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WestJet may soon charge for checked baggage

Feb. 5, 2014, Calgary - WestJet Airlines is considering charging passengers for checked baggage in an effort to offset some of the cost pressures associated with the falling loonie.


February 5, 2014
By The Calgary Herald

CEO Gregg Saretsky said in a conference call Tuesday that no decision
has been made, but that implementing a “fee for first checked bag” is a
possibility.

 

He said he doubted WestJet would lose customers as
the result of such a move, adding the majority of airlines that WestJet
competes with in the U.S. already charge baggage fees and don’t appear
to be suffering.

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“All our competitors on trans-border are
operating with load factors similar to ours. It’s hard to see that we’re
getting any advantage in the market by not charging for a bag,” he
said.

 

Saretsky cautioned WestJet would only institute such a
measure if its booking system could be adapted to give certain customers
exemptions. Many airlines that charge for baggage will waive the fee
for frequent flyers and those who have purchased upgraded fares, and
WestJet would want to do the same.

 

“If the IT team and our outside
suppliers come back and can’t deliver a solution that is commercially
feasible, reasonable, and competitive, we wouldn’t go forward,” Saretsky
said.

Saretsky’s comments came the same day WestJet announced
record 2013 earnings. The company’s full-year earnings were $268.7
million, up 11 per cent over the year before, while its fourth quarter
net income was $67.8 million, up from $60.9 million in the same period
in 2012.

 

WestJet will boost its quarterly dividend by 20 per cent
to 12 cents per share, and stated that airline employees will receive
record 2013 bonuses — the equivalent of approximately six weeks’ pay per
employee — through the WestJet employee profit-share program.

 

But
behind all the good news, WestJet is concerned about the weakness of
the Canadian dollar. The company says that for each cent the Canadian
dollar falls, it faces an additional $13 million in operating costs —
$11 million of which is directly related to fuel purchases south of the
border.

 

To offset the costs, the airline last week introduced a
two per cent fare hike across the board, choosing to go that route
rather than implement a “currency surcharge” like many of its rivals
have done.

 

Saretsky said it wasn’t something WestJet wanted to do, but was necessary.

 

“We’re
running WestJet like a business,” Saretsky said. “If it makes sense
that we need to offset some of the input costs increases as a result of
the change in foreign exchange, we’ll make whatever changes are smart
for the business.”

 

WestJet also plans to announce a deal with an
inflight Wi-Fi provider by the end of this month. Pending Transport
Canada approval, the move would make WestJet the first airline to offer
its passengers Internet connectivity over Canadian airspace.

 

Saretsky
said its first planes would be outfitted with Wi-Fi connectivity by the
end of the year, with a gradual rollout to follow. He said the Wi-Fi
service could begin generating revenue for WestJet by 2015.

 

The
tight margins in the airline industry mean companies are working hard to
find ancillary sources of revenue, said independent aviation analyst
Robert Kokonis of AirTrav Inc.

 

While
ultra-low-cost carriers like Allegiant and Ryanair hit passengers with
fees for every service beyond a basic seat on the plane, Kokonis said
WestJet will likely be cautious about moving in that direction.

 

“If
you go back a few years, you’ll remember that the analyst community was
relatively happy when WestJet began assessing a fee for a second bag. I
think the analysts felt that WestJet was leaving money on the table by
not charging for that,” Kokonis said. “But to go to a first bag fee
might be a more difficult decision for them to make.

They’ll have to
tread carefully, because they’re not an ultra-low-cost carrier.”

 

Still,
Kokonis applauded WestJet for its strong financial results. He said he
was impressed to hear that the airline will complete an aggressive $100
million cost-cutting effort by the end of 2014, a year earlier than
originally promised.

 

“Not only are they going to deliver, they’re
going to deliver ahead of schedule. That is an exceptional, exceptional
performance by the WestJet team,” Kokonis said.