WestJet winning market share from Air Canada / voyages

By Scott Deveau, Financial Post


Canadian airlines reported strong passenger demand in July as the busy summer season kicked off, but analysts cautioned the news was not all good for Air Canada, which is to report second-quarter results Wednesday.
 
Observers said Canada's largest carrier seemed to be losing market share to WestJet Airlines Ltd. on its U.S. transborder and domestic routes and experiencing weakness across the Atlantic in part due to the Olympics in London.
 
Both WestJet and Porter Airlines Inc. said Tuesday they set new records filling planes in July, while Air Canada came just shy of the record it set for the month last year.
 
As a result, the domestic market as a whole saw traffic grow in the low single digits in July, said Fadi Chamoun, a BMO Capital Markets analyst.
 
"Aircraft are generally flying at, or near, full capacity and there is little to no capacity addition, particularly in the Canadian domestic market," he said in a note to clients.
 
The tight capacity and strong demand should help bolster profitability in the third quarter, he said.
 
But he added WestJet also appeared to be winning some market share from Air Canada in the domestic market and on its U.S. transborder routes.
 
"The additional capacity WestJet has put into Chicago and New York is probably taking market share from some of the Air Canada capacity that was deployed there," Mr. Chamoun said. "Domestically, they're also starting to get some [market] share also. But it's hard to say how much."
 
He said he expected the trend to continue in the coming quarters with WestJet adding "premium economy" seats and launching its new regional carrier next year.
 
WestJet's record July load factor of 85.3% was up 3.7 percentage points from the year-ago period on the back of a 6.6% traffic increase and a 2% capacity gain.
 
Porter, meanwhile, also reported a record July load factor of 70.1%, up 3.3 percentage points, after traffic improved 18% on capacity increases of nearly 13%.
 
Air Canada, by contrast, said its own load factor slipped by half a percentage point in July from the record it set last year to 85.9% as traffic fell 1% and capacity shrank by half a per cent as well. Calin Rovinescu, Air Canada chief executive, said the near-record was a result of the carrier's "disciplined approach to capacity management."
 
But the airline noted its traffic improved just 1.1% in the domestic market, and declined 0.7% on U.S. transborder routes year over year during the month.
 
Its traffic across the Atlantic also fell 4.4%, outpacing its capacity declines of 2.2%.
 
Canaccord Genuity analyst David Tyerman said he agreed that WestJet was likely taking share from Air Canada, in particular on the new U.S. routes. At the same time, he said, he believed the state of the European economy and the Olympics were also dragging on its numbers across the Atlantic.
 
He noted Willie Walsh, chief executive of British Airways PLC's parent International Airlines Group, has been warning that the Olympics in London may soften demand for travel to England this summer, based on the experiences of other host cities. There has also been more competition over the Atlantic and the struggling European economy has weighed on travel.
 
But the Olympics in London will likely be detrimental to the number of business travellers bound for the city as they try to avoid the chaos of the Games, Mr. Tyerman said.
 
"While they expect to have a lot of tourists, they were going to lose the business traveller and that's pretty important from a profit standpoint," Mr. Tyerman said. "At the same time, you might have had a lot of people stay away. If you were fearful that the transit wasn't going to work and things like that, you might not go there."