WestJet Airlines Ltd. is moving to capture the most price-sensitive airline passengers – and attract some people who don't fly at all – creating an ultralow-cost carrier (ULCC) that is scheduled to begin operating before the end of the year.
Canada's second-largest airline will make the move down-market in what some analysts regard as a defensive measure against fledgling ultralow-cost carriers Canada Jetlines Ltd. and Enerjet, which are trying to raise money to get their own networks up and running.
"We believe this is the best approach for us for the price-sensitive end of the market," WestJet executive vice-president Bob Cummings said. "We do believe there's a significant market out there beyond what we have today."
Mr. Cummings would not reveal route plans, fares or other operating details, but said WestJet will begin with 10 Boeing 737 800 aircraft in a high-density seat configuration.
Ultralow-cost carriers typically charge rock-bottom fares and jam as many seats into an airplane as possible while charging fees for baggage, food and drinks, in-flight entertainment, paper tickets and other services that some mainline airlines include in the price of a fare.
Among the targets for the new airline are people who don't fly now, Mr. Cummings said in an interview Thursday.
"If you go through our history, how we've stimulated markets, I think it was about 15 per cent of Canadians flew in 1995 before we entered the market and last year I think it was 33 to 34 per cent," he said.
The ULCC service is likely to offer flights both within Canada and to the United States, he hinted.
"A 737 has a range of almost 3,000 miles,so it makes sense for us to look beyond domestic," he said.
There's a potential market of about 10 million passengers, about half of whom travel to such U.S. border cities as Bellingham, Wash., Buffalo, N.Y., and Plattsburgh, N.Y., to take advantage of lower U.S. fares.
"Where this is going to be attractive is [to] someone who's very price sensitive: 'I've got a family of four and I want to go to Florida, if the family and I drive over to Bellingham I can save $1,200,'" said industry analyst Chris Murray, who follows WestJet for AltaCorp Capital Inc.
Mr. Murray agreed that there is a market for people who want to pay ultra-low fares, which could be as low as $19. But they will have to pay for any amenities, he said, up to and including boarding the plane earlier than others.
Spirit Airlines Inc., an ultralow-cost U.S. carrier based in Miramar, Fla., generates revenue from 60 to 70 separate ancillary services for which it charges, he noted.
A search on Spirit's website revealed a fare of $276.08 (U.S.) for a return flight between Buffalo and Fort Lauderdale, Fla., with one stop.
WestJet's fare for a non-stop flight to Miami from Toronto with a one-stop return flight was $661.24 (Canadian).
National Bank analyst Cameron Doerksen said in a note to clients that the new carriers in startup mode in Canada threaten WestJet's positioning as the low-fare leader.
"Thus, WestJet's strategy is aimed at maintaining its share in the price-sensitive leisure segment," Mr. Doerksen wrote in a note to clients Thursday.
Canada Jetlines said the WestJet plan "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."
While WestJet moves down-market in competition with the new carriers, it has also been targeting Air Canada by adding flights to Britain on wide-bodied aircraft.
The Calgary-based airline appeared to be making a bigger international move earlier this year when it got approval from its pilots to add more wide-bodied planes, but Mr. Murray said he wonders if WestJet is rethinking that further expansion.
Mr. Cummings said WestJet is still evaluating further expansion, but had nothing to announce Thursday.