Ancillaries have gone from one-off add-ons to revenue behemoths for the airlines and now, smarting from rising fuel costs, many airlines are opting to bump up ancillaries – most recently, fees ...
CALGARY — While we won’t know the full cost of Swoop charges and destinations until February – when tickets for WestJet’s new ULCC go on sale – the discount airline has made its target markets clear: millennials, young families and frugal travellers.
Speaking to the media and investors yesterday at WestJet’s Investor Day presentation, WestJet Executive Vice-President Bob Cummings, who is overseeing Swoop’s launch, says about 60% of Swoop passengers are expected to fly for leisure travel, 30% to visit friends and family and 10% for business or in groups.
“The core of the brand is going to be low fares and enabling people to travel that wouldn’t be able to travel otherwise or travel more often,” said Cummings.
Earlier this fall WestJet said it expects to offer fares for Swoop that are about half the level of WestJet’s fares. Ancillary revenues meanwhile are set to double. WestJet estimates the net savings should be 30 to 40%.
Cummings said yesterday that WestJet “ripped apart” discount airline models used in the U.S. and Europe and looked at lessons they learned when designing Swoop.
The key is to cut costs to their absolute lowest by outsourcing jobs where possible, obtaining low airport charges and restricting sales to online transactions.
However WestJet sees opportunity in eliminating the need for Canadian travellers to cross the border to access cheap fares.
Fares from Canadian airports like Hamilton and Abbotsford, B.C. are expected to be similar to those at U.S. border airports, while saving hours in traffic.
“We believe this is a substantive tried and true opportunity for us to go after,” Cummings told analysts.
Swoop will compete against Flair Airlines, which said this week it was lifting carry-on fees, Canada Jetlines and the prospect of Air Canada Rouge and FlyToo joining the field.
Meanwhile WestJet is going after business and international travellers by adding premium cabins with hot food, Boeing 787 Dreamliners for global destinations and new lounges at key airports such as Calgary, Vancouver and Toronto.
The partnership, which has yet to be approved, is expected to be in operation in the first half of 2019. It would increase travel choices between Canada and the U.S. along with enhanced frequent flyer benefits.
WestJet and Delta said their preliminary agreement anticipates co-ordinated schedules for new destinations and expanded codesharing.
The deal with Atlanta-based Delta was announced as WestJet unveiled financial targets through 2020 that analyst Doug Taylor of Canaccord Genuity said “echo well-received guidance provided by Air Canada several months ago.”
“We believe this guidance should be seen positively on the margin as it confirms that WestJet’s multiple expansion programs are not going to come at the expense of near-term profitability and balance sheet,” Taylor wrote in a report.
WestJet said it expects annual revenues will increase by between $300 million and $500 million through 2022 from ancillary fees, an enhanced revenue management system and broadened fare products.
It has also identified annual cost savings opportunities of $140 million to $200 million over the five years from fleet reconfigurations, airport operations cost savings, optimized maintenance plans, digital self-service and sales and distribution channel efficiencies.