Air Canada tacks on second fuel surcharge in two months

August 29, 2005

For the second time in two months, WestJet Airlines attempted to lessen the blow of record-high oil prices by tacking a fuel surcharge on the base price of its fares.

And while the move was mirroring a similar price increase by rival Air Canada on Thursday, it remains to be seen how the surcharges will effect demand on Canada's dominant discount air carrier.

Starting Monday, Aug. 15, WestJet (TSX:WJA) will increase its base fares on flights by $5, $8 and $12 each way depending on the distance travelled.

"As a low-cost airline, we find it particularly unpleasant to increase our fares as we always endeavour to keep travel as affordable as possible for our guests," WestJet vice-president Hugh Dunleavy said in a release.

"That being said, we are faced with the current reality of record high fuel prices and we simply must adjust our fares to recover a portion of these additional costs."

The price of oil - which is refined into a variety of fuels including jet fuel - has set new record highs in each day of trading this week, rising as high as $67.10 in Friday trading on the New York Mercantile Exchange.

The transportation sector is one of the first to feel the pinch of higher oil prices, though it tries to pass some of these costs on to customers in the form of fuel surcharges.

WestJet said Friday that travellers can avoid paying the higher fares by booking travel with the discount carrier before Monday.

In June, WestJet levied fuel surcharges of $8, $10 and $15 per one-way ticket in order to try and claw-back some of its unexpected fuel costs. The airline says the cost of fuel has increased 40 per cent in the first seven months of 2005 compared to last year.

The question remains what the cumulated effect of the fuel surcharges on sales.

"At what point does this ever-increasing price for an airline ticket turn off the travelling public?" said airline analyst Ted Larkin with Orion Securities in Toronto.

Though the summer months are traditionally the busiest - and most lucrative - for the airline industry, it remains to be seen how the steep rise in fuel prices will affect the bottom lines of Canada's two major carriers.

Though a visible sign of spreading the pain of higher fuel costs, the surcharges do not fully offset the higher price of fuel, said Larkin, and are "a small aid more than anything else."

Another analyst said because fuel surcharges are now embedded in the ticket price, it is hard to say if they will last, or be effectively handed back to consumers in the form of seat sales in Canada's fiercely competitive domestic air travel market.

"This time around you have to hope, from the airline's perspective, that the surcharge sticks."

On Thursday, Air Canada (TSX:ACE.B) and its Jazz subsidiary said they were raising ticket prices on flights within Canada and to the United States in response to record high fuel prices.

FlyForLess is not affiliated with any media companies nor does it represent or work for Air Canada. This article is published with the sole purpose of making information available for those who wish to stay informed on Air Canada's actualities.