Porter and WestJet add surcharge
A fuel surcharge by airlines on North American flights may rile customers, but observers say it was inevitable and may even help carrier earnings in the short run.
WestJet Airlines Ltd. and Porter Airlines slapped a fuel surcharge on all their flights yesterday as the price of oil continues near all-time highs. The move follows a similar levy by Air Canada last week. WestJet customers will now have to pay an additional $20 on short-haul flights, $30 for medium-haul and $45 for long-haul flights. Porter Airlines pegged its increase at $20 one way for the Ottawa-Toronto route, and $40 one way on all other routes.
“We’ve hung on as long as we could, as long as our low-cost structure allowed us, but we’ve now reached that point where we introduced that surcharge, at a level that we think is good for us,” WestJet spokesman Richard Bartram said yesterday.
Soaring fuel prices have long affected the industry, prompting almost all airlines to introduce surcharges in recent months to accommodate the uncontrollable cost.
Mr. Bartram said oil prices accounted for 27% of WestJet’s costs in 2007, a proportion that rose to 36% as of April, 2008, even with a modern fleet of energy-efficient Boeing 737s.
“We sell over 60% of our tickets at the lowest discount price, so it is very difficult to deal with such a quick increase in oil prices for us,” he said.
The move was in line with WestJet’s policy to be transparent in its pricing strategy, he said, and the surcharge could be reviewed if oil prices change.
David Newman, an analyst at the National Bank, sees the move as a positive step for WestJet’s bottom line in the short term. “All things being equal, this surcharge for the average stage length will increase yield revenue per seat by 10% to 15% and cover WestJet from an oil price increase [from today's prices of about US$125 a barrel] of US$50 to US$75.”
But he said things rarely remain the same for long in the airline industry and these benefits might be partially absorbed by lost revenue as “price-sensitive” customers become priced out of air travel altogether.
He also said any slip in load factors might force airlines to cut fare prices as they raise fuel surcharges.
Source: Financial Post
Tags: airlines, fuel costs, Porter, price rising, surcharge, WestJet