BUSINESS

Fees Here To Stay Despite Low Oil Prices, Air Canada Says As It Hits Record Profit

05/12/2015 07:00 EDT | Updated 05/12/2016 05:59 EDT
Steve Parsons/PA Archive
An Air Canada plane taxi's towards the Southern runway at Heathrow Airport
MONTREAL - Air Canada says higher revenues from bag and other fees are part of the airline's drive to permanently raise profits even after fuel prices rise.

"Low fuel prices are a welcome tailwind, but history has shown how fickle oil pricing can be, so we remain intensely focused on the execution of the strategy that has brought us this far," CEO Calin Rovinescu said Tuesday.

The country's largest carrier earned a record $122 million in profits excluding one-time costs in the first quarter, thanks in part to a 25 per cent decrease in fuel costs for the same quarter the year before.

Air Canada (TSX:AC) said non-fare revenues per passenger increased 15 per cent in the first three months of the year, led by higher contributions from checked baggage, cancellation fees, seat selection, preferred seating and various upgrades.

Rovinescu's comments come a week after WestJet Airlines also posted a quarterly record in net income due to falling fuel prices and higher fees.

The charges have left some passengers angry, accusing airlines of nickel-and-diming them relentlessly while at the same time removing the comfort of extra legroom and free on-board food.

But Rovinescu said the charges are broadly accepted in the United States and other parts of the world. In the U.S., airline industry bag fees rose five per cent to US$3.5 billion last year while the fees for changing reservations were up six per cent to US$3 billion.

Industry observers said airlines needed to change a broken economic model that saw too many carriers go out of business.

In exchange for keeping base fares as low as possible, airlines are charging passengers for the services they value. That includes checking luggage, preferred seating and soon, Wi-Fi.

Air Canada said raising fees is part of the business strategy that also includes cutting its costs by expanding its low-cost Rouge leisure carrier, adding about 100 seats on large Boeing 777s and flying more new Boeing 787 Dreamliners.

Before adjusting for items such as foreign exchange and fuel hedging, Air Canada says its net loss decreased 9.4 per cent to $309 million or $1.08 per share. Revenues grew six per cent to $3.25 billion.

It earned 41 cents per share in adjusted profits, well above the 18 cent per share forecast by analysts polled by Thomson Reuters. That compared to a 46 cents per share loss a year ago.

On the Toronto Stock Exchange, its shares increased four per cent to $12.19 in Tuesday midday trading.

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