (or any higher percentage the G overnor in Council may specify pursuant to the Canada Transportation Act ) of the aggregate votes attached to all variable voting shares and common voting shares collectively, including securities currently convertible into such a share and currently exercisable options and rights to acqu ire such shares. In the circumstance described in (ii) in the paragraph above, the variable voting shares as a class cannot, for a given shareholde rs’ meeting, carry more than 25% (or any higher percentage the Governor in Council may specify pursuant to the Canada Transportation Act ) of the total number of votes that can be exercised at the meeting.
Each issued and outstanding variable voting share shall be automatically converted into one common voting share without any further intervention on the part of the Corporation or of the holder if (i) the variable voting share is or becomes owned and controlled by a Canadi an, or (ii) the provisions contained in the Canada Transportation Act relating to foreign ownership restrictions are repealed and not replaced with other similar provisions in applicable legislation.
Unlimited number of non-voting shares and unlimited number of non-voting fi rst, second and third preferred shares
The non-voting shares and non-voting preferred shares may be issued, from time to time, in one or more series, with each serie s consisting of such number of non-voting shares and non-voting preferred shares as determined by the Corporation’s Board of Directors, who may also fi x the designations, rights, privileges, restrictions and conditions attached to the shares of each series of non-voting shares and no n-voting preferred shares. There are no non-voting shares or non-voting preferred shares issued and outstanding. 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)78 WestJet 2010 Annual Report 10. Share capital (continued) (b) Issued and outstanding 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

2010 2009
Number Amount Number Amount Common and variable voting shares:

Balance, beginning of year 144,359,383 $ 633,075 127,913,580 $ 452,885 Issuance of shares pursuant to stock option plans 741,014 520 29,685

— Stock-based compensation expense on stock

options exercised

— 21,860

— 1,561 Issuance of shares pursuant to key employee

and pilot plan 2,298

— — — Stock-based compensation for settled key employee

and pilot units

— 29

— — Issuance of shares pursuant to executive share

unit plan 194,449

— 40,159

— Stock-based compensation expense on executive

share units exercised

— 2,748

— 569 Issued on public offering

— — 15,398,500 172,463 Issuance of shares pursuant to employee share

purchase plan

— — 977,459 11,071 Share issue costs

— — — (7,468)
Tax effect of share issue costs

— — — 1,994 Shares repurchased (2,338,730) (10,595)

— — Balance, end of year 142,958,414 $ 647,637 144,359,383 $ 633,075

As at December 31, 2010, the number of common voting shares outstanding was 137,489,456 (2009 – 138,763,891) and the number of variable voting shares outstanding was 5,468,958 (2009 – 5,595,492). On November 2, 2010, the Corporation fi led a notice with the Toronto Stock Exchange (TSX) to make a normal course issuer bid to purchase outstanding shares on the open market. As approved by the TSX, the Corporation is authorized to purchase up to 7,264,820 shares (representing 5% of its issued and outstanding shares at the time of the bid) during the period of November 5, 2010, to November 4, 2011, or until such earlier time as the bid is completed or terminated at the option of the Corporation. Any shares the Corporation purchases under the bid will be purchased on the open market through the facilities of the TSX at the prevailing market price at the time of the transaction. S hares acquired
under the bid will be cancelled. During the year ended December 31, 2010, the Corporation purchased 2,338,730 shares under the bid for total consideration of $ 31,391. The average book value of the shares repurchased of $4.53 per share was charged to share capital with the $20,796 excess of the mar ket price over the average book value, including transaction costs, charged to retained earnings.
(c) Per share amounts
The following table summarizes the shares used in calculating earnings per share:

2010 2009 Weighted average number of shares outstanding – basic 144,852,548 132,130,009 Effect of dilutive employee stock options and share unit plans 267,348 131,761 Weighted average number of shares outstanding – diluted 145,119,896 132,261,770WestJet 2010 Annual Report 79 10. Share capital (continued)
(c) Per share amounts (continued) For the year ended December 31, 2010, 6,580,005 (2009 – 10,455,457) employee stock options were not included in the calculatio n of dilutive potential shares as the result would be anti-dilutive. (d) Stock option plan The Corporation has a stock option plan, whereby at December 31, 2010, 11,693,868 (2009 – 12,228,611) voting shares were reser ved for issuance
to offi cers and employees of the Corporation, subject to the following limitations:
(i) the number of common voting shares reserved for issuance to any one optionee will not exceed 5% of the issued and outstanding voting shares at any time;
(ii) the number of common voting shares reserved for issuance to insiders shall not exceed 10% of the issued and outstanding voting shares; and
(iii) the number of common voting shares issuable under the stock option plans, which may be issued within a one-year period, shall not exceed 10% of the issued and outstanding voting shares at any time.
Stock options are granted at a price that equals the market value of the Corporation’s voting shares, have a term of up to fi ve years and vest on either the fi rst, second or third anniversary from the date of grant.
Changes in the number of options, with their weighted average exercise prices, are summarized below: 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

Outstanding options Exercisable options Range of exercise prices Number outstanding Weighted average remaining life (years) Weighted average exercise price Number exercisable Weighted average exercise price $11.00–$12.50 2,813,635 2.38 $ 12.47 56,818 $ 12.49 $12.51–$15.50 2,017,658 3.33 12.81 39,208 14.51 $15.51–$19.99 3,252,138 0.90 16.58 3,252,138 16.58 8,083,431 2.03 $ 14.21 3,348,164 $ 16.49 2010 2009

Number of options Weighted average exercise pric e Number of options Weighted average exercise price Stock options outstanding, beginning of year 11,521,844 $ 13.42 11,918,168 $ 13.90
Granted 2,024,143 12.78 3,011,148 12.47
Exercised (5,100,279) 11.83 (376,596) 11.83 Forfeited (32,607) 12.58 (34,487) 13.25 Expired (329,670) 14.77 (2,996,389) 14.61 Stock options outstanding, end of year 8,083,431 $ 14.21 11,521,844 $ 13.42 Exercisable, end of year 3,348,164 $ 16.49 6,647,525 $ 12.90

Under the terms of the Corporation’s stock option plan, with the approval of the Corporation, option holders can either (i) el ect to receive shares by delivering cash to the Corporation in the amount of the options, or (ii) choose a cashless settlement alternative, whereby they can elect to receive a number of shares equivalent to the market value of the options over the exercise price. For the year ended December 3 1, 2010, option holders exercised 5,056,288 (2009 – 376,596) options on a cashless settlement basis and received 697,023 (2009 – 29,685) shares . For the year ended December 31, 2010, 43,991 options (2009 – nil) were exercised on a cash basis.
The following table summarizes the options outstanding and exercisable as at December 31, 2010:80 WestJet 2010 Annual Report 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

10. Share capital (continued) (d) Stock option plan (continued)
As new options are granted, the fair value of the options is expensed over the vesting period, with an offsetting entry to con tributed surplus. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. Upon the exerci se of stock options, consideration received, together with amounts previously recorded in contributed surplus, is recorded as an increase to share capital.
The fair value of options granted during the years ended December 31, 2010 and 2009, and the assumptions used in their determi nation are
as follows:

2010 2009 Weighted average fair value per option $ 4.02 $ 3.82 Weighted average risk-free interest rate 2.5% 1.7% Weighted average volatility 38% 39% Expected life (years) 3.6 3.6 Weighted average dividend yield 0.02%

