The country’s largest airline says it’s keeping in place surcharges introduced earlier this year on some airfares to address rising fuel costs despite those costs receding back to lower levels.
Air Canada executives said Thursday they’re “maintaining the existing strategy” of a $35 surcharge on the carrier’s international flights and vacation packages.
The added fee on top of base fares, which others including Air Transat and Sunwing Vacations adopted, was first implemented in January as the Canadian dollar slumped against the U.S. greenback while jet fuel prices remained high.
The loonie has slipped further in recent months but oil has plunged faster, helping to ease fuel expenses on airlines and vacation operators, experts say.
Hold the line
Jet fuel prices in Canadian dollars have fallen 20 per cent in recent months as world oil prices plunge.
Speaking in Toronto last month, the director general of International Air Transport Association, a global trade body, said surcharges charged by airlines who have them should “very quickly come down” as fuel costs fall.
Airlines including WestJet and U.S. operators like Delta and Southwest have indicated they may begin reducing fares to win more business as their costs ease.
“The competition may reduce surcharges or perhaps fares to attract more traffic,” Macquarie Capital airline analyst Konark Gupta said.
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But Air Canada is holding the line. “Don’t expect any change on that front,” Ben Smith, head of passenger airlines at Air Canada, said on a conference call with analysts.
MORE: WestJet to offer lower prices on ‘some’ economy airfares
Ancillary push
WestJet doesn’t charge a fuel surcharge on any of its routes, but it has led the charge on new fees on luggage. The airline announced in September it was introducing a new $25 charge on the first checked bag on econo fliers taking domestic and transborder flights. The charge was matched by Air Canada two days later.
But the reduction in fuel costs combined with the incremental cash collected on the baggage fees is giving the Calgary-based carrier some flexibility to cut some airfares, WestJet said earlier this week.
WestJet has “circled” some economy-class flights for reduced ticket prices this year and next, executives for the carrier said.
MORE: Here’s what Canadian airlines plan to charge new fees on next
Both Air Canada and WestJet are benefitting from new $25 fees baggage fees, charges that are part of the carriers’ drive to increase “ancillary” revenue, or money from areas other than the base airfare.
Shareholders have been urging the Canadian carriers to ramp up ancillary charges to levels seen elsewhere, primarily among U.S. airline operators.
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