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 also 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. bringing back into the U.S. (even before taking office), with all of the new auto plants coming back into our country ... I believe the people are seeing ‘big stuff,”’ he wrote.

His tweet was only partially true. No automaker has announced plans to build a new U.S. factory in recent years, but jobs have been added at existing plants.

On the eve of the Detroit auto show last week, GM CEO Mary Barra said the company has no plans to change where it produces small cars in light of Trump’s threats. Trump threatened GM with a tax for importing some Chevrolet Cruze hatchback compact cars from Mexico. Most Cruzes sold in the U.S. are sedans built in Ohio.

GM said it has invested more than US$21 billion in the U.S. and created 25,000 jobs, including 19,000 white-collar and 6,000 bluecollar positions since it left bankruptcy protection in 2009.

Hyundai said Tuesday it will significantly increase its investment in the U.S. while Trump is president and is considering building a new U.S. factory. It didn’t provide details and denied that political pressure was behind the company’s announcement of a US$3.1 billion U.S. investment plan by 2021.

Earlier this month, Ford announced it had scrapped plans to build a new US$1.6 billion smallcar factory in Mexico while Fiat Chrysler announced a US$1 billion investment plan in its two U.S. factories.

Although Ford announced plans for 700 new jobs in Michigan, it still plans to build the compact Ford Focus in Mexico, but at an existing factory. Jobs at the plant that now builds the Focus in suburban Detroit will remain because the plant will build a new SUV and small pickup truck.