—

2010

Number of RSUs Weighted average grant date fair value RSUs outstanding, beginning of period — $ —
Granted 177,440 12.77 Settled (2,298) 12.77 Forfeited (4,013) 12.77 RSUs outstanding, end of period 171,129 $ 12.77 Vested, end of period — $ — (e) Key employee and pilot plan During 2010, shareholders of the Corporation approved a new stock-based compensation plan, the key employee and pilot (KEP) pl an, whereby restricted share units (RSU) are issued to key employees and pilots of the Corporation. The fair market value of the RSUs at th e time of grant is equal to the weighted average trading price of the Corporation’s voting shares for the fi ve trading days immediately preceding the grant date. Each RSU entitles the employee to receive payment upon vesting in the form of voting shares of the Corporation. The Corporation intends to settle all RSUs with shares either through the purchase of voting shares on the open market or the issuance of new shares from treasury; however, wholly at its own discretion, the Corporation may settle the units in cash. The RSUs time vest at the end of a two- or three-year period, with compensation expense being recognized in net earnings on a straight-line basis over the vesting period. As at December 31, 2010, 997,702 voting shares of the Corporation were reserved for issuance under the KEP plan. For the year ended December 31, 2010, the Corpo ration settled all RSUs with shares issued from treasury.

(f) Executive share unit plan The Corporation has an equity-based executive share unit (ESU) plan, whereby RSUs and performance share units (PSU) may be iss ued to senior executive offi cers. As at December 31, 2010, 805,551 (2009 – 509,841) voting shares of the Corporation were reserved for issuance under the ESU plan.
The fair market value of the RSUs and PSUs at the time of grant is equal to the weighted average trading price of the Corporat ion’s voting shares
for the fi ve trading days immediately preceding the grant date.WestJet 2010 Annual Report 81 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

10. Share capital (continued) (f) Executive share unit plan (continued)
Each RSU entitles the senior executive offi cers to receive payment upon exercise in the form of voting shares of the Corporation. RSUs time vest at the end of a three-year term, with compensation expense being recognized in net earnings over the vesting period.
Each PSU entitles the senior executive offi cers to receive payment upon exercise in the form of voting shares of the Corporation. PSUs time vest at the end of a three-year term and incorporate performance criteria based on achieving compounded average diluted earnings per share growth rate targets established at the time of grant. Compensation expense is recognized in net earnings over the vesting period based on the number of units expected to vest.

2010
RSUs PSUs

Number of units Weighted average grant date fair value Number of units Weighted average grant date fair value Units outstanding, beginning of year 143,461 $ 14.10 191,276 $ 14.10
Granted 127,750 13.57 119,323 13.78
Exercised (83,336) 14.13 (111,113) 14.13 Units outstanding, end of year 187,875 $ 13.73 199,486 $ 13.90 Vested, end of year 17,211 $ 14.16 22,948 $ 14.16

2009
RSUs PSUs

Number of units Weighted average grant date fair value Number of units Weighted average grant date fair value Units outstanding, beginning of year 55,181 $ 19.37 73,574 $ 19.37
Granted 105,491 11.36 140,650 11.36
Exercised (17,211) 14.16 (22,948) 14.16 Units outstanding, end of year 143,461 $ 14.10 191,276 $ 14.10 Vested, end of year — $ — — $ —

(g) Stock-based compensation expense
The following table summarizes stock-based compensation expense for the Corporation’s equity-based plans:

2010 2009 Stock option plan $ 11,103 $ 12,045 Key employee and pilot plan 977

— Executive share unit plan 3,588 1,395 Total stock-based compensation expense $ 15,668 $ 13,440 Presented on the consolidated statement of earnings as follows: Flight operations and navigational charges $ 8,956 $ 8,248 Marketing, general and administration 6,712 5,192 Total stock-based compensation expense $ 15,668 $ 13,44082 WestJet 2010 Annual Report 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

10. Share capital (continued)
(h) 2007 restricted share units
The Corporation has a cash-settled RSU plan, whereby RSUs may be issued to executive offi cers of the Corporation. Each RSU entitles a participant to receive cash equal to the market value of the equivalent number of shares of the Corporation. Compensation expense is accrue d over the vesting period of the RSU. Fluctuations in the market value are recognized in the period in which the fl uctuations occur. For the year ended December 31, 2010, $296 (2009 – $181) of expense was included in marketing, general and administration expense. For the year en ded December 31, 2010, the Corporation granted 21,282 (2009 – nil) RSUs and settled 82,964 (2009 − 6,376) RSUs for total cash payme nt of $1,060 (2009 − $78). As at December 31, 2010, nil (2009 – 61,682) RSUs were outstanding.
(i) Deferred share units The Corporation has a cash-settled deferred share unit (DSU) plan as an alternative form of compensation for independent membe rs of the Corporation’s Board of Directors. Each DSU entitles a participant to receive cash equal to the market value of the equivalent n umber of shares of the Corporation. The number of DSUs granted is determined based on the closing price of the Corporation’s common shares on t he trading day immediately prior to the date of grant. Total compensation expense is recognized at the time of grant. Fluctuations in the market value are recognized in the period in which the fl uctuations occur. For the year ended December 31, 2010, 20,565 (2009 – 24,324) DSUs were granted, with $344 (2009 – $288) of expense included in marketing, general and administration expense. During the year ended December 31 , 2010, the Corporation settled nil (2009 – 1,392) DSUs for a total cash payment of $nil (2009 – $16). As at December 31, 2010, 60,988 (200 9 – 40,423) DSUs are vested and outstanding. DSUs are redeemable upon the Director’s retirement from the Board. (j) Employee share purchase plan The Corporation has an employee share purchase plan (ESPP), whereby the Corporation matches every dollar contributed by each e mployee. Under the terms of the ESPP, employees may contribute up to a maximum of 20% of their gross pay and acquire voting shares of th e Corporation at the current fair market value of such shares. Shares acquired for the ESPP are restricted for one year. Employees may offer to sell shares, which have not been held for at least one year to the Corporation, four times per year. The purchase price of the voting shares shall be equal to 50% of the weighted average trading price of the Corporation’s voting shares for the fi ve trading days immediately preceding the employee’s notice to the Corporation.
The Corporation has the option to acquire voting shares on behalf of employees through open market purchases or to issue new s hares from treasury at the current market price, which is determined based on the volume weighted average trading price of the Corporation ’s voting shares for the fi ve trading days preceding the issuance.
For the year ended December 31, 2010, all shares were acquired through open market purchases. For the year ended December 31, 2009, the Corporation elected to issue a portion of the shares from treasury. During 2009, a total of 977,459 shares were issued at a tot al market value of $11,071 for which no cash was exchanged. The remaining shares for 2009 were acquired through the open market. The Corporation’s share of the contributions in 2010 amounted to $52,643 (2009 – $47,030) and is recorded as compensation expe nse within the
related business unit.
11. Related-party transactions
The Corporation has debt fi nancing and investments in short-term deposits with a fi nancial institution that is related through two common directors, one of whom is also the president of the fi nancial institution. As at December 31, 2010, total long-term debt includes an amount of $5,575 (2009 – $6,392) due to the fi nancial institution. See note 7, Long-term debt, for further disclosure. Included in cash and cash equivalents, as at December 31, 2010, are short-term investments of $164,710 (2009 – $143,332) owing from the fi nancial institution. In 2008, the Corporation signed a three-year revolving operating line of credit agreement with a banking syndicate, of which one of the members is the r elated-party
fi nancial institution. See note 12, Commitments and contingencies, for further information. These transactions occurred in the n ormal course of operations on terms consistent with those offered to arm’s-length parties and are measured at the exchange amount.WestJet 2010 Annual Report 83 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

