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* Sees Q2 RASM moving back into positive territory
* Q1 EPS ex-items C$0.12 vs consensus C$0.15
* Q1 revenue up 7 pct at C$619.8 million
* Working on signing up code-share partner this year (Recasts with company, analyst's comments. Changes dateline, previous TORONTO)
By Nicole Mordant
VANCOUVER, May 4 (Reuters) - WestJet Airlines Ltd (WJA.TO) reported a bigger than expected 63 percent drop in quarterly profit on Tuesday, sending its shares lower, but the low-cost Canadian carrier said there are signs it is on track for a stronger second quarter.
Canada's second biggest airline said it expects to see gains in revenue per available seat mile (RASM) -- a key industry measure to compare costs between carriers -- in the second quarter after months of losses.
"We are encouraged by signs that the economy is continuing to stabilize," WestJet Chief Financial Officer Vito Culmone said on a conference call.
"It will take longer for price to bounce back after demand has returned but we are seeing improvements in our RASM trends and expect to move back into positive territory for the second quarter," Culmone told analysts and reporters.
Like airlines globally, WestJet, which flies 88 planes to destinations in North America and the Caribbean, is emerging from the brutal downturn in travel demand that resulted from the recession. Its profits dropped through the slowdown but the no-frills airline remained profitable.
Recovery in the airline industry generally lags the rest of the economy.
WestJet said on Tuesday it earned C$13.8 million ($13.5 million), or 10 Canadian cents a share, in the first quarter, down from C$37.4 million, or 29 Canadian cents, a year earlier as travelers remained wary of prices and as fuel costs and expenses rose due to the expansion of Westjet's vacations business.
Excluding a C$4.1 million charge related to the departure of former Chief Executive Sean Durfy, the company earned C$17.5 million, or 12 Canadian cents a share. That was below the 15 Canadian cents that analysts, on average, had expected.
WestJet's stock dropped as much as 4 percent to C$13.05 on the Toronto Stock Exchange on Tuesday but by early afternoon it was off its lows at C$13.45, down 20 Canadian cents.
"People are probably a little disappointed at the cost performance the company put in," said Versant Partners analyst Cameron Doerksen.
Revenue rose 7 percent to C$619.8 million in the quarter, while RASM fell 0.8 percent.
The company's capacity increased by 7.9 percent in the first quarter, driven by expansion of flights to resort destinations. WestJet expects capacity to increase by 10 percent in the second quarter and 9-10 percent for the year.
WestJet, which is Air Canada's ACa.TO ACb.TO biggest domestic competitor, ended the quarter with cash of nearly C$1.1 billion.
The results are the first presided over by new WestJet CEO Gregg Saretsky, who took the top job at the Calgary-based carrier on April 1. Former CEO Durfy resigned unexpectedly for personal reasons.
Saretsky repeated recent comments that WestJet is hoping to sign one code-share alliance before the end of the year, and sees the company eventually with eight to 10 airline partnerships.
Code-sharing is the practice where airlines sell space on each other's flights. It can help to boost revenues while keeping a lid on costs as airlines don't have to service all destinations individually.
$1=$1.02 Canadian Additional reporting by Scott Anderson; editing by Peter Galloway