WestJet Airlines Ltd. WJA-T plans to create a regional carrier next year to combat Air Canada, placing a bet that lower fares will lure passengers in smaller markets.
The Calgary-based company unveiled its proposal to employees on Monday, saying it expects to break with its strategy of maintaining a single fleet of Boeing 737s and will acquire 40 turboprops. The new WestJet operation will oversee short-haul flights, mostly targeting service between smaller cities and major hubs within Canada.
Industry analysts estimate WestJet will invest between $800-million and $1-billion over several years to acquire the turboprops, likely the Canadian-built Bombardier Q400. The turboprops could also be deployed during off-peak hours on selected major routes, such as the Toronto-New York run.
Canadians in smaller cities complain that they pay high domestic airfares for short trips, saying that it's often cheaper to fly from Vancouver to Toronto on seat sales than to travel much shorter distances between cities that are served only by Air Canada or its regional carriers, notably Jazz Aviation LP.
WestJet chief executive officer Gregg Saretsky said there's an opportunity for the carrier to outmanoeuvre Air Canada and its regional affiliates. Many communities are clamouring for WestJet to show up in underserved or neglected markets, he said.
In a year-end interview, he gave examples of new destinations that could benefit from the expansion: Cranbrook, Prince Rupert, Fort St. John and Dawson Creek in British Columbia; Lethbridge, Alta.; Brandon and Thompson in Manitoba; Saguenay, Que.; and Sudbury, Sarnia and Timmins in Ontario.
Mr. Saretsky called the proposal to order turboprops a crucial decision for the airline, which launched operations in 1996. WestJet currently operates 97 Boeing 737s in its fleet.
The carrier provided details to employees, which it calls WestJetters, during the company's town hall in Calgary. Other gatherings are scheduled for later this month. "We are meeting with WestJetters throughout January to get their input on this watershed decision," Mr. Saretsky said in a statement Monday. "One of the cornerstones of our success is engaging with employees early on in key decisions and I am confident they will see the strategic value of this initiative."
Despite its name, WestJet doesn't fly non-stop on routes such as Regina-to-Winnipeg because its Boeing 737 are too large, given the demand. The new turboprops would clear the way for much faster service between the two provincial capitals.
The 70-seat Bombardier Q400 could be used during non-peak times between Toronto and New York's LaGuardia Airport. On the Calgary-Vancouver route, WestJet will have the flexibility to schedule turboprops during non-peak times, Raymond James Ltd. analyst Ben Cherniavsky said.
At 40 turboprops, the new WestJet regional operation will be larger than Toronto-based Porter Airlines Inc., which has 26 Bombardier Q400s in its regional fleet. WestJet is well-positioned to stimulate air traffic with lower ticket prices on short-haul routes, Mr. Cherniavsky said.
WestJet chairman Clive Beddoe welcomed the plans to branch out. "Our single fleet of Boeings will be joined by a sister company operating a single fleet of turboprops to maintain maximum efficiencies for both airlines," Mr. Beddoe said.
In the interview last month, Mr. Saretsky emphasized that times have changed for WestJet since Porter started operations in 2006, and the plane needs to be matched with the market. He said WestJet is considering acquiring the Q400, though the French-Italian ATR 72 turboprop is also a possibility.
The two-aircraft business model is one Mr. Saretsky is familiar with: he previously worked at Alaska Airlines Inc., which flies Boeing 737s, while its affiliate, Horizon Air, operates Q400s.
WestJet said it will consult with its non-unionized work force in meetings that will lead to a vote on approving the regional airline.
Bombardier confirmed Monday that it's discussing an order of Q400s with WestJet.