11. Related-party transactions (continued)
The Corporation engaged a relocation fi rm to purchase a single family residence from the President and Chief Executive Offi cer (CEO) for a guaranteed price of US $1,525 in accordance with the Corporation’s relocation policy. The relocation fi rm will actively market the residence to locate an outside buyer. If the proceeds on the sale of the home to a third party are less than or greater than the guaranteed price, the difference between the guaranteed price and the proceeds will accrue to WestJet. The Corporation paid the relocation fi rm’s fees and expenses in connection with this transaction, and also agreed to reimburse the offi cer for certain related tax and relocation expenses. The residence is located in the United States and the transaction was a result of the offi cer’s move to Canada in conjunction with his appointment to President and CEO, effective April 1, 2010. In connection with the relocation, the Corporation granted 38,256 RSUs pursuant to the ESU plan w ith a total value of US $500, which are scheduled to wholly vest on April 1, 2011, the anniversary of the offi cer’s appointment to President and CEO. Upon exercise of the RSUs, the Corporation will remit, on his behalf, an amount suffi cient to satisfy any withholding or other tax requirements of such RSUs, limited to the withholding tax on the original award amount of US $500. Transactions have been measured at the exchange amount.
12. Commitments and contingencies (a) Purchased aircraft and live satellite television systems
As at December 31, 2010, the Corporation is committed to purchase 38 737-700 aircraft for delivery between 2011 and 2017. The remaining estimated amounts to be paid in deposits and purchase prices for the 38 aircraft, as well as amounts to be paid for live satellite television systems on purchased and leased aircraft in US dollars and the Canadian-dollar equivalents, are as follows:

USD CAD
2011 $ 72,607 $ 72,217
2012 183,949 182,961 2013 271,896 270,436 2014 289,150 287,597 2015 403,574 401,406 2016 and thereafter 434,764 432,429 $ 1,655,940 $ 1,647,046

USD CAD
2011 $ 186,454 $ 206,983
2012 188,807 202,085 2013 185,535 195,222 2014 184,359 190,423 2015 161,149 166,189 2016 and thereafter 361,979 405,113 $ 1,268,283 $ 1,366,015 Subsequent to year end, the Corporation took delivery of one 737-700 aircraft. The Corporation did not incur any debt or equity fi nancing for this aircraft and funded the entire purchase with cash.
In addition, subsequent to year end, the Corporation has deferred the deliveries of six 737-700 aircraft from the years 2012 t o 2015 into 2017 and 2018. The total number of the Corporation’s aircraft purchase commitments remains unchanged at 38 737-700 aircraft. These defer rals have not
been refl ected in the table above. (b) Operating leases and commitments
The Corporation has entered into operating leases and commitments for aircraft, land, buildings, equipment, computer hardware, software licences and satellite programming. As at December 31, 2010, the future payments in Canadian dollars, and when applicable the U S-dollar equivalents, under operating leases and commitments are as follows:84 WestJet 2010 Annual Report 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

12. Commitments and contingencies (continued) (b) Operating leases and commitments (continued)
As at December 31, 2010, the Corporation is committed to lease an additional three 737-700 aircraft and three 737-800 aircraft for terms ranging between eight and 10 years in US dollars. These aircraft have been included in the above totals.
The Corporation signed a six-year agreement with Bell ExpressVu to provide satellite programming. The agreement commenced in 2 004, expires in July 2011, and can be renewed for an additional four years. During 2009, the Corporation amended its agreement with LiveTV t o install, maintain and operate live satellite television on all of the Corporation’s aircraft for a term of 10 years. The minimum commitment amoun ts associated with these agreements have been included in the totals in the table above. In 2008, the Corporation signed an agreement with Sabre Airline Solutions (Sabre) to provide the Corporation with a licence to access and use Sabre’s reservation system, SabreSonic, for a term of eight years. The minimum contract amounts associated with the reservation system have
been included in the totals in the table above. (c) Letters of guarantee The Corporation has available two revolving loan credit facilities with a Canadian chartered bank totalling $38,000 (2009 – $3 8,000). One loan facility is unsecured for $8,000, and the other is a facility for $30,000 that requires funds to be assigned and held in cash s ecurity for the full value of letters of guarantee issued by the Corporation. As at December 31, 2010, $6,691 (2009 – $12,491) of letters of guarantee wer e issued under these facilities. These facilities are secured by a general security agreement and $6,691 (2009 – $4,491) of restricted cash. (d) Operating line of credit
Commencing in the third quarter of 2009, the Corporation has available a three-year revolving operating line of credit with a syndicate of three Canadian banks. The line of credit is available to a maximum of $80,750 (2009 − $85,000) and is secured by the Corporation’s Ca mpus facility. The line of credit bears interest at prime plus 0.50% per annum, or a bankers’ acceptance rate at 2.0% annual stamping fee or e quivalent, and is available for general corporate expenditures and working capital purposes. The Corporation is required to pay an annual standby fee of 15 basis points, based on the average unused portion of the line of credit for the previous quarter, payable quarterly. As at December 3 1, 2010, no amounts were drawn (2009 – $nil). (e) Fuel facility corporations
The Corporation has entered into nine arrangements whereby it participates under contract in fuel facility corporations, along with other airlines, to procure fuel services at major Canadian airports. The fuel facility corporations operate on a cost-recovery basis. The purpose of these corporations
is to own and fi nance the system that distributes fuel to the contracting airlines, including the leasing of land rights, while providing the contracting airlines with preferential service and pricing over non-participating entities. The operating costs, including debt service req uirements, of the fuel facility corporations are shared pro rata among the contracting airlines. The nine fuel facility corporations are consider ed variable interest entities and have not been consolidated within the Corporation’s accounts. In the remote event that all other contracting airli nes withdraw from the arrangements and the Corporation remained as sole member, it would be responsible for the costs of the fuel facility corpor ations, including debt service requirements. As at November 30, 2010, the nine fuel facility corporations had combined total assets of approximat ely $345,523 (2009 − $341,487) and debt of approximately $312,625 (2009 − $307,825). (f) Contingencies
The Corporation is party to legal proceedings and claims that arise during the ordinary course of business. It is the opinion of management that the ultimate outcome of these and any outstanding matters will not have a material effect upon the Corporation’s fi nancial position, results of operations or cash fl ows.WestJet 2010 Annual Report 85 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

13. Financial instruments and risk management
(a) Fair value of fi nancial assets and fi nancial liabilities
The Corporation’s fi nancial assets and liabilities consist primarily of cash and cash equivalents, accounts receivable, derivatives both designate d and not designated in an effective hedging relationship, deposits, accounts payable and accrued liabilities, long-term debt and capital lease obligations. The following tables set out the Corporation’s classifi cation and the carrying amount, together with the fair value, for each type of its
fi nancial assets and liabilities as at December 31, 2010 and 2009:

Fair value Amortized cost Totals

2010 Held-fortrading Derivatives Loans and receivables Other fi nancial liabilities Carrying amount Fair value Asset (liability): Cash and cash equivalents $ 1,187,899 $ — $ — $ — $ 1,187,899 $ 1,187,899
Accounts receivable — — 17,518 — 17,518 17,518 Foreign exchange derivatives (i) — (3,579)

— — (3,579) (3,579)
Fuel derivatives (ii) — 4,889

— — 4,889 4,889 Deposits (iii) 28,258

— — — 28,258 28,258 Accounts payable and accrued liabilities (iv)

