Air Canada said on Thursday it will be the first major North American carrier to drop its extra fee for a second piece of checked baggage in response to the recent drop in fuel prices.
However, with Canada’s economy slowing and a round of staff and capacity cuts looming, Air Canada’s move is more a signal of its desire to boost competitiveness with rivals than a sign of the end of tough times in the sector, one analyst said.
It had joined numerous other airlines in implementing a C$25 ($23) charge for extra bags this spring as oil prices headed to highs above $147 a barrel. Crude has since dropped by a third to below $100.
Air Canada said it will scrap the fee on September 23.
“It is fair to say that we are always going to be competitive in our markets. Because we have seen some retreat in the fuel prices of late, we’ve made the decision to reinstate our previous baggage policy,” Air Canada spokeswoman Angela Mah said.
Its chief competitor, WestJet Airlines Ltd , did not impose extra baggage fees.
Air Canada also said on Thursday it will incorporate fuel surcharges into its advertised fares on North American flights rather than tacking them on after.
It has been adding a fuel surcharge of C$20 to C$60 per one-way fare on Canadian and U.S. routes.
“With consumer confidence dropping and with the economy slowing down, certainly in central Canada and Atlantic Canada, Air Canada’s trying to be as attractive as they can with a product to offer what’s likely to be a smaller group of consumers,” said Rick Erickson, who heads independent airline consultancy RP Erickson & Associates.
The airline, whose stock has been under severe pressure along with much of the industry, said in June it will cut 2,000 jobs and 7 percent of its capacity in this autumn and winter schedules to cope with record fuel costs and the weaker economic outlook.
Its biggest cuts will be in routes between cities in Canada and the United States.
Erickson said it is unlikely the lower fuel costs will mean a big jump in third-quarter profit, with oil having just fallen below $100 a barrel this week, but it could be a big story for the fourth quarter.
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