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US airlines reject LCC subsidiaries - as Westjet Swoops

Analysis

The highly anticipated launch of WestJet's new ULCC Swoop in Jun-2018 will be closely watched worldwide. Swoop is the first domestic low cost subsidiary of a major airline in North America since the days of the - unsuccessful - Delta's Song and United's Ted. Air Canada has had success with its low cost subsidiary Rouge, but its route composition is largely international. However, Air Canada seems poised to use Rouge as a line of defense when Swoop and other ULCCs debut in Canada's domestic market.

Canada and the US are vastly different market places, and the likelihood of US majors revisiting potential LCC subsidiaries is low. Those operators have chosen - or had no other option - to price match ultra low cost airlines through new fare tiers, and the proposition of launching low cost subsidiaries would be hugely unsettling to investors.

Delta is a bit more forward thinking in its domestic network evolution, pursuing select focus cities where it can attain a certain strategic advantage. For now, that seems to be its answer to avoiding the complexities of a dual brand strategy as too many hurdles exist for US airlines to consider attempting to create distinct, lower cost subsidiaries.

The prevalence of the LCC subsidiary model elsewhere in the world strongly suggests it is the most viable approach, but US airline managements are wary of pushing an unwilling union workforce to adopt this solution - for the time being at least.

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