Canadian Airline Industry Growth Decreasing Altitude In 2018

OTTAWA, April 19, 2018 /CNW/ - Last year, Canadian airlines met record demand with increased capacity, which allowed the industry to expand by 11.3 per cent. However, growth is expected to moderate to 4.9 per cent this year, according to The Conference Board of Canada's latest Canadian Industrial Outlook: Canada's Air Transportation Industry.

"Some of the main tailwinds Canada's air transportation industry has benefited from in the past two years, primarily low fuel costs and a weaker loonie that is bolstering U.S. and foreign demand, will slowly reverse themselves over the next five years. But, this shouldn't put the industry's expansion and ongoing profitability at risk," said Sabrina Bond, Economist, The Conference Board of Canada.

Highlights

• Canada's air transportation industry is expected to grow by 4.9 per cent in 2018.
• Higher oil prices will lift the cost of jet fuel and weigh on industry profitability over the forecast.
• Pre-tax profits in Canada's air transportation industry are expected to reach $1.3 billion in 2018.

Demand for air transportation services is forecast to continue its upward march, particularly in light of strengthening labour markets both in Canada and south of the border. Canadian airlines are expected to continue expanding their domestic and international seat capacity and number of flights across all geographic markets, which has been a critical driver of improving financial performance for the industry's largest players.

The industry's improving financial performance and more relaxed foreign ownership allowances under the Canada Transportation Act are now enticing new entrants into the Canadian market. However, established airlines appear willing to lower their prices to edge out these new players in the ultra-low-cost carrier market. As a result, they may struggle to gain the necessary market share to sustain their operations long term. While this may result in lower air fares in the near term, fuel costs will increase steadily over the forecast and will eventually drive prices higher starting in 2019.

Industry costs are projected to increase steadily over the next five years. Fuel costs, which account for about a third of air carriers' costs, will rise alongside oil price increases. At the same time, labour costs will also continue to grow as new and expanded routes are staffed. In fact, the industry's labour force is expected to increase by more than 6,000 jobs over the next five years.

While output growth may be slowing, the industry's pre-tax profits are still expected to reach a healthy $1.3 billion in 2018, down slightly from $1.8 billion last year.

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SOURCE Conference Board of Canada