WestJet expects Swoop ancillary revenues will be double mainline carrier

Flying on WestJet's low-cost carrier Swoop will come with a price: ancillary fees that will cost travellers about twice what they pay on the mainline carrier, the CEO of the Calgary-based airline said Tuesday.

Gregg Saretsky said he expects non-fare fees on Swoop will be very similar to so-called ultra low-cost carriers in the U.S.

"We're about $19 per guest currently on the mainline operation and I would expect that we should be able to get (double) that on Swoop," he said during a conference call about its third-quarter results.

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WestJet's fees for services like flight changes, cancellations and checked bags increased 12 per cent in the third quarter to $117 million, or $18.64 per passenger.

Premium economy seat revenues were up 19 per cent in the quarter.

Swoop is set to launch service in June with two 189-seat Boeing 737-800s. The fleet will increase to six planes by September and 10 in the summer of 2019.

Modelled after the relationship between Australia's Qantas Airways and Jetstar Airways Pty Ltd., Swoop will fly mostly to different destinations than WestJet, but may also supplement the larger airline on major city routes, Saretsky added.

"They'll be high-utilization aircraft because they'll turn and burn and they'll have more utilization than WestJet's fleet."

He said Swoop will operate as an independent airline with its own reservation system, operator's certificate and airport check-in counters staffed by its own employees.

"We have been very resolute in wanting to build this at the absolute lowest (cost), so there will not even be connectivity between Swoop and WestJet," he told analysts.

Passengers flying on Swoop from Calgary to Toronto, for example, will have to collect their bags and recheck them for corresponding flights to Sudbury.

Swoop's financial results, however, will be incorporated with those of WestJet.

Ed Sims, WestJet's executive vice-president commercial, said there is still significant demand in the Canadian market to stimulate traffic at lower fares, especially using secondary airports like Hamilton, Ont. and Abbotsford, B.C.

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Unlike startup competitors like Canada Jetlines Ltd. which is also set to fly next summer, WestJet's existing operations could be used to carry passengers in case of service disruptions.

"Some of these new lower-funded entrants will find it difficult to be able to match and then run the risk of potentially leaving their passengers stranded," he told analysts.

Air Canada has said it will use its low-cost leisure travel subsidiary Rouge to compete on the very low-cost market in Canada.

New aircraft, new lounges

Meanwhile, WestJet said it expects the new widebody Boeing 787s that will start entering its fleet in January 2019 will help attract more business travellers.

It plans to add lounges at its hubs in Calgary, Toronto and Vancouver and will increase the use of its mobile apps for bookings, check-in and prioritized boarding.

Saretsky said many Canadian corporations are looking for better deals because flying in Canada at the last minute can be expensive.

"So as much as Air Canada might fight back, we have a massive cost advantage and a product specifically designed to accommodate that type of traveller."

Profit up

WestJet saw its third-quarter profit grow by about 20 per cent compared with a year ago as it increased capacity and traffic.

The airline said it earned $138.4 million or $1.18 per diluted share for the quarter that ended Sept. 30.

That compared with a profit of $116.0 million or 97 cents per diluted share in the same quarter last year.

Revenue totalled $1.22 billion, up from $1.12 billion.

WestJet shares slipped 14cents on Tuesday to close at $26.96 on the TSX.