WestJet to launch new low-cost airline later this year

CALGARY – WestJet Airlines Ltd. (TSX:WJA) will launch a new discount carrier later this year in a bid to offer travellers a no-frills, low-cost option, the company said on Thursday.

Chief executive Gregg Saretsky said the airline industry has changed since the company began flying in 1996.

“The complete unbundling of services and products in order to lower fares for the price-sensitive traveller has created the ULCC (ultra-low-cost carrier) category,” he said in a statement.

“Our new airline will provide Canadians a pro-competitive, cheap and cheerful flying experience from a company with a proven track record.”

Since WestJet started as a discount carrier with three aircraft in Western Canada, airlines have trimmed the extras and started charging for things like checked baggage and meals on flights.

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But ultra-low-cost carriers take it a step further.

No-frill airlines typically offer cheaper tickets by adding seats to their planes – which reduces legroom – and also charge extra for nearly everything, including printing your boarding pass at the airport, as well as snacks and non-alcoholic drinks.

WestJet did not reveal any pricing details for its new offering or where it plans to fly, but said the yet-to-be-named carrier will be using “high-density” aircraft.

The airline also said the new carrier is subject to agreement with its pilots and any required regulatory approvals.

AltaCorp Capital analyst Chris Murray says the launch of a so-called flanker brand complicates the plans of others looking to start an ultra-low cost carrier in Canada and 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 wrote in a report.

However, Murray noted that several details remain unknown including how the airline will be structured and its plans for growth.

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National Bank analyst Cameron Doerksen said the new airline can only be successful if WestJet is able to negotiate separate lower labour costs with its flight crew who will work in the flights.

“We also believe the ULCC may cannibalize some current traffic on WestJet’s mainline,” Doerksen wrote in the report.

“Finally, we are concerned WestJet has too many new strategic initiatives underway simultaneously, including a major expansion of its widebody international routes.”

Air Canada launched its discount brand Rouge with flights in 2013 servicing Europe and the Caribbean. The service has grown to add destinations within Canada, Mexico, the U.S., South America, Central America, Africa and Asia.

Last year, NewLeaf Travel started offering “no-frills” flights between smaller airports including Kelowna, B.C., Abbotsford, B.C., Edmonton, Calgary, Winnipeg, Hamilton, Moncton, N.B., and Halifax.

Together with regional airline WestJet Encore, which it launched in 2013, WestJet offers scheduled flights to more than 100 destinations in North America, Central America, the Caribbean and Europe.