— — — (299,204) (299,204) (299,204) Long-term debt (v)

— — — (1,047,177) (1,047,177) (1,141,961) Obligations under capital leases (vi)

— — — (3,357) (3,357) (3,357) $ 1,216,157 $ 1,310 $ 17,518 $(1,349,738) $ (114,753) $ (209,537)

Fair value Amortized cost Totals

2009 Held-fortrading Derivatives Loans and receivables Other fi nancial liabilities Carrying amount Fair value Asset (liability): Cash and cash equivalents $ 1,005,181 $ — $ — $ — $ 1,005,181 $ 1,005,181
Accounts receivable — — 27,654 — 27,654 27,654 Foreign exchange derivatives (i) — (1,249)

— — (1,249) (1,249)
Fuel derivatives (ii) — (8,667)

— — (8,667) (8,667) Deposits (iii) 27,264

— — — 27,264 27,264 Accounts payable and accrued liabilities (iv)

— — — (221,208) (221,208) (221,208) Long-term debt (v)

— — — (1,219,777) (1,219,777) (1,323,120) Obligations under capital leases (vi)

— — — (4,102) (4,102) (4,102) $ 1,032,445 $ (9,916) $ 27,654 $(1,445,087) $ (394,904) $ (498,247)
(i) Includes $nil (2009 – $181) classifi ed in prepaid expenses, deposits and other, and $3,579 (2009 – $1,430) classifi ed in accounts payable and accrued liabilities. (ii) Includes $5,689 (2009 – $96) classifi ed in prepaid expenses, deposits and other, and $800 (2009 – $8,763) classifi ed in accounts payable and accrued liabilities. (iii) Includes $14,752 (2009 – $11,249) classifi ed in prepaid expenses, deposits and other, and $13,506 (2009 – $16,015) classifi ed in other assets. (iv) Excludes fuel derivative liabilities of $800 (2009 – $8,763) and foreign exchange derivative liabilities of $3,579 (2009 – $1,430). (v) Includes current portion of long-term debt of $183,681 (2009 – $171,223) and long-term portion of $863,496 (2009 – $1,048,554). (vi) Includes current portion of obligations under capital leases of $108 (2009 – $744) and long-term portion of $3,249 (2009 – $3,358).86 WestJet 2010 Annual Report 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

13. Financial instruments and risk management (continued)
(a) Fair value of fi nancial assets and fi nancial liabilities (continued)
Section 3862, Financial Instruments – Disclosures, requires an explanation about how fair value is determined for assets and l iabilities measured in the fi nancial statements at fair value and establishes a hierarchy for which these assets and liabilities must be grouped, based on signifi cant levels of input, as follows:
Level 1: observable inputs, such as quoted prices in active markets; Level 2: inputs, other than the quoted market prices in active markets, which are observable, either directly and/or indirectly; and
Level 3: unobservable inputs for the asset or liability in which little or no market data exists, therefore, requiring an entity to develop its own assumptions.
The following items, shown in the consolidated balance sheet as at December 31, 2010 and 2009, are measured at fair value on a recurring basis using level 1 or level 2 inputs. The fair value of the fi nancial assets and liabilities at December 31, 2010, using level 3 inputs, was $nil (2009 − $nil).

2010 Level 1 Level 2 Total Asset (liability): Cash and cash equivalents $ 1,187,899 $ — $ 1,187,899 Foreign exchange derivatives

— (3,579) (3,579)
Fuel derivatives

— 4,889 4,889 Deposits 28,258

— 28,258 $ 1,216,157 $ 1,310 $ 1,217,467

2009 Level 1 Level 2 Total Asset (liability): Cash and cash equivalents $ 1,005,181 $ — $ 1,005,181 Foreign exchange derivatives

— (1,249) (1,249)
Fuel derivatives

— (8,667) (8,667) Deposits 27,264

— 27,264 $ 1,032,445 $ (9,916) $ 1,022,529

During the years ended December 31, 2010 and 2009, there were no transfers between level 1, level 2 and level 3 classifi ed assets and liabilities.
Cash and cash equivalents: Cash and cash equivalents, classifi ed as level 1 instruments, consist of bank balances and short-term investments, primarily highly liquid debt instruments, with terms of up to one year with the majority having terms of less than 91 days. The fair value of cash and cash equivalents approximates their carrying values because of their short-term nature.
Accounts receivable and accounts payable and accrued liabilities: The carrying amount of accounts receivable and accounts payable and accrued liabilities approximates their fair values because of the short-term nature of the instruments.
Foreign exchange derivatives: Foreign exchange derivatives consist of forward and option contracts. The fair value of the foreign exchange forward contracts is measured based on the difference between the contracted rate and the current forward price obtained from the counterparty, which can be observed and corroborated in the marketplace. These instruments are classifi ed as level 2. As at December 31, 2010, the average contracted rate on the forward contracts was 1.0264 (2009 – 1.0671) Canadian dollars to US dollars, and the average forward rate used in determining the fair value was 0.9995 (2009 – 1.0512) Canadian dollars to US dollars. The fair value of the foreign exchange op tion contracts is determined through a standard option valuation technique used by the counterparty based on market inputs, including foreign exc hange rates, interest rates and volatilities. These instruments are classifi ed as level 2. There were no foreign exchange option contracts outstanding as at December 31, 2010.WestJet 2010 Annual Report 87 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

13. Financial instruments and risk management (continued)
(a) Fair value of fi nancial assets and fi nancial liabilities (continued)

Fuel derivatives : Fuel derivatives consist of swaps, collars and call option contracts. The fair value of the fuel derivatives is determined us ing inputs, including quoted forward prices for commodities, foreign exchange rates and interest rates, which can be observed or co rroborated in the marketplace. The fair value of the swap contracts is estimated by discounting the difference between the contractual strike pri ce and the current forward price. These instruments are classifi ed as level 2.
The fair value of the collar and call option contracts are estimated by the use of a standard option valuation technique. Thes e instruments are
classifi ed as level 2. As at December 31, 2010, for the period that the Corporation is hedged, the closing forward curve for crude oil ranged from approximately US $91 to US $94 (2009 – US $79 to US $84), with the average forward foreign exchange rate used in determining th e fair value being 1.0032 (2009 – 1.0536) Canadian dollars to US dollars.
Deposits: The fair value of the deposits that relate to purchased aircraft and airport operations approximates their carrying amounts as they are at a fl oating market rate of interest. These instruments are classifi ed as level 1.
Long-term debt: The fair value of the Corporation’s fi xed-rate long-term debt is determined by discounting the future contractual cash fl ows under current fi nancing arrangements at discount rates obtained from the lender, which represent borrowing rates presently available to the Corporation for loans with similar terms and remaining maturities. As at December 31, 2010, rates used in determining the fair value ranged from 2.00% to 2.74% (2009 – 2.28% to 3.27%). The fair value of the Corporation’s variable-rate long-term debt approximates its carrying value, as it is at a fl oating market rate of interest.
Obligations under capital leases: The fair value of the Corporation’s capital lease obligations approximates their carrying value due to their short-term remaining maturities and total value due.
(b) Gain (loss) on derivatives recorded at fair value The following table presents the components of gain (loss) on derivatives included on the consolidated statement of earnings f or the years ended December 31, 2010 and 2009:

2010 2009 Gain on designated fuel derivatives $ 44 $ 5,617 Loss on foreign exchange options (78) (3,789) $ (34) $ 1,828

(c) Risk management
The Corporation is exposed to market, credit and liquidity risks associated with its fi nancial assets and liabilities. From time to time, the Corporation will use various fi nancial derivatives to reduce market risk exposures from changes in foreign exchange rates, interest rates and jet fuel prices. The Corporation does not hold or use any derivative instruments for trading or speculative purposes.
Overall, the Corporation’s Board of Directors has responsibility for the establishment and approval of the Corporation’s risk management policies. Management continually perform risk assessments to ensure that all signifi cant risks related to the Corporation and its operations have
been reviewed and assessed to refl ect changes in market conditions and the Corporation’s operating activities.

