UPDATE 2-WestJet to gain market share despite economy - CEO

* Will keep growing market share by 2-3 points annually

* "We've stabilized at the bottom" CEO says

* Pricing will continue to be aggressive (Adds details, background, quotes)

By Susan Taylor

OTTAWA, Aug 6 (Reuters) - WestJet Airlines Ltd (WJA.TO), Canada's No. 2 carrier, said on Thursday it will use "aggressive pricing" and partnerships with other airlines to gain market share despite the tough economy.

WestJet, which posted a 66 percent drop in quarterly profit on Thursday, also said it is seeing signs of market stability, but not growth.

"It seems like we're dancing on the bottom right now; we're not making the trek back up the hill," Chief Executive Sean Durfy said in an interview.

"What we had seen, previous to six weeks ago, was it continued to drop and now we've sort of stabilized at the bottom over the last six weeks."

Durfy said that WestJet will continue to gain 2 to 3 points in market share annually and is not worried about rival Air Canada (ACa.TO), the country's biggest airline, which recently gained firmer footing with a C$1.02 billion financing deal.

"We've been building our company for the last 13 years and when we started, we had zero. Today we have 37 percent domestic market share, 15 percent transborder market share and maybe 15 percent, or so, of the international Caribbean market share, Durfy said.

"We will continue to take 2 to 3 points a year in market share. Fundamentally, our business model is the right business model; we've been profitable for the last 17 quarters. It's interesting, Air Canada they've got a long way to go."

Competition will continue to drive down fares, but Durfy said pricing plays a key role in stimulating travel demand.

"I think pricing will continue to be aggressive going forward, no doubt about it," Durfy said. "We would like to see more rational pricing in the marketplace, but part of it is ... stimulating (consumers) to travel because the economy for a discretionary buy is still very, very weak."

Meanwhile, the Calgary-based airline will continue to keep an eye on expenses. It expects to cut about C$28 million in the second half of this fiscal year, and hopes to see sustainable cost cuts between C$25 million and C$50 million next year.

WestJet competes in "an industry that is brutal", but is working on a range of programs to help spark growth.

The carrier said on Wednesday that it will launch a new travel awards credit card with Royal Bank of Canada (RY.TO) and MasterCard Inc (MA.N). More details will be unveiled in the fall.

WestJet also expects to launch a new reservation system in the fourth quarter, a key component for code-sharing deals with other airlines to sell seats on each other's flights.

Durfy said he hopes to have "half a dozen substantial partners" by the end of 2010 and would like to expand an interline deal recently struck with Air France-KLM (AIRF.PA) to a full code-share deal within six to 12 months.

Currently, Air France-KLM passengers boarding the European carrier's planes can now travel to a destination in WestJet's Canadian network on a single ticket.

WestJet and Southwest Airlines (LUV.N) delayed a code-share pact in May as the U.S. carrier grapples with the market downturn. Talks continue between the two airlines, Durfy said.

"We'll have to continue to review that to make sure that we can actually implement that, or Southwest still has a desire to implement that," he said.

"We talk to them quite often because we have other relationships with Southwest. So you know what? I'm willing to wait ... until (CEO) Gary (Kelly) says this is something that we can get done or not."

($1=$1.08 Canadian) (Reporting by Susan Taylor; editing by Rob Wilson)