Air Canada said it will start charging passengers $25 for their first checked bag, days after rival WestJet Airlines Ltd. introduced a similar measure.
"Starting September 18, 2014, customers purchasing Air Canada's lowest Economy Class Tango fare for travel on or after November 2, 2014 on domestic flights within Canada and to and from the Caribbean and Mexico will now be charged $25 for a first checked bag, in line with the baggage allowance policies of other North American carriers," Air Canada said in a statement.
This change is expected to affect an estimated one in five Air Canada passengers on domestic flights within Canada, representing approximately 5 per cent of the airline's customers system-wide, Air Canada said.
The carrier's fee for a first checked bag on U.S. transborder routes, in place since 2011, remains unchanged, the airline said.
WestJet said on Monday its $25 fee would apply to about 20 per cent of the airline's 18.5 million customers a year, beginning with flights booked Sept. 14 for travel as of Oct. 29. Baggage fees generated $3.35-billion (U.S.) for U.S. airlines last year.
The move sparked a flurry of upgrades for WestJet stock amid expectations of higher earnings. Air Canada stock also spiked, in anticipation of similar measures. Air Canada said at the time it was evaluating the WestJet announcement.
Analysts estimate the fee will add between $50-million and $75-million to Air Canada's annual revenue, roughly the same amount it will generate for WestJet.
Although Air Canada flies more passengers than WestJet it is already charging for first checked bags on flights to the United States.
Air Canada needs the revenue more than WestJet does, said one analyst, who noted earlier this week that Air Canada would find the fee too tempting to resist, even though remaining fee-free would have given the larger airline a marketing advantage over WestJet.
The new charges put in place by Canada's two largest airlines this week will give Southwest Airlines Co. an advantage should the large U.S. carrier decide to enter the Canadian market.
Southwest has a policy that customers can check their first two bags free of charge. Senior executives insisted last week that that policy will remain in place – in part because the revenue lost because of customers defecting to other airlines would outweigh the revenue gained from the fees.