January 21, 2010 / 9:36 PM / in 8 years

WestJet sees signs of recovery, remains cautious

* Encouraged by economic recovery, traffic

* Remains cautious, "still lots of uncertainty"

* Targets C$100 mln in cost cuts by end of 2010

OTTAWA, Jan 21 (Reuters) - WestJet Airlines Ltd (WJA.TO) is encouraged by early signs of economic recovery, but Canada's No. 2 carrier said on Thursday that caution remains a key component of its strategy.

A C$962 million ($916 million) cash reserve, plumped up with a C$166 million equity raise, helps reduce risk, but the no-frills airline will work at conserving funds, cutting costs and managing capacity.

"We're encouraged by what we're seeing, in terms of early signs of economic recovery and the buoyancy of traffic in many of our markets," Gregg Saretsky, WestJet's vice president of operations, said at a CIBC investor conference in Whistler, British Columbia.

"We're watching this very carefully; obviously there's the potential here for a double dip."

The travel industry has been hard hit by the global economic downturn. It is typically one of the first to suffer and last to recover, as consumers put the brakes on discretionary spending.

Calgary-based WestJet, which still sees "lots of uncertainty," is aiming for flat costs in 2010, excluding fuel, from 2009. It also hopes to increase efficiency and reduce costs by C$100 million over 18 months to the close of 2010.

Saretsky said the cost of 750 new airport security screeners in Canada, introduced after a failed attack in December on a U.S.-bound plane, is a wild card. Funding could come from ground rent already collected by the government, or additional security fees for customers, Saretsky said.

To drive growth, WestJet will focus in 2010 on airline partnerships, a travel reward credit card and frequent flier program it plans to launch in the first quarter. Southwest Airlines (LUV.N) has forecast a fourth-quarter launch of its delayed partnership with WestJet, Saretsky said.

The airline, which competes domestically with Air Canada ACa.TO, expects to expand its current fleet from 86 planes to as many as 135 planes by 2016.

Shares of WestJet, one of the few profitable North American carriers, dipped 15 Canadian cents to end at C$13.30 on the Toronto Stock Exchange on Thursday. ($1=$1.05 Canadian) (Reporting by Susan Taylor; Editing by Frank McGurty)

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