Fuel risk
The airline industry is inherently dependent upon jet fuel to operate and, therefore, the Corporation is exposed to the risk o f volatile fuel prices. Fuel prices are impacted by a host of factors outside the Corporation’s control, such as signifi cant weather events, geopolitical tensions,
refi

nery capacity, and global demand and supply. For the year ended December 31, 2010, aircraft fuel expense represented approxima tely 29% (2009 – 28%) of the Corporation’s total operating expenses.88 WestJet 2010 Annual Report 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

13. Financial instruments and risk management (continued) (c) Risk management (continued)

Fuel risk (continued)
Under the Corporation’s fuel price risk management policy, the Corporation is permitted to hedge a portion of its future antic ipated jet fuel purchases for up to 36 months, as approved by the Board of Directors. The policy establishes hedging limits based on time horiz on. The hedging program is designed to mitigate the risk of sudden and substantial movements in fuel prices causing volatility in earnings and cash fl ows. Management continuously reviews and adjusts its strategy based on market conditions and competitors’ positions. Financial deriv atives in crude-oil-based commodities (including a variety of crude oil, heating oil and jet benchmarks) that are traded directly on orga nized exchanges or are available over the counter can be useful in mitigating the risk of volatile fuel prices. As at December 31, 2010, the Corporation had a mixture of Canadian-dollar West Texas Intermediate (WTI) and jet fuel call options and collars to hedge approximately 20% (2009 – 14%) of its anticipated jet fuel requirements for the next 12 months. The following table outli nes, per type, as at December 31, 2010, the notional volumes per barrel (bbl.) or per gallon (gal.) along with the weighted average contract prices.

Type Year Instrument Notional volumes (bbl.) WTI average call price (CAD/bbl.)
WTI 2011 Call options 1,230,000 $ 97

Type Year Instrument Notional volumes (gal.) Jet average call price (CAD/gal.) Jet average put price (CAD/gal.)
Jet 2011 Collars 1,260,000 $ 2.50 $ 2.00

Upon proper qualifi cation, the Corporation accounts for its fuel derivatives as cash fl ow hedges. Under cash fl ow hedge accounting, the effective portion of the change in the fair value of the hedging instrument is recognized in AOCL, while the ineffective portion is recognized in non-operating income (expense). Upon maturity of the derivative instrument, the effective gains and losses previously recognized in AOCL are recorded in net earnings as a component of aircraft fuel expense.
The Corporation’s policy for its fuel derivatives is to measure effectiveness based on the change in the intrinsic value of th e fuel derivatives versus the change in the intrinsic value of the anticipated jet fuel purchase. The Corporation elects to exclude time value fro m the measurement of effectiveness; accordingly, changes in time value are recognized in non-operating income (expense) during the period the cha nge occurs. As a result, a signifi cant portion of the change in fair value of the Corporation’s options may be recorded as ineffective.
Ineffectiveness is inherent in hedging jet fuel with derivative instruments in other commodities, such as crude oil, particularly given the signifi cant volatility observed in the market on crude oil and related products. Due to this volatility, the Corporation is unable to predict the amount of ineffectiveness for each period. This may result in increased volatility in the Corporation’s results.
If the hedging relationship ceases to qualify for cash fl ow hedge accounting, any change in fair value of the instrument from the point it ceases to qualify is recorded in non-operating income (expense). Amounts previously recorded in AOCL will remain in AOCL until the ant icipated jet fuel purchase occurs, at which time, the amount is recorded in net earnings under aircraft fuel expense. If the transaction is no longer expected to occur, amounts previously recorded in AOCL will be reclassifi ed to non-operating income (expense). For the years ended December 31, 2010 and 2009, there were no amounts reclassifi ed as a result of transactions no longer expected to occur.
The periodic changes in fair value and realized settlements on fuel derivatives that do not qualify or that are not designated under cash fl ow hedge accounting are recorded in non-operating income (expense). For the years ended December 31, 2010 and 2009, there were no fuel d erivatives not designated under cash fl ow hedge accounting.WestJet 2010 Annual Report 89 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

13. Financial instruments and risk management (continued) (c) Risk management (continued)

Fuel risk (continued)
The following table presents the fi nancial impact and statement presentation of the Corporation’s fuel derivatives on the consolidated balance sheet as at December 31, 2010 and 2009:

Statement presentation 2010 2009 Receivable from counterparties for fuel derivatives Prepaid expenses, deposits and other $ 445 $ 96
Fair value of fuel derivatives Prepaid expenses, deposits and other 5,244

— Fair value of fuel derivatives Accounts payable and accrued liabilities

— (7,521) Payable to counterparties for fuel derivatives Accounts payable and accrued liabilities (800) (1,242) Unrealized (gain) loss from fuel derivatives AOCL – before tax impact (11) 6,713

Statement presentation 2010 2009 Realized loss on designated fuel derivatives –

effective portion Aircraft fuel $ (9,172) $ (28,411) Gain on designated fuel derivatives Gain (loss) on derivatives 44 5,617 The following table presents the fi nancial impact and statement presentation of the Corporation’s fuel derivatives on the consolidated statement of earnings for the years ended December 31, 2010 and 2009:

During the year ended December 31, 2010, the Corporation net settled fuel derivatives in favour of the counterparties of $8,98 0 (2009 – $29,574) and paid cash premiums for option-style contracts of $6,189 (2009 – $nil).
The estimated amount reported in AOCL that is expected to be reclassifi ed to net earnings as a component of aircraft fuel expense, when the underlying jet fuel is consumed during the next 12 months, is a gain before tax of $11 (2009 – loss before tax of $6,713).
A 10% increase in the forward curve for WTI, the underlying commodity of the Corporation’s fuel derivatives, as at December 31 , 2010, would have decreased AOCL by approximately $4,896, net of taxes (2009 – $3,583). A 10% decrease in the forward curve for WTI, as at Decemb er 31, 2010, would have increased AOCL by approximately $2,455, net of taxes (2009 – $3,814). This is assuming that 100% of the change in pr ice is considered effective under cash fl ow hedge accounting. Should some or all of the change in price be considered ineffective under hedge accounting, the ineffective portion would be recorded in non-operating income (expense). It also assumes that all other variables remain consta nt, particularly foreign exchange and interest rates. These assumptions may not be representative of actual movements.90 WestJet 2010 Annual Report 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

