WestJet said Tuesday it plans to lower airfares on select economy-class tickets as its redirects a portion of the money being collected from new baggage fees toward more competitive prices.
“We think that by unbundling and charging for bags separately we have an opportunity to lower our econo fares,” said Gregg Saretsky, the Calgary-based carrier’s chief executive.
WestJet’s head of finance, Vito Culmone, added that the carrier has “circled the econo bucket for some reduced fares” for this year and next.
But Saretsky said WestJet wasn’t prepared to “give all the benefit of the first baggage fee back to guests.”
“This will all be revenue positive,” Saretsky said on a conference call.
This week, WestJet began charging new baggage fees for economy class fliers on routes throughout Canada and into the United States.
MORE: Here’s what Canadian airlines plan to charge new fees on next
The new fees charge $25 for the first checked piece of luggage and will affect about one in five WestJet fliers. Experts say the charge will generate tens of millions in additional revenue for WestJet.
Within days of the new fee announcement in mid-September, Air Canada said it was implementing the same charge.
Air Canada’s implementation of the new fee drew scorn from passengers who complained about having to cough up more money as well as the beefed up personnel at airports to ensure over-sized bags were checked in.
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Customer reception
WestJet said its customers were adapting to the new charge. Saretsky credited staff, which WestJet refers to as WestJetters, for “managing” the implementation well.
“This is week one,” Saretsky said. “We’re in early days here. But what we’re seeing is that our team of WestJetters has really done an exceptional job mananging this new practice at the front line.”
“I’m paying the $25 dollars,” traveller Reetu Shergill told Global News at the Calgary International Airport. “I’m not happy about it.”
MORE: Western Canada ripe for low-cost air service, report says
On the call, analysts also noted that WestJet is also benefiting from falling oil prices, which help air carriers save fuel costs.
“The number of changes in key variables in the business – fuel, the Canadian dollar and you’ve got the first bag fee now, obviously the net effect to WestJet is positive,” BMO Capital Markets’ Fadi Chamoun said.
Lower fuel costs will also allow for some flexibility on ticket prices, WestJet execs said.
Plan to drop fares
WestJet suggested the luggage charge isn’t so much an added fee but a breaking out of baggage costs from the base airfare ticket. By stripping out the cost, WestJet can offer lower airfares.
“That was the whole reason behind unbundling our fares and charging for first bag – so we could drop our base fares,” Saretsky said. “Our plan is to continue to do that.”
Yet experts suggest that baggage fees will generate up to $100 million in so-called ancillary fees next year, an amount which will let WestJet cut some rates on flights but still grow its bottom line.
“The math is pretty self-evident,” Saretsky told analysts.
WATCH: WestJet began charging $25 for a checked bag on some flights. Shallima Maharaj has the details and reaction from travellers.
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