09/02/2011 09:40 EDT | Updated 11/02/2011 05:12 EDT

Air Canada To Begin Charging $25 Fee For Checked Bags On Flights To U.S.

MONTREAL - Air Canada will soon begin charging even its tiniest passengers a fee to check one bag when they fly economy class to the United States as Canada's largest air carrier searches for new sources of revenue.

A posting on the company's website Friday informed passengers that it plans to begin charging $25 for the first checked bag — and for the first time infants travelling on an adult's lap will also incur the charges if a bag is checked on their behalf. They will, however, still be allowed one car seat and one stroller at no additional cost.

The airline is also increasing the current charge for a second bag to $35 from $30, bringing the total cost of two checked bags to $60.

"Everyone understands that airlines are under tremendous cost pressures and I think they can appreciate that we need to take some steps to ensure our financial sustainability," spokesman Peter Fitzpatrick said in an interview Friday.

There will also be a new $70 charge for second bags on some international flights, though the first checked piece remains free of charge.

The charges apply to tickets issued beginning next Wednesday for travel on or after Oct. 11. and the checked bags must weigh no more than 23 kilograms.

The Montreal-based carrier isn't changing its baggage fees for flights within Canada. The first bag is free but a second checked bag costs $20.

Fitzpatrick said the new baggage charges bring Air Canada (TSX:AC.B) in line with most U.S. carriers, which charge $25 for the first bag and $35 for the second checked bag on flights to Canada.

"The majority on the transborder market do charge for first bag and a lot of them have been doing it for a long time, so in a lot of ways we're playing catch up here," he added.

WestJet Airlines (TSX:WJA) and Porter Airlines don't charge a fee for first checked bags on any of its flights. A $20 fee applies for second bags and $50 for additional checked bags.

Calgary-based rival WestJet said it is assessing the impact of Air Canada's decision and hasn't decided on whether to change its baggage fees. It recently agreed to waive baggage fees for Canadian military personnel travelling in uniform.

"Changes in fee structures have a significant impact on the competitive landscape of the airline industry as a whole and it is prudent for WestJet to take some time to assess this impact before making any decisions," spokesman Robert Palmer said in an email.

Porter Airlines, Canada's third-largest scheduled carrier based at Billy Bishop Airport in downtown Toronto, said it has no plans to change its baggage fees, adding Air Canada's move may further entice its customers to try the upstart airline's turboprop service.

"If higher fees at other airlines encourage more people to try Porter, we're happy to welcome them," said spokesman Brad Cicero.

Fitzpatrick of Air Canada declined to say whether the airline is worried about losing business to its Canadian rivals, nor would he indicate whether additional fees are being considered.

At least one U.S. carrier, Spirit Airlines, charges for carry-on bags.

Airlines have tried to keep their ticket prices low in the face of higher costs by charging for ancillary services such as baggage checks and food.

It's unclear how much revenue is generated in Canada from these fees. But U.S. carriers raked in US$5.7 billion last year from baggage and cancellation fees alone, up from $1.38 billion in 2007.

Reactions to Air Canada's new baggage fees was mostly negative from passengers who commented on the websites of CBC and CTV.

"Just raise the prices rather than tack on charges. People dislike being dinged by extras," wrote one person.

"Air Canada and their price gouging, what do you expect? I'm really sick of getting emails from them advertising $99 fares that ignore the $140 in fees they tack on after the fact," added another.

Several writers said the new fees are another reason for travellers to fly out of nearby U.S. cities to save on lower priced fares and taxes.

Not all the good deals can be had by crossing the border. Canada's airlines are fighting for customers through matching seat sales offering 50 per cent off to selected cities in Eastern Canada and the northern United States.

WestJet made its pitch for customers Friday by becoming the latest airline to offer the big discount to destinations like Halifax, Montreal and Ottawa.

It follows Air Canada and Porter, who started offering the discounts earlier this week.

Porter is offering half off to anywhere it flies, while Air Canada's discount applies only to similar destinations as Porter.

The fiercely competitive "eastern triangle" of Toronto, Ottawa and Montreal is worth about $600 million in revenues annually.

On the Toronto Stock Exchange, Air Canada shares hit a new 52-week low, falling four cents to $1.63 in Friday trading.