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UPDATE 3-Canada's WestJet plans to launch ultra-low-cost carrier

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  1. (Adds remark from Canadian transport minister)

    WestJet Airlines Ltd WJA.TO said on Thursday it plans to launch an ultra-low-cost carrier in Canada in a move that would intensify competition with domestic rivals, including Air Canada's AC.TO lower-priced Rouge service.

    Calgary-headquartered WestJet aims to kick off the service late this year with an initial fleet of 10 Boeing Co BA.N 737-800s planes.

    Bob Cummings, WestJet's executive vice president, commercial, told Reuters the new offering would feature an "a la carte model" of a base fare plus specific fees for services like checked baggage, only taken one step further.

    While other low-cost carriers have failed in Canada, WestJet's strategy would work by winning market share from competitors such as Rouge and Sunwing Airlines while cannibalizing some of its own traffic, Cummings said.

    "Between taking share from others and, quite frankly, taking some share from us, the math makes sense."

    Cummings declined to give specifics about the new fares, but said the cost structure would not be comparable to the deeply discounted fares offered by European ultra-low-cost carriers like Ryan Air RYA.I .

    "We are not likely to be at the Ryan Air end of the spectrum," he said in a phone interview.

    WestJet, which started life as a low-cost airline, has added premium services in a bid to increase revenue, but is planning the ultra-low-cost structure to service the other end.

    In planning the new service, Cummings said WestJet considered both the comparatively high-cost structure of operating flights in Canada and examples from abroad, including low-cost Australian carrier Tigerair Australia, which is operated by Virgin Australia Holdings (VAH) , and Jetstar by Qantas Airways (QAN) .

    Consumer advocates have long complained that limited competition, high fares and airport fees make Canada a comparatively expensive country for air travel.

    Canada in November lifted foreign investment limits for Canadian airlines to 49 percent from 25 percent, a change spurring competition and lower fares by encouraging the launch of low-cost airlines.

    "We're trying to create a climate where passengers are offered lower costs and greater choice," Transport Minister Marc Garneau said by phone following WestJet's announcement.

    A spokesman for Air Canada was not available for comment. Cummings said the new carrier would focus on domestic and sun destinations served by WestJet's B737s.

    The new carrier appears to be avoiding short-haul domestic routes.

    "As you travel further, the percentage of taxes and fees becomes less of a burden," Cummings said. "We have a big country here."

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