The market for transatlantic flights is going to be “ultra-competitive” come july 1st with 15.5 per cent more capacity on Canada-to-Europe routes, according to a brand 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 ability to the town by 14.1 percent.
“In our view, it is really an irrational situation which will inevitably lead to affordable prices,” National Bank analyst Cameron Doerksen wrote inside a note to clients.
There is clearly a danger that pricing must be very aggressive if the planned capacity will be filled
In an analysis of airfares on specific routes in mid-July, Doerksen discovered that average prices on the Toronto-London route were down 11 per cent. Montreal-Paris flights were also significantly cheaper, with fares down 7 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 if the airlines will be able to fill 15 percent or more seats without having to significantly discount prices (and damage profitability) to stimulate traffic,” he wrote.
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In order to fill 15.5 percent 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’s clearly a risk that pricing must be very aggressive if the planned capacity will be filled.”
Of the three airlines that Doerksen follows, Transat AT Inc. is easily the most subjected to Europe, with 60 per cent of its revenue coming from transatlantic markets in the summertime. Air Canada’s expansion and WestJet’s launch appear to be “squarely aimed at taking market share from Transat,” Doerksen said.
