WestJet CEO says regional airline will spur demand for lower fare service

MONTREAL - WestJet's new regional service will spur passenger demand by offering fares at up to half the amount charged on those routes by monopoly operators such as Air Canada, chief executive Gregg Saretsky said Monday.

"Vive la competition (long live competition)," the head of the Calgary-based airline (TSX:WJA) told the Canadian Club in Montreal.

"WestJet Encore is out to liberate Canadians from the high cost of air travel in smaller communities as well as those not yet served by our jet aircraft and we think that Canadians are ready for that," he said of the service set to launch next year.

He said representatives from small towns, including Quebec's Saguenay, Sherbrooke and Bagotville, asked WestJet to launch service in their communities because the airline has a history of driving down fares when it comes to town.

Saretsky said since the low-cost carrier was founded 16 years ago, it has a history of causing fares to drop by about 50 per cent in the markets it has added.

"I would expect that as WestJet Encore gets airborne we will continue to do the same in the smaller Canadian communities and up to 50 per cent would be something that would be reasonable."

Shunning the moniker "price war", Saretsky said "more rational pricing" will create new demand by encouraging people to take more air trips each year. He pointed out that the number of passengers from Comox on Vancouver Island surged to 121,000 per year from 5,000 when WestJet launched service.

"This isn't about carrying the same number of people at half the price. It's about growing the market by 100, 200, 300 per cent and allowing Canadians access to more affordable airfares," he later told reporters.

WestJet will announce the regional service's schedule in January. It will initially service either eastern or western routes starting in the second half of 2013, followed nine months later by the other half of the country. It expects to add up to 45 Bombardier (TSX:BBD.B) Q400 turboprops over five years.

While Air Canada (TSX:AC.B) may reduce its cost base, Saretsky doubts it will ever get as low as non-unionized WestJet and also match its corporate culture.

"So all things being equal, if our fares are the same, I still believe that consumers will prefer to fly WestJet because of the type of experience that our culture enables," he said.

Air Canada recently vowed to respond to lower fares promised by WestJet when it launches its new regional service next year.

"We know that the regional challenges will require some level of response from us and that is natural, normal and healthy competition and we're certainly prepared for that," Air Canada CEO Calin Rovinescu said earlier this month.

Rovinescu said Air Canada is prepared for its rival's efforts to expand its market opportunities, but won't sacrifice the company's overall yields.

After 16 years of success, including 30 consecutive quarters of profits, Saretsky said he's conscious about being very careful as WestJet morphs its business model by adding premium economy seats and a new regional service. That's why it set up WestJet Encore as a wholly-owned subsidiary that will fly Q400s and allow the mainline carrier to fly one type of jet.

The new carrier will eventually employ about 1,800 workers, while sales and marketing will be handled by the parent company.

Saretsky said he toured Bombardier's facility and saw the assembly of the flight test vehicle for its new CSeries aircraft. He called it an impressive airplane but wouldn't say if it could eventually find a home in WestJet's fleet of Boeing 737s.

During the lunchtime speech, Saretsky also railed against federal taxes and fees that have driven 4.6 million Canadians to fly out of U.S. airports near the border.

He said airport improvement fees could be reduced if the government allocated some of those proceeds to Canadian airports instead of using that money for its general revenues.

Canada's aviation policy over the last 20 years has lost its way as the airline industry has been taxed like sin products such as alcohol, beer and cigarettes, he said.

"As a result we don't utilize and harness aviation as an engine of economic growth...Instead, we've turned airlines into glorified tax collectors."

The head of the Aeroports de Montreal said he's been preaching the same tune for more than a decade.

"I guess people are just insensitive to it ... and they just don't take it seriously. Quite frankly, I'm at a bit of a loss," James Cherry said in an interview.

On the Toronto Stock Exchange, WestJet's shares closed up 28 cents to $18.58 in Monday trading.