Fuel costs most affected by declining Canadian dollar: WestJet CFO

Washington DC
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A bulk of the financial impact from the rapidly declining Canadian dollar will be related to fuel costs, says WestJet’s chief financial officer and executive vice-president finance Vito Culmone.

“For us, the sensitivity is every one cent movement or de-valuation in the Canadian dollar is a C$14 million ($12.65 million) negative impact to our operating cost,” says Culmone, speaking during the CIBC Whistler Institutional Investor Conference in British Columbia. “Two-thirds of that is effectively coming through the fuel line [item],” he adds.

WestJet spent about C$267 million on fuel charges in the third quarter of 2013—a 10.3% increase from the previous year’s bill.

The declining Canadian currency can also impact aircraft leasing expenses, however WestJet will not feel the full effects of this in 2014 because those costs are hedged a year out, he says.

The declining dollar could eventually affect fares if it continues to be an issue, says Culmone.

“This will have no impact on us obviously from a strategic perspective and where we’re headed,” he says. “But clearly, if it persists we’ll need to use yield to offset it and protect our margins going forward, and that’s something we’re prepared to do of course.”

Unlike some other Canadian tour operators, WestJet Vacations will not add a blanket surcharge to ticket prices to make up for the weakening currency impact, says Culmone.

One of those airlines is charter operator Air Transat, which says it will add a $C35 surcharge per passenger for vacation packages and flights to Florida and sun destinations. Sunwing and Air Canada Vacations also plan to implement fees, reports in the Canadian media say.