WestJet Airlines Ltd., has succumbed to the lure of baggage fees and the $3.35-billion (U.S.) they generated for U.S. airlines last year, so it will start charging passengers who check their bags on its flights within Canada and to the United States.
The $25 (Canadian) bag fee will apply to about 20 per cent of the airline's 18.5 million customers a year, beginning with flights booked yesterday for travel as of Oct. 29, said WestJet, which becomes the first of Canada's two big airlines to introduce baggage fees on domestic flights. Air Canada charges a fee on Canada-U.S. economy class fares, while Porter Airlines Inc. put the fees in place on its flights beginning this spring.
"Not everyone travels with a checked bag – yet effectively, everyone is paying for one," Bob Cumming, WestJet's executive vice-president of sales, marketing and guest experience, said in a post on the Calgary-based airline's website.
The charge applies only to Econo fares, but WestJet spokesman Robert Palmer said Econo fares will not fall by $25 immediately even though the rationale for the fee is that those who are checking bags are now paying their own way.
The change will lead to lower Econo fares and seat sale fares in the future, Mr. Palmer said.
The baggage fees should generate $87.5-million in revenue for WestJet in 2015, said analyst Chris Murray, who follows Canada's airlines for AltaCorp Capital Inc., in Toronto.
Mr. Murray also raised his forecast for WestJet's share profit to $3.26 next year from his original forecast of $2.92.
RBC Dominion Securities Inc. airline analyst Walter Spracklin said he expects Air Canada to follow suit.
"While Air Canada currently charges for first bags on U.S. trans-border segments (similar to the U.S. mainline peers), management has been reluctant to do so on domestic routes where WestJet previously did not do so," Mr. Spracklin said in a note Monday. "With today's announcement from WestJet, it now opens the door for Air Canada to follow suit."
Air Canada spokesman Peter Fitzpatrick said the airline is evaluating the WestJet announcement.
But Canada's largest carrier might want to emulate Southwest Airlines Co., which until now has served as the business model for WestJet. Southwest allows passengers two free checked bags and advertises heavily that bags fly free.
"Customers hate bag fees," Southwest chief executive officer Gary Kelly told reporters last week in Dallas. "Common sense tells you you're going to anger a lot of people."
The defection rate among Southwest customers would be so large that it would wipe out any revenue gain generated by the fees, Mr. Kelly said.
The introduction of fees by rival carriers was a "gift by our competition," he noted. "They gave us a differentiation we didn't have before."
The fee will likely cause some defection that will reduce the expected revenue from the fee to $60-million annually from $100-million, Ben Cherniavsky, Raymond James Ltd. airline analyst in Vancouver, said in a note to clients.
But the trade-off is worth it, Mr. Cherniavsky said, because it should generate an extra 25 cents of profit per share.
He also believes Air Canada will choose to add fees, which will generate between $50-million and $75-million in annual revenue.
American Airlines Inc. became the first major carrier to charge for bags in 2008. Now such fees are in place at almost all U.S. airlines, some of which also charge for carry-on bags.