I was just thinking about this topic, too, in response to the thread on the Canada 3000 re-branding concept.
I think what you'll see in the next couple of years is the emergence of four distinct competitors in the Canadian market, with no others: Air Canada, Canada 3000/Royal/CanJet, Roots Air, and WestJet.
Air Canada is, of course, the major top-tier carrier, and quite obviously the Goliath to slay. I can see C3 changing their name to something more professional-sounding, such as (as suggested on the other thread) Royal Canadian, Canadian International, or Canada World Airways--much in the same way that USAir changed its name to USAirways in order to sound more classy.
AC and a rebranded C3 could thus become the American and United of Canada. In order to do this, though, C3 would have to expand further to non-leisure destinations in the U.S. (ie, Washington, New York, Chicago, etc.) and a few transatlantic destinations (such as London, Paris, etc.). You'd have two intercontinental airlines squaring off against each other, with AC as the incumbent and C3 as the dramatically smaller challenger.
Roots Air, if it's successful, would probably be more of a domestic airline, perhaps with a few European flights in the future. They'll provide some badly-needed competition for Air Canada on transcon routes with their high-class service.
WestJet will remain the Southwest of Canada, and will probably continue expanding eastward, out of Hamilton. U.S. routes to places like Baltimore and Newark, which have been rumored, will probably be on the way, too.
And then, of course, you'd still have the charters--Skyservice and Air Transat.
The future of the Canadian air travel market depends on how willing the government is to allow other airlines to compete on an even field with Air Canada. At this time, with the merger of AC and Canadian, you've got a a mega-airline that controls a large majority of the Canadian market. If other airlines were allowed to compete without AC pricing them out of the market (as airlines like American do here in the U.S.), it's likely that C3 or Roots can rise up to become another Air Canada (or CPAir/Canadian). However, if the status quo is allowed to continue, AC will persist in waltzing all over Canada and maintaining the only serious major airline status in the country.
It's definitely going to be interesting.