13. Financial instruments and risk management (continued) (c) Risk management (continued)
Foreign exchange risk
Foreign exchange risk is the risk that the fair value of recognized assets and liabilities or future cash fl ows would fl uctuate as a result of changes in foreign exchange rates. The Corporation is exposed to foreign exchange risks arising from fl uctuations in exchange rates on its US-dollar-denominated net monetary assets and its operating expenditures, mainly aircraft fuel, aircraft leasing expense, certa in maintenance costs and a portion of airport operations costs. During the year ended December 31, 2010, the average US-dollar exchange rate w as 1.0302 (2009 – 1.1425), with the year-end exchange rate at 0.9946 (2009 – 1.0510).
The gain or loss on foreign exchange included in the Corporation’s consolidated statement of earnings is mainly attributable t o the effect of the changes in the value of the Corporation’s US-dollar-denominated net monetary assets. As at December 31, 2010, US-dollar-denomin ated net monetary assets totalled approximately US $53,037 (2009 – US $19,858). The Corporation estimates that a one-cent change in the value of the US dollar versus the Canadian dollar as at December 31, 2010, would have increased or decreased net earnings for the year ended December 31, 2010, by $369 (2009 – $143), as a result of the Corporation’s US-dollar-denominated net monetary asset balance. As at December 31, 2010, the Corporation was entered into foreign exchange forward contracts for an average of US $11,535 (200 9 – US $7,270) per month for the period of January to December 2011 for a total of US $138,420 (2009 – US $65,430) at a weighted average contr act price of 1.0264 (2009 – 1.0671) per US dollar to offset a portion of its US-dollar-denominated aircraft lease payments. Upon proper qualifi cation, the Corporation designated the forward contracts as effective cash fl ow hedges for accounting purposes. Under cash fl ow hedge accounting, the effective portion of the change in the fair value of the hedging instrument is recognized in AOCL, while the ineffective portion is recognized in non-operating income (expense). Upon maturity of the derivative instrument, the effective gains and losses previously recognized in AOCL are recorded in net earnings as a component of aircraft leasing expense. As at December 31, 2010, no portion of the forward contracts was considere d ineffective. As at December 31, 2010, the fair value of the foreign exchange forward contracts was $3,579 (2009 – $1,219) included in accou nts payable and accrued liabilities, and $nil (2009 − $181), recorded in prepaid expenses, deposits and other. For the year ended December 31, 2010, the Corporation realized a loss before tax on forward contracts of $2,143 (2009 – gain of $5,553), included in net earnings as an increase (2009 – decrease) to aircraft leasing expense. The estimated amount reported in AOCL that is expected to be reclassifi ed to net earnings as a component of aircraft leasing expense in the next 12 months is a loss before tax of $3,579 (2009 – loss before tax of $1,038).
The Corporation’s foreign exchange option contracts were not designated as hedges for accounting purposes and were recorded at fair value on the consolidated balance sheet, with changes in fair value recorded in non-operating income (expense). As at December 31, 2010, the Corporation had no foreign exchange option contracts outstanding. For the year ended December 31, 2010, the Corporation recorde d a loss of $78 (2009 – loss of $3,789), included in non-operating income (expense) on foreign exchange option contracts. A one-cent change in the US-dollar exchange rate for the year ended December 31, 2010, would impact AOCL, net of taxes, by $1, 028 (2009 – $475) as a result of the foreign exchange derivatives.

Interest rate risk

Interest rate risk is the risk that the value of fi nancial assets and liabilities or future cash fl ows will fl uctuate as a result of changes in market
interest rates. (i) Cash and cash equivalents
The Corporation is exposed to interest rate fl uctuations on its short-term investments, included in cash and cash equivalents. A change of 50 basis points in the market interest rate would have had for the year ended December 31, 2010, an approximate impact on net e arnings of $3,762 (2009 – $2,555) as a result of the Corporation’s short-term investment activities.WestJet 2010 Annual Report 91 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

13. Financial instruments and risk management (continued) (c) Risk management (continued)

Interest rate risk (continued) (ii) Deposits
The Corporation is exposed to interest rate fl uctuations on its deposits that relate to purchased aircraft and airport operations, which, as at December 31, 2010, totalled $28,258 (2009 – $27,264). A reasonable change in market interest rates as at December 31, 2010, would not have signifi cantly impacted the Corporation’s net earnings as a result of the deposits. (iii) Long-term debt

The fi xed-rate nature of the majority of the Corporation’s long-term debt mitigates the impact of interest rate fl uctuations over the term of the outstanding debt. The Corporation accounts for its long-term fi xed-rate debt at amortized cost, and, therefore, a change in interest rates as at December 31, 2010, would not impact net earnings. The Corporation is exposed to interest rate fl uctuations on its variable-rate long-term debt, which, as at December 31, 2010, totalled $6,795 (2009 – $8,563) or 0.6% (2009 – 0.7%) of the Corporation’s total long-term debt. Because of the immaterial balance of the varia ble-rate long-term debt, a change in market interest rates as at December 31, 2010, would not have signifi cantly impacted the Corporation’s net earnings.

Credit risk
Credit risk is the risk that one party to a fi nancial instrument will cause a fi nancial loss for the other party by failing to discharge an obligation. As at December 31, 2010, the Corporation’s credit exposure consisted primarily of the carrying amounts of cash and cash equival ents, accounts receivable, deposits, as well as the fair value of derivative fi nancial assets. (i) Cash and cash equivalents
Cash and cash equivalents consist of bank balances and short-term investments with terms of up to one year, with the majority having terms of less than 91 days. Credit risk associated with cash and cash equivalents is minimized substantially by ensuring that these fi nancial assets are invested primarily in debt instruments with highly rated fi nancial institutions. The Corporation manages its exposure risk by assessing the fi nancial strength of its counterparties and by limiting the total exposure to any one individual counterparty. As at December 3 1, 2010, the Corporation had a total principal amount invested of $913,167 (2009 – $813,215) in Canadian-dollar short-term investments a nd a total of US $45,157 (2009 – US $nil) invested in US-dollar short-term investments, all with terms ranging between fi ve and 365 days.
The Corporation performs an ongoing review to evaluate its risk associated with its cash and cash equivalent counterparties. As at December 31, 2010, the Corporation does not expect any counterparties to fail to meet their obligations.
(ii) Accounts receivable As at December 31, 2010, the Corporation’s accounts receivable were predominantly trade receivables of $12,446 (2009 – $8,67 3). The remainder related to receivables from travel agents, interline agreements with other airlines and partnerships. All signifi cant services and counterparties are reviewed and approved for credit on a regular basis. Receivables are short term in nature, generally being s ettled within 30 to 60 days.
As at December 31, 2010, the Corporation continues to dispute with a counterparty, an accounts receivable balance relating t o its cargo operations of $2,368 (2009 − $2,368). The Corporation recorded a bad debt provision for the amount in 2009. There were no new p rovisions
recorded for bad debts in 2010.92 WestJet 2010 Annual Report 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

13. Financial instruments and risk management (continued) (c) Risk management (continued)

Credit risk (continued)
(iii) Derivative fi nancial instruments
The Corporation recognizes that it is subject to credit risk arising from derivative transactions that are in an asset posit ion at the balance sheet date. The Corporation carefully monitors this risk by closely considering the size, credit rating and diversifi cation of the counterparty. As at December 31, 2010, fuel derivatives of $5,689 (2009 − $96) and foreign exchange derivatives of $nil (2009 − $181) outstan ding with the Corporation’s counterparties were in an asset position. The Corporation does not expect these counterparties to fail to meet their obligations. (iv) Deposits
The Corporation is not exposed to counterparty credit risk on its deposits that relate to purchased aircraft, as the funds a re held in a security trust separate from the assets of the fi nancial institution. While the Corporation is exposed to counterparty credit risk on its deposit relating to airport operations, it considers this risk to be remote because of the nature of the deposit and the credit rating of the counterparty.
Liquidity risk
Liquidity risk is the risk that the Corporation will encounter diffi culty in meeting obligations associated with fi nancial liabilities. The Corporation maintains a strong liquidity position and suffi cient fi nancial resources to meet its obligations as they fall due.
The table below presents a maturity analysis of the Corporation’s undiscounted contractual cash fl ows for its non-derivative and derivative fi nancial liabilities as at December 31, 2010. The analysis is based on foreign exchange and interest rates in effect at the balance shee t date, and includes both principal and interest cash fl ows for long-term debt and obligations under capital leases.

