Canadian household spending on air transportation in the first quarter of 2013 posted its first year-over-year decline since the recession, says a new report.
And consumers aren't likely to increase their holiday travel spending much this year, says the Conference Board of Canada study.
"A combination of high indebtedness, weak consumer confidence, and sluggish job creation is putting pressure on households' budget," says the think tank.
Helping offset that negative outlook is stronger expected business investment in the United States in the near-term, indicating brighter prospects for Canadian exporters and potentially more business trips across the border, to the benefit of Canadian airlines, according to the analysis.
Airlines have been reducing capacity in light of fewer overseas leisure trips by Canadians at the beginning of the year, the report found.
The number of passengers on international routes – other than to or from the U.S. – fell by 1.5 per cent during the first half of this year, it says.
One bright note is the 20-per-cent increase in the number of visitors from mainland China so far in 2013, the study says.
Overall this year, price hikes of 3.6 per cent should result in a 5-per-cent increase in Canadian airlines' revenues this year, but price growth will be constrained in 2014, says the report.
"Given Canadians' tight budget constraints, airlines' pricing power is fading, which will limit the price increase to just over 1 per cent next year."
The think tank forecasts that the airline industry will remain profitable this year, but with a slight decline in profit margins compared with 2012.