WestJet expects its new regional subsidiary Encore to lower fares by 30% to 50% in domestic Canadian markets now only served by its "domestic competitor", says the Calgary-based airline's president and chief executive Gregg Saretsky.
The lower prices will stimulate demand and offer alternatives customers who would normally utilise less costly modes of travel, says Saretsky, speaking on 16 May from the Bank of America Merrill Lynch 2013 Global Transportation Conference in Boston.
For years, Air Canada Express has been the only sizable airline with an extensive regional route network in Canada. This has led to high fares on flights between many smaller Canadian cities.
"Winning doesn't mean stealing share, winning means taking our fair share and growing the market," he told investors.
WestJet Encore is set to launch on 24 June with flights from Fort St. John to Calgary and Vancouver, as well as Nanaimo, British Columbia to Calgary. It will take delivery of seven next-generation Bombardier Q400s this year out of 20 firm orders. It also has 25 options available for delivery between 2014 and 2018.
WestJet Encore will have a regional network spanning from Vancouver to Newfoundland within 18 to 24 months, says Saretsky. The airline is hoping its brand-new aircraft and lower prices will convince passengers to fly on newly-available routes within Canada.
About 40% to 50% of Encore traffic will be connecting, says Saretsky.
The Fort St. John-Vancouver route is served by Jazz Aviation on behalf of Air Canada Express with 50-seat and 78-seat aircraft, Innovata flight schedules show. Charter operator Central Mountain Air Fort services St. John-Calgary flights with 31 or 50-seat aircraft. No operators are flying the Nanaimo-Calgary route.
Encore will also operate Victoria to Vancouver flights, which is served by Air Canada via Jazz and local operator Pacific Coastal Airlines, Innovata shows.
WestJet will also start service between Brandon, Manitoba and Calgary from 3 September.
WestJet Encore is also looking at opportunities across the border for regional flying, as it sees a C$2.1 billion ($2.07 billion) market that the airline can serve. The carrier has sized the market for flying regional aircraft with more than 50 seats in Canada at C$1.1 billion, with another C$1 billion coming from transborder flying. WestJet has laid out several new opportunities for new routes within Canada and the USA. Some of those routes across the border include Seattle and Portland on the West Coast, which would be new destinations for the carrier, as well as Minneapolis, Chicago and Philadelphia.
But on these routes, there is additional competition from US regional operators. Increased capacity in markets like Washington DC, New York and Boston challenged Air Canada's regional profitability last quarter. It recorded a 2.6% decline in transborder revenues totalling C$589 million.
Air Canada has a razor-sharp focus on improving the cost structure of its own regional operation, which is largely operated by Jazz. To bring costs down, Air Canada entered into a new flying agreement with Montreal-based Sky Regional to operate routes within the eastern USA. As part of that deal, Air Canada is in the process of transferring 15 Embraer 175s to the airline.