Total Within 1 year 1–3 years 4–5 years Over 5 years Accounts payable and accrued liabilities (i) $ 299,204 $ 299,204 $ — $ — $ — Foreign exchange derivatives 3,579 3,579

— — — Fuel derivatives 800 800

— — — Long-term debt 1,232,319 235,215 414,455 341,920 240,729 Obligations under capital leases 5,878 282 490 490 4,616 Total $ 1,541,780 $ 539,080 $ 414,945 $ 342,410 $ 245,345

(i) Excludes foreign exchange derivatives of $3,579 and fuel derivatives of $800.

A portion of the Corporation’s cash and cash equivalents balance relates to cash collected with respect to advance ticket sale s, for which the balance at December 31, 2010, was $308,022 (2009 – $286,361). Typically, the Corporation has cash and cash equivalents on hand to have suffi cient liquidity to meet its liabilities, when due, under both normal and stressed conditions. As at December 31, 2010, the Corporatio n had cash and cash equivalents on hand of 3.86 (2009 – 3.51) times the advance ticket sales balance. The Corporation aims to maintain a current ratio, defi ned as current assets over current liabilities, of at least 1.00. As at December 31, 2010, the Corporation’s current ratio was 1.52 (2009 – 1.48). As at December 31, 2010, the Corporation was not required to post collateral with respect to any of its outstanding derivative contracts.WestJet 2010 Annual Report 93 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

(i) Short-term deposits include deposits relating to aircraft fuel, airport operations and other operating costs.
(ii) Aircraft-related deposits include long-term deposits with lessors for the lease of aircraft and long-term US-dollar deposits, which relate to purchased aircraft.
(iii) Deferred gains from the sale and leaseback of aircraft, net of amortization, which are being deferred and amortized over the lease terms with the amortization included in aircraft leasing expense.
(iv) Included in other liabilities is an estimate pertaining to asset retirement obligations on its aircraft under operating lease s. During the year ended December 31, 2010, the Corporation increased the liability by $701 (2009 – $1,217) due to the addition of further leased aircraft with $nil (2009 – $nil) incurred on the settlement of these obligations.
(v) Incentives received by the Corporation for entering into various leasing and maintenance contracts. Amounts are deferred and recognized in net earnings on a straight-line basis over the term of the contract. (b) Supplementary cash fl ow information

2010 2009 Net change in non-cash working capital from operations: (Increase) decrease in accounts receivable $ 10,378 $ (11,365) (Increase) decrease in prepaid expenses, deposits and other 8,531 (2,691) (Increase) decrease in inventory 5,788 (9,014) Increase in accounts payable and accrued liabilities 79,474 15,926 Increase in advance ticket sales 21,779 35,008 Decrease in non-refundable guest credits (27,728) (8,514) $ 98,222 $ 19,350 2010 2009 Prepaid expenses, deposits and other: Prepaid expenses $ 9,082 $ 29,797 Short-term deposits (i) 26,854 23,439 Derivatives (note 13) 5,689 277 Other 91 2,726 $ 41,716 $ 56,239
Other assets: Aircraft-related deposits (ii) $ 45,268 $ 50,975
Other 9,163 3,392 $ 54,431 $ 54,367
Other liabilities: Deferred gain on sale and leaseback (iii) $ 4,143 $ 5,281 Asset retirement obligations (iv) 5,901 4,926 Deferred contract incentives (v) 8,794 9,421 $ 18,838 $ 19,628 14. Additional fi nancial information
(a) Balance sheet94 WestJet 2010 Annual Report 14. Additional fi nancial information (continued) (c) Accumulated other comprehensive loss 

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2010 and 2009 (Stated in thousands of Canadian dollars, except share and per share amounts)

Amortization of hedge settlements Cash fl ow hedges – foreign exchange derivatives Cash fl ow hedges – fuel derivatives Total Balance as at January 1, 2009 $ (10,620) $ 4,133 $ (31,625) $ (38,112) Amortization of hedge settlements 1,400

— — 1,400 Unrealized gain (loss) on derivatives

— (1,358) 9,587 8,229 Tax on unrealized portion

— 447 (2,878) (2,431) Realized (gain) loss on derivatives

— (5,553) 28,411 22,858 Tax on realized portion

— 1,576 (8,372) (6,796) Balance as at December 31, 2009 (9,220) (755) (4,877) (14,852) Amortization of hedge settlements 1,400

— — 1,400 Unrealized loss on derivatives

— (4,684) (2,448) (7,132) Tax on unrealized portion

— 1,224 670 1,894 Realized loss on derivatives

— 2,143 9,172 11,315 Tax on realized portion

— (586) (2,509) (3,095) Balance as at December 31, 2010 $ (7,820) $ (2,658) $ 8 $ (10,470)BOARD OF DIRECTORS
Clive Beddoe
Chair
WestJet Airlines Ltd.

Hugh Bolton
Non-Executive Chair
EPCOR Utilities Inc.

Ron Brenneman
Former President and CEO
Petro-Canada

Brett Godfrey
Former CEO Virgin Blue Airlines

Don Hougan Captain, PACT Chair
WestJet Airlines Ltd.

Allan Jackson
President and CEO
Arci Ltd.

S. Barry Jackson
Chair TransCanada Corporation and TransCanada PipeLines Ltd.

Wilmot Matthews
President Marjad Inc.

Larry Pollock
President and CEO
Canadian Western Bank and Canadian Western Trust

Gregg Saretsky
President and CEO
WestJet Airlines Ltd.

Arthur Scace
Former Chair
Bank of Nova Scotia EXECUTIVE TEAM Gregg Saretsky
President and CEO

Vito Culmone Executive Vice-President, Finance and CFO

Bob Cummings Executive Vice-President, Sales, Marketing and Guest Experience

Hugh Dunleavy Executive Vice-President, Strategy and Planning

Cam Kenyon Executive Vice-President, Operations

Ferio Pugliese Executive Vice-President, People and Culture

STOCK EXCHANGE LISTING Shares in WestJet stock are publicly traded on the Toronto Stock Exchange under the symbols WJA and WJA.A.

INVESTOR RELATIONS CONTACT INFORMATION
Phone: 1-877-493-7853 Email: investor_relations @ westjet.com

WESTJET HEADQUARTERS
22 Aerial Place NE Calgary, Alta. T2E 3J1
Phone: 1-403-444-2600
Toll-free: 1-888-293-7853

ANNUAL GENERAL MEETING (AGM) WestJet Airlines Ltd.’s AGM will be held at 2 p.m. (MDT) on Tuesday, May 3, 2011, at WestJet’s Campus, 22 Aerial Place NE, Calgary, Alta. T2E 3J1

TRANSFER AGENT AND REGISTRAR CIBC Mellon Trust Company
Toll-free in North America: 1-800-387-0825
cibcmellon.com

Auditors
KPMG LLP , Calgary, Alta. 

