WestJet Airlines Ltd (WJA.TO) said on Monday it may launch a regional, short-haul airline as early as 2013, a move that would put it head to head with its main rival Air Canada ACb.TO on routes to smaller destinations in Canada.
WestJet, Canada's No. 2 airline, said it expected to hold talks with employees through January on the plan to set up the carrier, which would operate with 40 turboprop planes.
Until now, WestJet, which was launched in 1996 as a low-cost airline modelled on U.S.-based Southwest Airlines (LUV.N), has operated a single fleet of Boeing 737 aircraft on routes within Canada and to mainly sun destinations in the United States, Mexico and the Caribbean.
But the Calgary-based airline, which has increasingly moved away from its low-cost roots as it searches for new revenue sources, has mulled adding a second fleet for some time.
It said in several media interviews over the Christmas period that if it expanded it was likely to be into a fleet of smaller aircraft to serve smaller communities in Canada.
The move would increase competition with Air Canada, the country's largest carrier, which uses regional airline Chorus Aviation CHRb.TO to fly to smaller domestic markets.
"Right now, in a lot of places, Air Canada is maybe the only game in town," said PI Financial analyst Chris Murray.
A WestJet spokeswoman said staff would be asked to vote on the proposal, which would create new connections with existing WestJet destinations and boost the frequency of its flights. The process should be completed in early February, she said.
WestJet chairman and founder, Clive Beddoe, said in a statement that a sister company would operate the turboprops.
WestJet did not say which aircraft it was but market speculation is that the Q400 turboprop, made by fellow Canadian company Bombardier Inc (BBDb.TO), was the most likely candidate.
Murray noted that the new airline's likely competitors, Chorus and Skyservice Business Aviation, also flew Q400s, as does Porter Airlines, a regional airline focused on Eastern Canada.
Shares in WestJet were 11 Canadian cents weaker at C$11.69 on the Toronto Stock Exchange on Monday morning. Air Canada's stock was unchanged at C$1.06 and Chorus Aviation's shares were 3 Canadian cents firmer at C$3.39.
(Reporting by Allison Martell in Toronto and Nicole Mordant in Vancouver; editing by Rob Wilson)