WestJet Airlines Inc. plans to target millennials, young families and frugal travellers for its discount carrier Swoop which launches service next summer.
The Calgary-based airline (TSX:WJA) said it expects to offer fares that are about half the level of the mainline carrier, but come with hefty extra fees for bags and other ancillary services.
It estimates the net savings should be 30 to 40 per cent.
“The core of the brand is going to be low fares and enabling people to travel that wouldn’t be able to travel otherwise or travel more often,” WestJet executive vice-president Bob Cummings said Wednesday during an investor day presentation.
About 60 per cent of Swoop passengers are expected to fly for leisure travel, 30 per cent to visit friends and family and 10 per cent for business or in groups.
Cummings said WestJet “ripped apart” discount airline models used in the United States and Europe and looked at lessons they learned when designing Swoop.
The key is to cut costs to their absolute lowest by outsourcing jobs where possible, obtaining low airport charges and restricting sales to online transactions.
However, WestJet sees opportunity in eliminating the need for Canadian travellers to cross the border to access cheap fares.
Fares from Canadian airports like Hamilton and Abbotsford, B.C. are expected to be similar to those at U.S. border airports, while saving hours in traffic.
“We believe this is a substantive tried and true opportunity for us to go after,” Cummings told analysts.
The full cost of Swoop charges and destinations will be unveiled in February when tickets go on sale.
Swoop will compete against Flair Airlines, which said this week it was lifting carry-on fees, Canada Jetlines and the prospect of Air Canada Rouge and FlyToo joining the field.
At the same time, WestJet says it will go after business and international travellers by adding premium cabins with hot food, Boeing 787 Dreamliners for global destinations and new lounges at key airports such as Calgary, Vancouver and Toronto.
On Wednesday, WestJet and Delta Air Lines announced plans to form a joint venture that will enhance transborder service and deepen their relationship.
The partnership, which has yet to be approved, is expected to be in operation in the first half of 2019. It would increase travel choices between Canada and the United States along with enhanced frequent flyer benefits.
WestJet and Delta said their preliminary agreement anticipates co-ordinated schedules for new destinations and expanded codesharing, which allows each partner to book seats on the other’s flights.
The deal with Atlanta-based Delta was announced as WestJet unveiled financial targets through 2020 that analyst Doug Taylor of Canaccord Genuity said “echo well-received guidance provided by Air Canada several months ago.”
“We believe this guidance should be seen positively on the margin as it confirms that WestJet’s multiple expansion programs are not going to come at the expense of near-term profitability and balance sheet,” Taylor wrote in a report.
WestJet said it expects annual revenues will increase by between $300 million and $500 million through 2022 from ancillary fees, an enhanced revenue management system and broadened fare products.
It has also identified annual cost savings opportunities of $140 million to $200 million over the five years from fleet reconfigurations, airport operations cost savings, optimized maintenance plans, digital self service, and sales and distribution channel efficiencies.