Air Canada employees check in travellers at Pearson International Airport in Toronto. Kevin Van Paassen/The Globe and MailKevin Van Paassen/The Globe and Mail
Canada's two largest airlines are lowering airfares slightly after running into consumer resistance to price hikes.
Airline industry observers say that means travel bargains could emerge this fall and winter, particularly if oil prices continue to soften.
Last month, there were more empty seats on planes of Air Canada and WestJet Airlines Ltd., following a series of fare increases since the beginning of the year.
"Pricing power for Canada's airline industry appears to have reached its limit and demand is now starting to suffer," says Ben Cherniavsky, aviation analyst for Raymond James Ltd.
A domestic airfare index released by Raymond James shows that a basket of lowest-available ticket prices on selected routes in peak and off-peak hours, booked June 15 for travel six weeks later, slipped an average of 2 per cent at both Air Canada and WestJet, compared to a year earlier.
The decline followed five consecutive months of increases as the two carriers raised fares several times to combat climbing jet fuel expenses.
The Raymond James index tracks advance prices, excluding taxes and various fees, on a sample of domestic routes to help gauge general trends. In the latest survey, for instance, WestJet's one-way fare for Ottawa-Vancouver during off-peak times in late July was $264, down from $269 a year earlier. In another example, Air Canada charged $169 for a peak-time Toronto-Halifax flight, compared with $174.
By contrast, in February, prices for WestJet surged 46 per cent over the previous year, while Air Canada jumped 34 per cent, according to the index.
Air Canada's passenger load factor, or the proportion of seats filled by paying customers, fell to 84.2 per cent in June, compared with 84.7 per cent in the same month of 2010. WestJet had a load factor of 75.7 per cent in June, down from 78.2 per cent a year earlier.
"June's lower loads are also likely a function of the reacceleration of capacity growth in the domestic market," Mr. Cherniavsky said in a research report Wednesday.
In May, WestJet and Air Canada increased service in the Toronto-Montreal-Ottawa corridor, known as the Eastern Triangle, competing against Porter Airlines Inc. And in June, WestJet began shifting service from sun destinations in Mexico and the Caribbean to Canadian cities, a traditional seasonal change.
Airfares also tend to decline after Labour Day, once the busy summer travel season is over.
The shortfall in anticipated revenue caused by lower fares at Air Canada and WestJet in the second half of 2011 will be alleviated by retreating oil prices, Mr. Cherniavsky wrote.
Energy experts at Raymond James estimate that prices for benchmark West Texas intermediate crude oil will average $95 (U.S.) a barrel in the second half, a drop of $10 a barrel from their previous forecast. For airlines, that spells relief.
Montreal-based Air Canada endured a three-day strike in June, which prompted some travellers to switch reservations to the Calgary-based WestJet, but RBC Dominion Securities Inc. analyst Walter Spracklin said he sees only limited gains by WestJet.
WestJet will get a boost in the longer term from signing partnerships with foreign carriers, including forging closer ties with Atlanta-based Delta Air Lines Inc. through a planned "code-sharing" pact, Mr. Spracklin said.
In February, WestJet added Delta to its growing number of "interline" arrangements, whereby WestJet and foreign carriers co-operate on flights and baggage handling.
WestJet has a list of 12 partners, after adding recent interline pacts with Shanghai-based China Eastern, Hahn Air of Germany, Japan Airlines and Australia's Qantas.
Brent Jang