‘Ultracompetitive’ transatlantic market will prompt lower fares: analyst
TORONTO — The market for transatlantic flights will be “ultracompetitive” this summer with 15.5 per cent more capacity on Canada-to-Europe routes, according to a new analysis by National Bank.
London will be the most competitive market by far, with WestJet Airlines Ltd. launching flights from six Canadian cities in the spring and Air Canada increasing its capacity to the city by 14.1 per cent.
“In our view, this is an irrational situation that will inevitably lead to lower prices,” National Bank analyst Cameron Doerksen wrote in a note to clients.
In an analysis of airfares on specific routes in mid-July, Doerksen found that average prices on the Toronto-London route were down 11 per cent. Montreal-Paris flights were also cheaper, with fares down seven per cent year-over-year.
While lower fuel prices are allowing airlines to lower prices without necessarily hurting profitability, Doerksen said the 15.5 per cent capacity increase could force “very aggressive” discounts.
“Our major concern for the summer is whether the airlines will be able to fill 15 per cent or more seats without having to significantly discount prices (and damage profitability) to stimulate traffic,” he wrote.
In order to fill 15.5 per cent more seats, 667,000 more people will need to take a return trip between Canada and Europe this summer, Doerksen said.
“Lower fuel prices will support some price stimulation, but there is clearly a risk that pricing will have to be very aggressive if the planned capacity is to be filled.”
Of the three airlines that Doerksen follows, Transat AT Inc. is the most exposed to Europe, with 60 per cent of its revenue coming from transatlantic markets in the summer. Air Canada’s expansion and WestJet’s launch appear to be “squarely aimed at taking market share from Transat,” Doerksen said.