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Ken Wong, a marketing professor at the Smith School of Business said introducing an ultra low-cost airline allows WestJet to maintain its competitive advantage.



“Overall I think it’s a logical thing for them to do. In recent times while WestJet remains kind of the ‘people’s airline’ that it’s always tried to present itself as — it’s facing some greater challenges in terms of expanding the scope of its business,” he said.



WestJet was originally a no-frills airline but in recent years begun adding pricier fare options and fees. In 2015 they added a fare targeting business travellers. The Calgary-based airline also introduced a seat-selection fee and luggage fee before that.



“All of these recent moves have kind of made WestJet look a little bit more like a conventional airline and that’s not necessarily a great thing.”



Chris Murray, an analyst at AltaCorp Capital said that an ultra low-cost carrier 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 said in a report released Thursday. “However there are a number of details including the structure of the subsidiary … the pace of growth and the discipline to stay ULCC and avoid legacy issues creeping into the cost structure that will be important to understand.”



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



Jim Scott, CEO of Canada Jetlines, a rival that is trying to establish itself as a ULCC, expressed doubts about WestJet’s announcement in a statement released Thursday.



“Today’s announcement 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.”



Canada Jetlines received an exemption from the federal government’s foreign ownership rules last year to operate a ULCC in Canada, according to its website.



The company plans to base its operations in Vancouver and Southern Ontario.



Darcy Morgan, Enerjet’s chief commercial officer also told the Calgary Herald his company’s plans would not be swayed by WestJet’s announcement.



Traditionally, ULCCs have not succeeded in Canada because of high taxes, low population density and foreign ownership rules.



“We believe there is no better airline suited to bring ULCCs to Canada than WestJet,” CEO Gregg Saretsky said in a statement.



Financial Post with files from The Canadian Press