11 JAN 2018: When the upstart, Southwest-inspired WestJet took to the skies in early 1996 it promised to be the long-awaited answer to the high fare duopoly of Air Canada and Canadian Airlines (nee CP) that had held Canadians hostage forever.

At last, here was a new spritely carrier promising low fares and – just as remarkably - friendly service! It was also a fun place to work and, as is usually the case, happy employees made for happy customers. Over the coming years WestJet steadily spread its wings across the country and beyond, CAIL was vanquished and everyone was part of one big happy family. Then things started to change.

The first divergence from the Southwest, one aircraft type model, came in February 2012 when WestJet announced that “its employees had approved” the formation of a regional airline to serve smaller communities in Canada. Encore which began flying in June 2013 with two Bombardier Q400s now has a fleet of 43 and a separate pilot group numbering around 500.
Then, in April of last year, WestJet surprised the industry by announcing it would launch a second airline-within-the-airline: This time in the image of Spirit, Ryanair and the like, it will be an ultra-low-cost carrier. Soon to be branded as Swoop, the ULCC is to have an initial fleet of 10 high-density Boeing 737-800s. In making the announcement, WestJet co-founder Clive Beddoe stated that, "Launching a ULCC will open new market segments by offering more choice to those Canadians looking for lower fares.” Hmmm!

If that promise sounds vaguely familiar, it may well be because back in October of 1995, another WestJet co-founder, Mark Hill, (whose mom gets credit for coming up with the airline’s name), told the Financial Post that, “WestJet will have the lowest breakeven levels in the industry and target auto travellers and others who cannot afford the cost of flying on Air Canada or Canadian.”

For airline industry observers, the Swoop scenario may also sound highly familiar – and a little alarming - in a quite different way. The simple fact is that the so-called “airline-within-an-airline” approach has never - repeat never - worked. Why? Well, while there are a variety of reasons, the most common denominator may be the old chestnut about ‘comparisons being odious.’

That was certainly the case in 2003 when Delta created Song Airlines in an attempt to compete with blossoming LCCs such as JetBlue, Southwest and AirTran. At its peak, Song featured a fleet of 48 brightly painted Boeing 757s operating some 200 flights per day. Every aircraft was kitted out with leather seating, free personal entertainment systems at every seat, fun electronic trivia games that could be played against random other passengers, a flight tracker and satellite television. The flight safety instructions were frequently sung or ‘artistically interpreted’ by perky young flight attendants wearing cool Kate Spade designed uniforms – passengers also enjoyed customized cocktails and in-flight exercise programs. It was fun!

On the ‘odious comparison’ front however the problem was that it was too good. Back on the ‘mother-ship’ - stodgy old Delta Air Lines - passengers were denied all of this fun stuff and, to make matters worse, they had to pay higher fares NOT to get it! At the time it was frequently suggested that this might be Delta’s ‘Swan Song’ and maybe Song should survive and Delta should go away. That of course did not happen and, perhaps out of embarrassment at showing themselves up, Song was quietly shut down after just two years of operation.

United’s “me too” dalliance in this space went by the much maligned name of Ted –(“the end of Uni-ted”) with 56 aircraft and a premium economy/economy configuration it survived for almost four years but was less than remarkable for either its fares or its product. Rather like Rouge with AC, Ted-branded aircraft would frequently show up on United trips and vice versa. One way or the other however, it simply was judged to be unworthy of the time, distraction and resources.

The other popular theory as to why airlines-within-airlines simply don’t work is that self-cannibalization is an inevitability: That is to say stealing market share from yourself. Mister Saretsky has already backed off from earlier statements that this will never happen, by conceding that Swoop and Westjet may indeed both operate on some popular, high-demand routes. Let’s be honest here - if Swoop puts out the promised “cheap and cheerful” product on the same 737 aircraft that WestJet flies and at a significantly lower fare, why when given the choice (particularly on a shorter trip) would anyone choose to pay the higher fare?

So perhaps the updated version of Mark Hill’s 1995 statement should read, “Swoop will target auto travellers and others who cannot afford the cost of flying on Air Canada or WestJet.”  

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