Canada’s airlines need global travelers

The report card on Canadian airlines still shows an industry in rough shape, with minimal stability. After making $1.7-billion in 2010, the industry lost $900-million last year, and is projected to fall short of breaking even in 2012.

In all the coverage of this saga, there is often a focus on costs, such as fuel and labor. And it’s easy to see why. Last year total costs jumped almost 30 percent, with double-digit increases in labor, materials and capital.

What you don’t see much about is revenues, aside from the usual chatter about people flying less when the global economy drifts on to the rocks. A new study from the Conference Board of Canada, though, highlights a crucial theme for Canadian airline revenues: international travel. Over the past decade, the number of Canadians flying overseas has grown about 6 per cent annually, creating one of the industry’s dominant growth drivers.

The problem now is that much of those gains came as the Canadian dollar got stronger, prompting fliers to change their habits. If we stay at or around par for a few years, will we have more of an incentive to fly overseas? On the flip side, there is “close to no growth in the number of international tourists coming to Canada over the past decade,” according to the report.

Factoring these problems into its models, the Conference Board predicts the industry’s real output growth to average 3.1 percent in the near future, half of what it saw since 2005, if you take out the Great Recession.

The airlines, for their part, are doing what they can to stay ultra-competitive. Air Canada is looking to launch a low cost carrier, and both WestJet and Porter have signed interline and code-sharing agreements. (Interline agreements allow one airline to sell flights involving multiple airlines, and code-sharing allows multiple airlines to sell space on the same flight.) WestJet has already signed big deals with American Airlines, KLM and British Airways.

But for now, there is still so much uncertainty and uneven growth. Over the past year, WestJet is up about 27 percent. Air Canada is down almost exactly that amount.

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