MONTREAL - The cost of flying is increasing for millions of Canadian passengers after WestJet Airlines announced it will start charging some economy fare customers a fee to check their first bag on flights within Canada and to the United States.
The new fee, ranging between $25 and $29.50 depending on provincial taxes, will apply to all new bookings made starting Monday for travel on WestJet and its regional airline Encore as of Oct. 29.
WestJet (TSX:WJA) said the new charge — to be paid at check-in or up to 24 hours online before travel — is expected to affect one in five of its travellers, or some 4.4 million passengers a year.
Different baggage allowances will apply to those in other fare classes or those using its new loyalty program, also launched Monday.
WestJet's Flex fares avoid the first baggage charge, while Plus fares provide more leg room, boarding and two free checked bags. WestJet RBC World Elite MasterCard holders and up to eight guests travelling on the same reservation won't pay the first checked bag fee.
Passengers flying to international destinations, including Mexico, the Caribbean, Central America and Europe will continue to be able to check a first bag at no charge.
Baggage allowances for military personnel, infant and child equipment, mobility devices, and those travelling in connection with other airlines are not affected.
Despite the new baggage fee, the Calgary-based airline said its fares allow customers to purchase the services they want.
"This user-pay type of system allows us to keep fares as low as possible, introduce lower sale fares and avoid fare increases, which benefits you and liberates even more Canadians from the high cost of air travel," stated Bob Cummings, vice-president of sales, marketing and guest experiences.
WestJet has said it put off a decision on charging for first checked bag until technological challenges were ironed out to exempt frequent flyer and loyalty credit card customers. It currently charges all customers for a second checked bag, which will be changed to between $25 and $29.50.
Air Canada (TSX:AC.B) is expected to follow suit and charge for first checked bags on flights within Canada, as it does for service to the United States. Porter Airlines began charging $25 for the first bag and $35 for a second bag checked on domestic travel as of May.
Walter Spracklin of RBC Capital Markets estimates the new baggage fee will generate more than $100 million in annual pre-tax operating profits (EBITDAR), representing $4.81 per share.
With the new charge, WestJet is catching up to other North American carriers which on average generate at least $20 per passenger in ancillary fees. The first bag fee is expected to add $6 to the $10 per passengers WestJet currently receives.
"The key is that WestJet continues to have opportunities to close this gap including on-flight media fees and other ancillary revenue opportunities," he wrote in a report.
Spracklin said such a charge would also add about $100 million in EBITDAR for Air Canada, equal to $1.84 per share.
WestJet's baggage announcement boosted the share prices of the country's two largest airlines. On the Toronto Stock Exchange, WestJet's shares hit an all-time high of $32.88, and were up $1.69 or 5.49 per cent at $32.48 in later morning trading. Air Canada's shares were up 52 cents or 6.13 per cent at $9.
WestJet also launched Monday a new three-tier rewards program that will give customers as of Oct. 29 a variety of benefits depending on how much they spend on WestJet flights in a year.
