WestJet to launch ul­tra low-cost car­rier

Move seen to give firm com­pet­i­tive edge in mar­ket strug­gling to get off the ground

Regina Leader-Post - - FP REGINA - OLIVIA CAREY

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.”

GAVIN YOUNG/FILES

Cal­gary-based WestJet’s new low-cost air­line plans des­ti­na­tions within Canada, the U.S., Mex­ico and the Caribbean.

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