WestJet posts record quarterly profits, introduces new baggage fees

Despite posting record profits, WestJet Airlines says it is eliminating free checked bags on all economy fare flights to Europe and sun destinations starting early in the new year.

The Calgary-based airline announced Tuesday that a $25 baggage fee will apply to new economy bookings for flights as of Jan. 6.

WestJet (TSX:WJA) will also raise fees for some reserved seating, with increases ranging between $10 and $20 for exit rows on flights longer than 300 miles (about 480 kilometres).

The two initiatives are expected to generate $15 million to $25 million in additional annual revenue, the company said.

Chief executive Gregg Saretsky said the charges are in line with those of competitors and support the airline’s strategy of keeping fares low and allowing passengers to pay only for the services they want.

“With airfares that start at $299 to Europe from Toronto, for example, we’re not going to apologize for charging $25 for a first checked bag,” he said during a conference call to discuss WestJet’s third-quarter results.

“These fares are significantly lower than the market has seen and we’re very proud to be bringing our brand of low cost to these markets.”

The airline said it doesn’t expect to see many complaints from passengers. That’s because it believes 75 per cent of them will avoid the fees by purchasing higher-priced Flex or Plus fares, or they are members of the top tiers of its rewards program or have a WestJet RBC World Elite MasterCard.

The new bag charge won’t apply to packages purchased through WestJet Vacations.

Canada’s airlines have increasingly tacked on fees for a variety of services, including checked bags, inflight entertainment, advance seat bookings and cancellations as they pursue a so-called “unbundling strategy.”

WestJet earned $90.5 million in ancillary fees in the third quarter, up from $51.3 million a year ago. That translated into $16.44 per passenger, up 68 per cent from $9.80 in the same quarter last year.

Overall, the airline earned a record $101.8 million, helped by these fees and a 33 per cent drop in fuel expenses.

Total revenue was up 3.5 per cent or $35.3 million from last year to $1.045 billion, although ticket revenues dropped slightly.

Air Canada (TSX:AC) charges for checked bags on flights to sun destinations but not to Europe. The country’s largest airline said it has no plans to follow WestJet’s lead.

But Robert Kokonis, president of airline consulting firm AirTrav Inc., said the temptation will ultimately be too great not to chase extra revenues.

The experience of past introduction of fees has shown that any passenger backlash is short-lived, he said.

“After a month or so they begrudgingly accept it, so WestJet’s just keeping with the trend of unbundling,” he said.

“The financial model of the airline has changed after decades of losses and finally finding a way to make sustainable profits is not a bad thing.”

A decline in fuel prices dropped about $50 million from WestJet’s operating expenses, largely offsetting increases in most other areas, including airport operations, flight operations, sales, marketing, maintenance and inflight amenities.

WestJet’s profit for the three months ended Sept. 30 — which includes the seasonally busy summer vacation months — was 82 cents per share, on both a reported and adjusted basis. That was better than analyst estimates.

The company is launching service next spring to Gatwick Airport in London from six Canadian cities.

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