WestJet profit jumps, but it says there'll be breaks on fares
Higher fees for checked baggage and meals add to airline bottom line
Higher fees for things like checked luggage helped generate record profits for WestJet in the first quarter, although the airline says it is giving passengers a break on fares as a result of lower fuel prices.
"There are bargains today that are better than they were a year ago and that's a function of the lower fuel environment, so we are effectively passing that along to our guests," CEO Gregg Saretsky said during a conference call Tuesday to discuss the airline's record profits in the first quarter.
The Calgary-based airline's net income surged 58 per cent to $140.7 million in the first three months of the year. Fuel, which accounts for nearly one-quarter of the airline's expenses, dropped 26 per cent as fuel prices plummeted.
Non-fare ancillary revenues increased 64 per cent to $83 million or $16.92 per passenger, up from $10.55 a year ago. Most of the increase was due to the introduction late last year of a $25 fee for a first check bag for some passengers, depending on the fare they purchase and other factors.
Wi-Fi on the way
The airline also profited from charges on things like changes to reservations and reserved seating and from onboard sales and expansion of its credit card.
Meanwhile, WestJet plans to add fees beginning next month for passengers who want to use some features of its new in-flight entertainment system, including satellite-based Wi-Fi. The airline plans to equip its entire fleet with the new system by the end of 2016.
WestJet is following a global trend that has seen airlines try boost profits by charging passengers for services. In the United States, airline industry bag fees rose five per cent to $3.5 billion US last year while reservation change fees were up six per cent to US$3 billion.
WestJet said it resisted competitor efforts to raise fares in the quarter but could move fares higher if fuel prices increase.
"We're going to respond with all levers," Saretsky told analysts.
The airline said Tuesday its new Plus seating section will offer a window or aisle seat with no middle seating on narrowbody planes or wider seats on the new Boeing 767s. The new configuration, aimed mainly at business travellers, is similar to what is offered by several carriers for flights within Europe. It will be available for travel beginning Sept. 1.
New Plus section fares will be three to nine per cent higher than existing seats, but up to 75 per cent lower than business class fares operated by Air Canada.
Saretsky said the change will take advantage of corporate travel restrictions that prohibit executives from flying business class for flights of less than five hours.
"We expect that the softening economy will drive a significant amount of business travellers who are now being coached by their CFOs to start saving travel dollars," he said.
WestJet's savings from lower fuel prices were partially offset by higher expenses in other areas, including record quarterly employee profit sharing. The profit-sharing expense more than doubled to nearly $49.8 million from just under $21 million in the first quarter of 2014.
Net income equalled $1.09 per share, up from 69 cents or $89.3 million a year earlier.
WestJet's revenue increased by about four per cent to $1.08 billion, but was down 0.7 per cent on a per mile basis.
Meanwhile, the airline said softness in Alberta's oil sector has not hurt results and expects to earn record profits again in the second quarter due to much lower fuel costs.