Air Canada levies baggage fee, risks losing customers

Travel light, which may be the message if you want to save bucks. But for Air Canada, it has come across as a matter of additional revenue to charge passengers who purchase tickets on Sept 7 and after for travel to the United States a fee of C$25 for the first checked bag. The current charge of C$30 for the second bag will also be raised to C$35. That makes a total of C$60 for two checked bags added to the fare.

Naturally, Air Canada customers are upset. Many of them see it as a money-grabbing move that is not only ill-timed when the market has become extremely price-sensitive but also deceptive. On the one hand, the airline may be advertising a cheap fare of, say, C$99, but it is collecting an additional fee in taxes and other ancillary charges – that can amount to as much as C$150. Only recently was Air Canada fined by the US Department of Transportation for deceptive price advertising online. The Canadian flag carrier did not disclose taxes and fees that would be added to the advertised fares.

US Transportation secretary Ray LaHood ruled: “When passengers buy an airline buy an airline ticket, they have a right to know how much they will have to pay.”

President of the Consumers’ Association of Canada Bruce Cran lampooned Air Canada’s new baggage fee as “another one of their schemes to drag a little more money out of us.”

In defence, Air Canada spokesman Peter Fitzpatrick said: “This new policy puts us in line with the majority of airlines flying in the transborder market, who have been charging for first bags for a long time.” He added; “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.”

Mr Fitzpatrick could be thinking about how US carriers collected US$5.7 billion last year from baggage and cancellation fees alone. But he would be sadly mistaken to think that doing as the US carriers do means better positioning for Air Canada and that its customers would remain loyal.

One, Air Canada would lose its differentiating advantage now that its customers have lost another reason to stick by it. And Air Canada is by no means cheaper to fly by comparison. Already, Canadians living in border towns and cities including the main hubs of Toronto and Vancouver are crossing the border on land and flying out of the US to take advantage of lower fares and taxes.

Air Canada also risks losing customers to compatriots Calgary-based WestJet and Toronto-based Porter Airlines, neither of which said it had plans for a similar first-bag fee. WestJet, which is Canada’s other major airline, charges C$20 for a second checked bag, plus C$50 each for a third and subsequent bag. Porter Airlines, which operates out of Billy Bishop Airport in downtown Toronto, is hopeful that some Air Canada customers may be encouraged to try its service.

Two, Air Canada cannot expect its customers to sympathize with its poor financial performance which best measures the efficacy of its management policies. In its latest financial report for the second quarter of 2011, the airline incurred a net loss of C$46 million, which was in fact an improvement of 85 per cent compared to a net loss of C$318 million year-on-year. It was a result that Air Canada President and CEO Calin Rovinescu said he was happy with, noting its achievement in spite of rising fuel prices and a 3-day strike by airport workers. Mr Rovinescu pledged the airline would “continue to explore additional cost reduction opportunities” and “to increase fares and fuel surcharges where competitively feasible, and to make adjustments to capacity as required.”

The question now is whether imposing a first-bag fee for US-bound and return flights is “competitively feasible.” And, next, whether this signals a levy of more such fees in the offing.

Presently, travellers flying on Air Canada to South America, Europe, Africa, the Middle-East, Asia and Australia do not pay a first-bag fee. But the fee for the second checked bag will be raised from C$50 to C$70 (which has already been in place for Europe and India). While some airlines, largely Asia-based, are still offering free carriage for up to two checked bags, it is unlikely Air Canada can push ahead with a first-bag fee for services beyond North America unless the fee structure is sufficiently changed to reflect the real cost of flying that may actually benefit some travellers without – or seeming to be – unreasonably overcharging others.

Charging for checked baggage carriage is apt to result in a spill-over of bags carried into the cabin although there are rules limiting its number, size and weight. If the situation becomes unmanageable, imposing a fee may be the best limiting measure. Already one American carrier – Spirit Airlines – is charging a fee for carry-on bags. The Detroit-based carrier, which prides itself as America’s first ultra-low-cost carrier, states on its website: “We empower you to save money on air travel by offering ultra low fares with a range of optional services – including bags – for a fee, allowing you the freedom to choose only the extras you value.”

You are what you do or not do. So too the corollary that you do or not do for what you are. Air Canada has to decide.

Interestingly, the move by Air Canada to levy a fee for the first checked bag for travellers to the US comes at a time when the airline is seeking approval from Canada’s Competition Bureau to enter into a partnership with Chicago-based United Continental, the world’s biggest airline. The two airlines would co-operate on a number of trans-border flights that would see a joint-monopoly for some routes. The Bureau has blocked the deal as it views it as a merger in disguise. Air Canada, on the other hand, warned that objection by the authorities would “impede Air Canada’s ability to compete, would have significant adverse effects on Canadian consumers and the development of Canada’s hub airports, and would relegate Canada and Canadian air carriers to a marginalised regional or local status in the international air transportation world.”

However, Canadians have become increasingly concerned about the Americanization of their country’s industries. The first-bag fee may well be trending towards a general practice that airlines, reluctant or unable to raise base fares, are seeking compensation in additional revenue derived from ancillary services. It is a lesson full-service airlines are humbly learning from low-cost carriers, except that it is only one side of the equation. For Air Canada, it is a worse problem of being seen to be carelessly and indiscriminately following a practice just to be in line with US carriers south of the border.

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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