TORONTO — Best efforts to strike the delicate balance of supply and demand play out every winter in the Canadian airline industry.

Now that the 2023-24 winter travel season is well underway, the question is – did the airlines get it right?

Expanded route networks from just about every Canadian carrier, plus growth from newer entrants like Canada Jetlines and low-cost carrier Lynx, has travellers in this market spoiled for choice when it comes to lift to top sun destinations.

The good news? Strong post-pandemic demand for travel continues to fuel bookings.

However mild winter weather so far across much of Canada, thanks to El Nino, means airlines and tour operators haven’t been able to rely on the usual uptick in calls and bookings prompted by winter weather, as many parts of Canada are only now starting to see snowstorms and cold temps.

“SIGNIFICANT OVERCAPACITY”

Travelweek asked aviation industry expert John Gradek for his take on overcapacity concerns this winter.

“The continued capacity growth of the Canadian ultra-low cost carriers in both Canadian and sun markets has kept prices at one of its lowest levels in years,” said Gradek. The glut affects primarily the sun operations in the air-only segments, due to lack of ground packages, he added.

“The traditional sun operators of Sunwing, Transat and Air Canada have bolstered their capacity in response to these new sun entrants, thus my view of significant over-capacity for this winter season,” said Gradek.

He added that Porter Airlines’ increased E195-E2 fleet has given them significant presence in both traditional as well as sun North American markets like Mexico, Florida and Jamaica, “all beneficiaries of such capacity increases.

Asked if the Canadian air travel market can sustain so much capacity, Gradek says low prices will attract even more Canadian vacationers, who rarely need much of a nudge to escape winter for sunny climes, even with money concerns. “If we consider the potential downward pressure of airfares of all of these carriers attempting to fill their planned seats with hyper-competitive pricing action, Canadians will respond well, as they always have. Disposable income, however, and continued economic headwinds will most likely temper somewhat this price-stimulated demand,” he said.

However airlines can only sustain low yields for so long, and that’s why he wouldn’t be surprised by the consolidation or closure for one or even two of Canada’s carriers, echoing predictions from Porter CEO Michael Deluce last month.

“The economics of such fare action will quickly be felt by those carriers with the weakest financial strength and I expect at least one, or potentially two, carriers not being able to withstand competitive pricing action, resulting in either consolidation or failure,” said Gradek.

WHAT TO WATCH FOR IN 2024

We also asked Gradek for three things to watch for in the Canadian airline industry in 2024.

“I always answer this type of question with a lot of caveats and disclaimers,” he tells Travelweek. “But 2024 looks to be a year where 2024 growth plans already announced by carriers such as Porter and the ULCCs are already showing signs of being overly optimistic. Projected fleet sizes by both Flair and Lynx have been reduced, while Canada Jetlines continues to search for their appropriate niche services.”

He added: “Porter appears to remain quite aggressive with its fleet deployment as well as order books, and they are in my opinion the carrier with a survival strategy that is well balanced. Their recent agreements with Transat and Alaska Airlines appear to demonstrate their understanding of the need for market coverage in both North Atlantic and sun markets as well as transborder North American markets. Porter will be the carrier to watch financially and operationally as well, with significant cash and staff requirements to integrate the planned new aircraft into the 2024 plan.

When it comes to policy, Gradek says the new generation of the Air Passenger Protection Regulations (APPR) and the associated dispute resolution process will continue to make headlines in 2024. “The amendments proposed by the Ministers of Transport in 2023 will come into effect in the coming months and the commercial aviation community will step up its insistence that there is no value in penalizing entities for actions that have been caused by multiple aviation parties. We are seeing retrenchment by the European Union on their respective APPR-type provisions and these modifications will most likely be debated in Canada throughout 2024.”

And because there’s never a dull moment in the airline industry, Gradek includes four more points in the ‘watch this space’ category …

• “The 10-year interval between reviews of the Canada Transportation Act and its ancillary Acts will most likely be launched. The 2016 Emerson report reaffirmed Canadian government policies with respect to infrastructure and operations. However, the COVID-19 pandemic has highlighted a number of practices that need to be addressed, some more urgently than others. My concerns are focused on Canadian airport governance and the need to invest in airport refurbishment and technologies to maintain our position as a leading global aviation environment. Another is the need to review the role of Transport Canada as both regulator and administrator of commercial aviation. Time might be near to recognize a formal delineation of government authority to ensure impartiality and economic decision-making.”
• “The aviation emissions conversation will get more heated in 2024, with greater pressure to reduce greenhouse gas emissions on a much faster scale than the “net-zero by 2050” mantra currently being espoused by the industry. There will be a greater emphasis placed on ‘zero’ emissions rather than ‘net-zero’ emissions. The SAF (sustainable aviation fuel) initiative will be under the microscope as the debate on climate-change-induced constrained food supply keeps agricultural land from being used for aviation fuel sources. And hydrogen becomes mainstream as a mid-2030s aviation fuel, coupled with corresponding aircraft designs.”
• “The rush to commercialize ‘touch-less’ passenger processing and the mainstreaming of dynamic airfare pricing are technology platforms that will get consumer protection advocates excited, requiring cautions similar to the ones we are experiencing with the rush to Artificial Intelligence applications in any number of industries. Personal data security and the extent of electronic data capture by the aviation industry will come under review.”
• “Loyalty programs will be challenged by new entrants as unfair competition and regulators will be called upon to examine these programs as tools restraining fair competition. A long-shot issue, but you never know.”