09/18/2014 09:04 EDT | Updated 06/16/2017 00:58 EDT

Air Canada Baggage Fee Follows Similar Move By WestJet


MONTREAL — Air Canada has joined rival WestJet Airlines in charging a $25 fee for your first checked bag on domestic flights.

The fee applies to passengers booking the airline's lowest economy class Tango fares, as of Thursday for flights as of Nov. 2.

The Montreal-based airline (TSX:AC.B) has charged for a traveller's first checked bag on U.S. routes since 2011 and will now add a fee for flights between Canada and the Caribbean and Mexico.

"We're matching the market,'' chief financial officer Michael Rousseau told a CIBC investor conference.

Earlier this week, Calgary-based WestJet (TSX:WJA) announced a fee for a traveller's first checked bag that ranges between $25 and $29.50 depending on provincial taxes, for flights within Canada and to the United States, but not to Mexico, the Caribbean, Central America and Europe.

Industry observers had expected Air Canada to add the fee, which it says will affect about 20 per cent of passengers on domestic flights.

Air Canada's new bag fee means that nearly all North American airlines aside from Southwest and Jet Blue charge a first checked baggage fee.

"It's what the market is bearing at this point in time,'' Rousseau added.

Analyst Chris Murray of AltaCorp Capital estimates the fee will affect 40.7 million passengers in 2015 and add about $50 million in pre-tax operating earnings (EBITDAR) for Air Canada.

Meanwhile, Canaccord Genuity analyst David Tyerman estimated the bag fee will generate $46 million in additional revenue and $23 million in profits at Air Canada assuming no loss in the number of checked bags or change in base ticket fares.

"Overall, we would expect net benefits from the introduction of first-bag fees, although the degree of upside is debatable,'' he wrote in a report after estimating earlier this week that it could raise $65 million in new revenue.

"There is definitely the potential for base ticket price reductions, as WestJet has talked about reducing ticket prices this week as part of its first-bag fee initiative.''

Air Canada's new fee doesn't apply to higher economy class and business class fares, customers purchasing Air Canada Vacations packages or Altitude prestige, elite and super elite members as well as Star Alliance silver and gold members.

Business class customers can check two bags at no cost, while military personnel receive up to three free checked bags.

WestJet chief financial officer Vito Culmone later told the investor conference that the airline expects the new fee could reduce checked bags by 20 to 30 per cent, based on experience of other airlines.

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