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Oct 30, 2018

For the price of a cup of coffee: WestJet tries to balance perks with profitability

Higher fuel costs, lingering impact of labour concerns weigh on WestJet

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WestJet Airlines Ltd.’s chief executive officer said giving its passengers a free cup of coffee is a small perk, but one that can make a big difference to an airline’s profitability.

“In some ways removing that cup of coffee does remove the romance of travel,” Ed Sims told BNN Bloomberg on Tuesday, in response to Porter Airlines’ decision to discontinue its free coffee service at Toronto’s Billy Bishop Airport last week. “In other ways, it reflects that these days we have to be incredibly scrupulous about what our guest wants to pay for within their ticket.”

Despite addressing the cost constraints of a rival airline, Sims said that WestJet, which saw its third-quarter profit fall by $90 million on a year-over-year basis, must juggle even seemingly small costs to maintain profitability.

“Increasingly, the market is moving towards the guests determining themselves, on a user-pays basis, what they choose to spend their money on,” Sims said.

“Very often the margin, believe it or not, even operating a domestic jet from Calgary to Toronto, can be as thin as two cups of coffee.”

WestJet shares ended Tuesday trading flat at $19.12, after sliding as low as $18.41 in early trading.

Sims said that the threat that WestJet’s pilots could go on strike also hurt the airline’s business earlier this summer.

“Given that the booking curve often extends from potentially a day before travel to anything to six months out, we did feel the impact of that pilot’s strike threat in the third quarter,” he said.

Fuel costs, which the airline reported had risen 37.1 per cent on a per-litre basis from last year, also contributed to the company’s decreased profits. Sims noted that maintaining the value WestJet provides its customers amid rising fuel costs can be a balancing act.

“We’re very, very conscious of trying to make sure that flying within Canada, flying to the U.S., trans-border, flying to international sun destinations remains competitive,” Sims said, adding that the airline has had to reduce capacity and increase checked baggage fees in order to maintain competitive fares.

“But we have to make sure that WestJet as a business is sustainable for the long-term, and that we can continue to build great value into the fares, even while we’ve had that 40 per cent fuel spike.”

- With files from The Canadian Press

 

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