WestJet Airlines posted a smaller-than-expected drop in quarterly earnings on Tuesday and said it expected to emerge stronger than ever from a global slowdown in air travel, sending its shares surging.

Canada's No.2 airline cautioned that the second quarter will remain tough in the face of economic pressures and the possible impact of the H1N1 flu.

WestJet CEO Sean Durfy said the outbreak of the H1N1 virus was "hitting the psyche of the traveling public hard" although it was too early to say how badly this will affect bookings.

"We do believe this is short-term pain over the next couple of quarters and we will recover stronger than we have ever been," Durfy told analysts.

WestJet, along with rival Air Canada, recently stopped flights to Mexico, the centre of the flu outbreak.

One of only a few profitable airlines in North America, WestJet's first-quarter earnings fell 28.7 percent to CAD$37.4 million (USD$32 million), or 29 Canadian cents a share, as the soft economy trimmed demand and competition in the industry led to lower pricing.

"It is certainly encouraging that they can still generate good results in the face of an extremely difficult economic environment," said Cameron Doerksen, aerospace analyst at Versant Partners.

WestJet's stock was 6 percent higher on the Toronto Stock Exchange at CAD$13.26, its highest in three months.

Durfy said the airline had adjusted its flight schedules to reduce some flying as it took into account current demand.

"This will lower our previously planned second-quarter capacity growth to between 1 and 2 percent," he said.

As part of its effort to cut costs, WestJet had "slowed hiring," Durfy said but added that there had been no lay-offs. Lower oil prices were also helping to keep a lid on costs.

Durfy said talks between the company and its pilots on a new contract are going well. "I believe the relationship between pilots and this corporation has never been stronger," he said.

WestJet ended the first quarter with CAD$835 million in cash. Chief Financial Officer Vito Culmone said it would hold onto the money until it sees a "sustained economic recovery."

In other first-quarter results, WestJet's revenue decreased 3.3 percent to CAD$579.3 million.

The airline added 7.2 percent capacity in the first quarter on an available seat mile basis.

Its load factor fell by 1.5 percentage points to 80.4 percent.