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WestJet could raise fares if dollar slides

Feb. 5, 2014, Calgary - WestJet Airlines raised fares by two per cent last week in response to the falling Canadian dollar and may consider additional hikes and other revenue generating efforts to offset any future cost pressures, the carrier's chief executive said Tuesday.


February 5, 2014
By The Canadian Press

"If we continue to face additional headwinds over and above what we
see and are talking about today, clearly another fare increase in a
strong-demand environment would be possible," CEO Gregg Saretsky said
during a conference call after reporting record earnings last year.

 

The airline's across-the-board fare increase was quickly matched by other carriers, with no apparent hit on demand.

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Unlike
rivals operating package tours, WestJet has refused to implement
currency surcharges in order to be transparent about the total cost of
flying, Saretsky said.

 

Sales vice-president Bob Cummings said the
airline is reluctant to increase fares and has avoided matching such
moves by rival carriers over the last couple of years. "We held off as
long as we could with the (foreign exchange) situation and really felt
the need with respect to our shareholders and all things considered to
have the price increase at this time," he said.

 

Cameron Doerksen
of National Bank Financial said capacity growth to sunny destinations by
other airlines may limit future fare increases.

 

"This is easier said than done," he wrote in a report. While the domestic

 

Canadian
market appears to be "fairly rational for 2014" with only WestJet
adding capacity, it and Air Canada Rouge are adding seats to Las Vegas
and the Caribbean.

 

Calgary-based WestJet has increased the cost of
travel in other ways through ancillary charges for passenger choice
like changing reservations, cancelling flights, reserving seats and
purchasing food. Such revenues increased by 33 per cent in the past year
to $46 million or $10.09 per passenger in the fourth quarter.

 

The
airline plans to announce later this month a new inflight entertainment
and Wi-Fi system to be implemented starting by year-end that should
generate additional revenues as of 2015.

 

A decision on whether to
charge for first checked bags on flights to the U.S. or in Canada is
being put off until technological challenges are ironed out that would
allow the airline to exempt frequent flyer and loyalty credit card
customers. It currently charges all customers for a second checked bag.

 

Saretsky
said charging for first bags as is done by Air Canada for service to
the U.S., or introducing it to Canada, is not inevitable.

 

"If the
IT team and our outside suppliers come back and can't deliver a solution
that is commercially reasonable, feasible and competitive, we wouldn't
go forward with implementing a first-bag fee," he said.

 

Each cent
decrease in the loonie translates to $13 million in annual unhedged
operating costs, of which $11 million relates to fuel expenses.

 

WestJet
said Tuesday that it will boost its quarterly dividend by 20 per cent
to 12 cents per share amid confidence about prospects for higher profits
in the coming year. It's the fourth dividend increase since WestJet
began the payouts to shareholders in 2011 and is on top of $165 million
returned to shareholders through stock buybacks in 2013.

 

WestJet
also reported $67.8 million of net income in the fourth quarter, or 52
cents per diluted share. That's in line with analyst estimates and
higher than the $60.9 million or 46 cents per share earned a year
earlier. Revenues increased to $926.4 million from $860.6 million last
year.

 

Costs excluding fuel and profit sharing decreased 0.3 per
cent. Profit sharing from 2013 will provide employees with the
equivalent of six weeks pay.

 

Saretsky said half the anticipated
growth this year will come from WestJet's Encore regional service, which
has seen 50 to 60 per cent of passengers connect to the mainline
carrier. WestJet expects to take delivery of eight Q400s this year,
doubling its fleet to 16 as it expands service from Toronto.