Westjet, et al, can certainly still be considered Low Cost Carriers as they do indeed have lower costs than the "legacy" airlines. As long as the legacy carriers continue offering value added services such as baggage interlining, inter-contiental flights (where one must set up a sales office in the arrival country, or pay someone to do it), contingency plans in the event of irregular operations that allow passengers to take flights on other airlines, hotel stays, etc. then a distiction will continue to be made between the legacy carriers and the LCCs, even if labour and other costs evenutally even out, which I do expect to happen. LCC is purely a measure of the cost side of the equation.

A low fare carrier (LFC), on the other hand, is a (perceived) measure of revenue. Just being an LCC does not necessarily mean that the same carrier is an LFC. Westjet has certainly moved away from being an LFC which is why true LFCs such as Jetsgo have had ample opportunities to expand in the past year. Even still, attempting to puchase a ticket on Jetsgo at the last minute will not necessarily result in the lowest fare among competitors, as Shareholder has alluded to in this thread, and others have noted in other threads.

If AC had opted not to rationalize their fares domestically, as they have, then I would argue that we would see true LFCs serving the domestic market. But since the 80 lbs gorilla has decided to compete head on with the LCCs, there is no incentive for them to compete with fares (other than route introductory seat sales, etc) below that of AC. Luckily for AC, that translates into higher load factors and they seem to be holding their own in terms of revenue generation. But as much as Milton et al want to reduce costs to the level of an LCC, there is a highly unlikely chance of that ever being possible.

In terms of the LCCs, they must be extatic that they can charge the fares that they do and be able to get away with it. As long as that's the case, then so be it. I have been travelling quite a bit domestically this summer, and my company insists on having me book the lowest fares (within a few dollars if the schedule is better one way or another). Note that these trips are usually booked just a few days prior to the departure date. Of the 21 segments I've taken between cities served by airline traffic, here is how they break down:

AC - 10
Rental Car -4
Jetsgo - 2
Canjet - 2
Via Rail - 2
Westjet - 1

That's right - Air Canada has had the lowest fares vs all other airlines on an approximate 2:1 ratio.

For AC, that means that their strategy of higher load factors seems to be paying off. For the other guys - well it's a mixed bag. The few segments that I've had on Jetsgo and Westjet were between 80 and 90% full. The two on Canjet were closer to 50%. Compare to all the AC flights that have probably been about 95% full on average (in Y).

If I'm Clive or LeBlanc, I'm probably happy with these results. Same thing if I'm Milton. Therefore, I don't expect to see much change from the status quo in the short-to-medium term. For customers, it just pays to remember that LCC does not equal LFC and that shopping around is a must. Once consumer behaviour begins to shift towards this, then I expect that airfares will also shift somewhat. In the meantime, if Westjet can get away with filling their planes at higher fares, then more power to them.