Last Thursday, WestJet announced plans to introduce a new Ultra Low Cost carrier (ULCC) by the end of this year. The new no-frills option is WestJet’s latest bid to get a piece of the growing ULCC market in its home country of Canada. WestJet has not confirmed a name or an average seat price for their new airline, though some estimate that flights inside Canada could cost $89 or less. In a statement released on their blog, the airline said that the carrier is still “subject to pilot agreement and regulatory approvals.”

“You are seeing airlines going to start coming into this [Canadian ULCC] market,” said Richard Bartrem, WestJet’s vice-president of marketing and communications. “We believe the best way for us to come effectively, to bring lower fares for the consumer, is to launch our own ultra-low-cost carrier.”

Response to this announcement has been mixed. Many in the industry are showing optimism about this new option. In a recent report, AltaCorp Capital analyst Chris Murray said “Historically, other ULCCs including Spirit Airlines and Ryanair have generated above average returns in their markets and we believe WestJet could see similar returns.” Others believe that WestJet could see success similar to that of Rouge, which is Air Canada’s low-budget option. The new airline could see a beginning similar to that of WestJet itself, which was founded in 1996 as a discount airline and has grown to have over 100 destinations in the Americas, the Caribbean, and Europe.

Yet, many are hesitant to praise the new move. In his report, Murray also brought up the thought that the addition of another low-cost carrier in Canada complicates competition by making it harder for other brands to start new ULCC airlines. In addition, the new airline would be a competitor to other low-cost airlines such as Rouge, NewLeaf, and even WestJet. Both Rogue and NewLeaf, another Canadian ULCC, already fly to destinations that WestJet plans for its new carrier. This could make it difficult for new low-cost airlines to get a foothold, especially with increased competition from American ULCCs.

In addition, many are worried that this new airline could hurt WestJet. Though WestJet is a low-cost airline, they still have multiple benefits, like free in-flight non-alcoholic beverages, that their new brand won’t. This means that their costs could be higher than the new airline, causing WestJet customers who prefer lower prices to turn to the new carrier.

“We believe the ULCC may cannibalize some current traffic on WestJet’s mainline,” said Cameron Doerksen, a National Bank analyst. He says that the new carrier will only be successful if WestJet can negotiate new, lower labor costs with crews who will work on new flights. In addition, Jim Scott, CEO of Canada Jetlines, a rival, said that WestJet’s new carrier will, in fact, not increase competition into the Canadian ULCC market.

Despite these potential drawbacks, however, WestJet is confident about their new plans, saying that “There is much work to be done from now until we plan to launch.” WestJet plans to use a startup fleet of 10 “high-density” Boeing 737-8s. The airline plans to use jets that they already own, but with added seats to ensure lower costs. Other goods and services, such as bag check, all in-flight refreshment, and on-site boarding pass printing will also come with a price tag.

Overall, there are many reasons to be optimistic about this new airline. It will help to kickstart the low-budget market in Canada, which has fallen behind those in other countries. It could also help to lower industry prices, especially in Canada, which is good for consumers. This new airline could even help customers in Europe, the U.S., Mexico, and the Caribbean, who would be able to fly to Canada for less. In conclusion, despite potential drawbacks and criticisms, there is much to hope for with WestJet’s new ULCC.

Categories: Industry Talk