TORONTO (Reuters) - Canada's WestJet Airlines Ltd (WJA.TO) said on Monday it will start charging some economy passengers for their first checked bag, sending its stock, as well as the shares of rival Air Canada ACb.TO, up more than 6 percent.
BMO Capital Markets analyst Fadi Chamoun said the change is likely to boost WestJet's earnings, and that Air Canada is likely to follow suit with a similar fee, strengthening its own results.
In a note to clients, Chamoun said the bag fee could hurt demand, but "the demand environment is currently strong and we sense that a first bag fee will be significantly accretive to earnings."
WestJet expects the change to affect about one-fifth of its customers. The C$25 fee will apply to new "Econo" bookings for trips on, or after, Oct. 29, within Canada and between Canada and the United States. Other international flights are exempt
Air Canada ACb.TO currently charges economy passengers C$25 for their first checked bag to and from the United States, but not within Canada.
Asked whether Air Canada is considering adding a first bag fee on domestic flights, company spokesman Peter Fitzpatrick said: "We are always monitoring industry developments such as this with great interest. We will evaluate it going forward."
Fees linked to baggage, advance seat selection and other options are a growing source of revenue for airlines.
RBC Capital Markets analyst Walter Spracklin said he expects Air Canada to quickly follow WestJet's lead.
"While Air Canada currently charges for first bags on U.S. transborder segments ... management has been reluctant to do so on domestic routes where WestJet previously did not do so," he wrote in a note to clients.
WestJet Chief Executive Officer Gregg Saretsky said on a conference call in July that the airline was considering introducing a new bag fee, and would likely make a decision by the end of the year.
WestJet shares rose 6.1 percent to C$32.55 on the Toronto Stock Exchange, while Air Canada rose 6.1 percent to C$9.00.
Editing by Jeffrey Benkoe; and Peter Galloway