WestJet to launch ultra low-cost carrier
Move seen to give firm competitive edge in market struggling to get off the ground
WestJet announced Thursday that it is planning to introduce a new ultra low-cost airline this year, subject to pilot agreement and regulatory approvals.
Bob Cummings, WestJet’s commercial executive vice-president, said that while details about product offerings and fare levels would be released at a later date, the company would focus on keeping flights within Canada, the U.S., Mexico and the Caribbean.
While Canada has had its share of low-cost airlines — WestJet itself began as a discount airline and Air Canada has seen success with its Rouge brand — ultra lowcost carriers (ULCCs), which offer extremely low fares but no frills, have struggled to get off the ground here.
Cummings, however, said WestJet has studied how successful ULCCs around the world have designed their businesses.
“The density or the number of seats” along with the suite of potential à la carte services were among the factors Cummings said the company zeroed in on.
The Calgary-based airline said it plans to begin operations with 10 Boeing 737-800s aircraft.
Ken Wong, a marketing professor at the Smith School of Business, said introducing an ultra low-cost airline allows WestJet to maintain its competitive advantage.
“Overall I think it’s a logical thing for them to do. In recent times while WestJet remains kind of the ‘people’s airline’ that it’s always tried to present itself as — it’s facing some greater challenges in terms of expanding the scope of its business,” he said.
WestJet was originally a no-frills airline but in recent years begun adding pricier fare options and fees. In 2015 they added a fare targeting business travellers. It also introduced a seat-selection fee and luggage fee. “All of these recent moves have kind of made WestJet look a little bit more like a conventional airline and that’s not necessarily a great thing.”
Chris Murray, an analyst at AltaCorp Capital, said that an ultra low-cost carrier protects WestJet from market erosion.
“Historically, other ULCC’s including Spirit Airlines and Ryanair have generated above average returns in their markets and we believe WestJet could see similar returns, “Murray said in a report released Thursday. “However there are a number of details including the structure of the subsidiary … the pace of growth and the discipline to stay ULCC and avoid legacy issues creeping into the cost structure that will be important to understand.”
National Bank analyst Cameron Doerksen said the new airline can only be successful if WestJet is able to negotiate separate lower labour costs with the flight crews. “We also believe the ULCC may cannibalize some current traffic on WestJet’s main line,” he wrote in the report. “Finally, we are concerned WestJet has too many new strategic initiatives underway simultaneously ...”
Jim Scott, CEO of Canada Jetlines, a rival that is trying to establish itself as a ULCC, expressed doubts about WestJet’s news in a statement released Thursday.
“Today’s announcement offers nothing more than an ‘airline within an airline’ that will not increase competition into the market, and it remains to be seen whether it will be able to achieve the full benefits of a ULCC.”