# CORPORATE INFORMATION

### WESTJET.COM

## WESTJET

______________________________________________________________________________

EXHIBIT 6

INSURANCE CERTIFICATEOffice of the Secretary of Transportation AGENCY DISPLAY OF ESTIMATED BURDEN The public reporting burden for this collection of information is estimated to average 30 minutes per response. If you wish to comment on the accuracy of the estimate or make suggestions for reducing this burden, please direct your comments to: U.S. Department of Transportation, Office of Aviati on Analysis, X-56, 400 7 th St., SW,., Washington, D.C. 20590. According to the Paperwork Reduction Act of 1995, no persons are required to respond to a collection of informat ion unless it displays a valid OMB control number.

NOTE : For information on where to file completed copie s of this form, see FILING INSTRUCTIONS below.

OMB No. 2106-0030 Expires 9-30-2007 FOREIGN AIR CARRIERS - CERTIFICATE OF INSURANCE

POLICIES OF INSURANCE FOR AIRCRAFT ACCIDENT BODILY INJURY

AND PROPERTY DAMAGE LIABILITY

FILING INSTRUCTIONS : File a signed original of this form with the Federa l Aviation Administration, Air Transportation Div., AFS-260, 800 Independence Ave., SW., Washington, DC 20591. (See EXCEPTION below.) EXCEPTION : If Section 2.A. is filled in because the insured is a Canadian Charter Air Taxi Operator , file an original of this form with the U.S. Department of Transportation, Spec ial Authorities Division (X-46), 400 7 th Street, SW, Washington, D.C. 20590
(Please type information, except signatures.)

THIS CERTIFIES THAT: ___Underwriters at Lloyd’s of London and Licensed L ondon and Canadian Companies through Marsh Canada L imited as brokers___________ (Name of Insurer)

has issued a policy or policies of Aircraft Liabili ty Insurance to __WestJet Airlines Ltd., 22 Aerial Place NE, Calgary, AB, T2E 3J1__________

___________________________________________________ _______________FAA Certificate Number______________

__ (Name, address and FAA Certificate number of Insure d Foreign Air Carrier)

effective from ___December 1, 2011____ until ten (1 0) days after written notice from the insurer or ca rrier of the intent to terminate coverage is received by the Department of Transportation. NOTE: Part 205 of the Department’s Regulations doe s not allow for a predetermined termination date, a nd a certificate showing such a date is unacceptable.

___________________________________________________ ___________________________________________________ _________ 1. The Insurer (Check One

) : _ is licensed to issue aircraft insurance po licies in the United States; X is licensed or approved by the government of _ _Canada________ to issue aircraft insurance policie s; or _ is an approved surplus line insurer in the State(s) of _________________________

___________________________________________________ ___________________________________________________ _________ 2. The insurer assumes, under the policy or policies liste d below, aircraft accident liability insured to min imums at least equal to the following during operation, maintenance, or use of aircraft in “fore ign air transportation” as that term is defined in 49 U.S.C. 40102. (Complete applicable section A, B, or C below ):

A. CANADIAN CHARTER AIR TAXI OPERATORS WITH PART 29 4 AUTHORITY ONLY The aircraft covered by this policy have: (1) 30 o r fewer passenger seats and a maximum payload capac ity of 7,500 pounds or less; and/or (2) a maximum authorized takeoff weight on wheels o f no more than 35,000 pounds. (Complete separate or combined coverage as appropriate

) :

 Separate Coverages: Minimum L imit Policy No. Type of Liabil ity Each person Each Occurrence __________________ Combined Bodily Injury (Excludi ng Passengers other than cargo attendants) and Property Damage Liabi lity $75,000 $2,000,000*(See note) __________________ Passenger Bodily Injury $75,000 $75,000 x 75% of total number of passenger seats installed in aircraft

 Combined Coverage: This combined coverage is a si ngle limit of liability for each occurrence at leas t equal to the required minimums stated above for bodily injury (excluding passenger s), property damage, and passenger bodily injury. Policy No. __________________________________ Amount of Cover age_____________________U.S. Dollars

 This policy covers CARGO operations only and excludes passenger liability insurance.

___________________________________________________ ___________________________________________________ _____ NOTE : If the aircraft covered by this policy have more than 30 passenger seats or more than a maximum pay load capacity of 7,500 pounds, the minimum limit per occurrence shall be $ 20,000,000.OST Form 6411

B. FOREIGN AIR CARRIERS OPERATING SMALL AIRCRAFT The aircraft covered by this policy are SMALL AIRCR AFT (i.e., with 60 or fewer passenger seats or with a maximum payload capacity of 18,000 pounds or less). (Complete separate or combined coverage as appropri ate ) :

 Separate Coverages: Minimum Lim it Policy No. Type of Liabil ity Each person Each Occurrence __________________ Combined Bodily Injury (Excludi ng Passengers other than cargo attendants) and Property Damage Liabi lity $300,000 $2,000,000 __________________ Passenger Bodily Injury $300,000 $300,000 x 75% of total number of passenger seats installed in aircraft

 Combined Coverage: This combined coverage is a si ngle limit of liability for each occurrence at leas t equal to the required minimums stated above for bodily injury (excluding passenger s), property damaged, and passenger bodily injury. Policy No. __________________________________ Amount of Cover age_____________________U.S. Dollars

 This policy covers CARGO operations only and excludes passenger liability insurance.

___________________________________________________ ___________________________________________________ __________________ C. FOREIGN AIR CARRIERS OPERATING LARGE AIRCRAFT

The aircraft covered by this policy are LARGE AIRCR AFT (i.e., with more than 60 passenger seats or wit h a maximum payload capacity of more than 18,000 pounds). (Complete separate or combined coverage as appropri ate ) :

 Separate Coverages: Minimum Limit Policy No. Type of Liabil ity Each person Each Occurrence ___AU104011______ Combined Bodily Injury (Excludin g Passengers other than cargo attendants) and Property Damage Liabi lity $300,000 $20,000,000 ___AU104011_______ Passenger Bodily Injury $300,000 $300,000 x 75% of total number of passenger seats installed in aircraft

 Combined Coverage: This combined coverage is a si ngle limit of liability for each occurrence at leas t equal to the required minimums stated above for bodily injury (excluding passenger s), property damaged, and passenger bodily injury. Policy No. __________________________________ Amount of Cover age_____________________U.S. Dollars

 This policy covers CARGO operations only and excludes passenger liability insurance.

___________________________________________________ ___________________________________________________ __________________ 3. The policy or policies listed in this certificat e insure(s) (Check One ) : Make and Model FAA or Foreign Flag Boeing 737 All Aircraft X Operations conducted with all aircraft operat ed by the insured _ Operations conducted with the following type s of aircraft: _ Operations with the following aircraft: (Us e additional page if necessary)

___________________________________________________ ___________________________________________________ __________________ 4. Each policy listed in this certificate meets or exceeds the requirements in 14 CFR Part 205.

_________________Marsh Canada Limited_____

_______________ (Name of Insurer) (Name of Broker, if applicable)

________________Suite 1100, 222 – 3 Avenue SW

_____________ (Address) (Address)
________________________Calgary, AB, T2P 0B4_________________ (City, State, Zip Code)

___________________________________________________ ____________ _________________Sigmund Berlie__

_____ Contact (person who can verify the effectiveness of the coverage) (Officer or authorized represent ative)

______________403-476-3463______/____403-266-9881__

_______ (Area Code, Phone Number) (Area Code, Fax Number) (Area Code, Phone Number) (Area C ode, Fax Number)

___________________________________________________ _____________

___________________________________________________ _______ (Signature, if applicable) ___________________1 Dec 2011______________ (Date)