Canadian airlines aggressively boosting capacity
Competition to get fiercer with low-cost rivals, report says
TORONTO • The Canadian airline industry will remain aggressively competitive in 2017, led by doubledigit capacity growth at Air Canada, according to a new global airline outlook from Moody’s Investors Service.
Air Canada is scheduled to receive nine new Boeing 787 aircraft this year, resulting in its second straight year of capacity growth approaching 20 per cent, Moody’s said in the report released Tuesday.
WestJet Airlines Ltd. is expected to expand its capacity by a more modest five per cent.
As the number of available seats on Canadian airlines continues to grow, and as new entrants such as NewLeaf Travel Co. Inc. continue to shake up the market, competition will get even fiercer, Moody’s said.
“We anticipate that each carrier will aggressively defend their franchises,” the report says, pointing to recent moves by WestJet to squeeze NewLeaf out of the market. When NewLeaf announced service to Phoenix, from Calgary and Edmonton, WestJet promptly followed suit and NewLeaf soon cancelled its own plans.
In an investor presentation last week, WestJet chief financial officer Harry Taylor said WestJet wants to maintain its status as Canada’s only low-fare airline.
“We like to think of ourselves as Canada’s low- fare airline and we don’t want to concede that turf, that reputation,” he said. “( When we launched) 20 years ago, people didn’t react to us, didn’t take us seriously. … We are not going to let ourselves do that.”
On Tuesday, WestJet al s o launched non-stop service between Winnipeg and Hamilton, Ont., another route that NewLeaf flies, and the airline has said it wants to buy more wide- body aircraft for its international routes.
“WestJet will also grow its international network more quickly in 2017 after the carrier reached a new contract with its pilots in December 2016, which is important because low-cost carriers from Europe, such as Norwegian Air Shuttle and/or WOW Airlines from Iceland are likely to add or expand services to Canada within the next two years,” Moody’s said.
For the global airline industry as a whole, Moody’s maintained its stable outlook but said it expects operating margins and operating profits to fall over the next two years as capacity grows faster than demand.
The ratings agency forecast that the global industry’s aggregate operating margin will fall to 9.3 per cent in 2017 and eight per cent in 2018 from a projected 10.8 per cent in 2016. Aggregate operating profit is expected to contract by about 11 per cent in 2017 and 12 per cent in 2018.
Global capacity is expected to increase five to six per cent in 2017, outpacing passenger demand growth by about half a percentage point.