WestJet’s blunt assertion this week that it won’t pass any of the benefits from lower fuel prices into lower airfares drew a wide mixture of responses ranging from surprise to justifications to scorn, depending on who you asked.
Gregg Saretsky, the head of the country’s second-biggest airline, said Tuesday the carrier won’t cut ticket prices even as jet fuel costs cascade lower alongside oil, which has fallen dramatically in cost since the summer.
Jet fuel is typically an airline’s single biggest expense. Experts suggest that falling fuel prices at airlines have historically resulted in quick adjustments to lower airfares.
Customer response
“Up until now I have always thought WestJet was head and wings above the other carriers,” Melody Augustine, another commenter on the social media site, said. “Rethinking my position.”
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Still, others defended the decision by WestJet, which bills itself as the lower-cost alternative to Air Canada.
“It’s almost as if WestJet is a business and wants to maximize profit for economic gain for the company and its shareholders,” Facebook commenter Paul Smith said. “Tsk Tsk.”
“The consumer won’t be uniform in their response,” Ken Wong, a marketing professor at Queen’s University said by phone.
“Then there’s a third group who will look at this and say, ‘Alright WestJet, you’re now no different than Air Canada. And as such, I’m not going to be very forgiving.”
Bucking trend
Stock analysts who provide guidance on whether or not investors should invest money in WestJet were busy Wednesday morning making upward revisions to how much additional profit the carrier will make this year.
“It appears the company expects to capture more of the fuel price benefit than we had expected,” David Tyerman at Canaccord Genuity said.
“WestJet was clearly resolved, however, to hold onto most of the benefit.”
No backlash
Ian Lee, business professor at Carleton’s Sprott School of Business, said airlines operate with thinner profit margins compared to other industries. “It was too tempting to say we’re not going to rebate this back, because they’re not making a lot of money in the first place,” Lee said.
WestJet said Tuesday fourth-quarter profit jumped 34 per cent to a record $90.7 million. Revenue climbed 7.3 per cent to $994.4 million. WestJet raised its dividend payment to shareholders by 17 per cent.
Prof. Lee doesn’t anticipate much consumer backlash, largely because options are limited.
“I don’t think there will be a backlash because there’s nobody to backlash to. If all the airlines are doing it, you’re just going to be leaving one airline who is acknowledging publicly that they’re doing it for another who’s not acknowledging it publicly,” Lee said.
MORE: Western Canada skies ripe for new low-cost airline
Baggage fees, too
Saretsky’s comments come on the heels of WestJet’s decision to introduce new baggage fees in the fall.
“It wouldn’t kill them if they dropped charging for the first checked-in bag,” JP Petryshyn Holm, another social media commenter, said. Jeff Weiss added: “They said they’d be different than any other airline and now they’re the same.”
Wong suggested Saretsky could have framed his comments in more subtle terms.
“I think they could have couched it much better. Something like, ‘In order to maintain our standards we have to get rewarded every once in a while. And our employees who are our owners deserve this as a motivating tool.’”
“You kind of hope that this isn’t a signal that attitudes have changed at the top.”
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