WestJet making millions from new fees – and it’s just getting started
New fees on checked luggage are packing a financial windfall for WestJet, with the airline saying Tuesday it’s seen a spike in how much money it’s getting because of the new charge.
WestJet said so-called ancillary revenues, the industry term carriers use to describe money they collect for products or services on top of base airfares, shot 64 per cent higher in the first three months of the year, to $83.1 million.
Vito Culmone, WestJet’s head of finance, said on a conference call the surge was “primarily” the result of the new $25 fee introduced on economy-class fliers in September.
The bump in ancillary fees combined with plunging jet fuel prices saw profit climb to a record high, the airline said.
Execs for WestJet – which bills itself as a lower-cost alternative to main rival Air Canada but has been criticized for raising prices in recent years – were asked by media on the call whether they expected backlash for the fees at a time of low fuel prices and record profit for the carrier.
Gregg Saretsky, the Calgary-based carrier’s chief executive, said no and that the carrier was passing on a portion of the fuel savings to customers in the form of lower airfares.
“Consumers are benefiting from lower all-in travel costs. There are bargains today that are better than they were a year ago. And that’s a function of the lower fuel environment. We’re effectively passing that along to our guests,” Saretsky said.
Rise of airline fees
WestJet’s new baggage fee was matched by Air Canada quickly last fall. But both airlines were relative holdouts compared to airlines in the United States.
Fees among U.S. carriers began escalating in 2008, when airlines were losing money and facing a sharp rise in fuel prices. Fees are still around, and they make up a growing share of U.S. airline revenue – something Canadian airlines are now moving to copy.
Just warming up
WestJet and Air Canada continue to look for new products and services aimed to get customers spending more with the carrier on top of their base fare.
To that end, WestJet announced on Tuesday it would introduce new “Plus” seating on board its Boeing Next Generation 737s that will block off middle seats, giving passengers on each side more room. Plus customers will also receive “a premium boxed meal” on longer flights among other perks, the carrier said.
On the call, WestJet suggested the new seating will cost nine per cent more than current base fares, and will commence in September.
WestJet and Air Canada are also in the process of rolling out new entertainment and onboard Internet systems across their fleets.
WestJet’s Saretsky said the service will offer some free options as well as options that come with extra charges. “It depends again on what the consumer chooses,” he said. “If they choose to take advantage of wide bandwidth, there will be a fee.”
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