OTTAWA — The Canadian airline industry will continue to soar this year, says The Conference Board of Canada, with pre-tax profits expected to hit $1.5 billion.
According to the Board’s latest ‘Canadian Industrial Outlook: Canada’s Air Transportation Industry’ report, lower oil prices and the weaker Canadian dollar boosted the industry’s bottom line to record levels in 2015. Even though industry profitability is expected to subside from the record highs starting in 2016, pre-tax profits will remain very healthy over the next four years.
“The two biggest economic stories of 2015 – low oil prices and a weaker loonie – have wreaked havoc on Canada’s economy but have been a net positive for Canadian airline transportation,” says Todd Crawford, Senior Economist at the Conference Board. “However, it’s not all blue skies. Canadian air carriers are also contending with a weak domestic economy, which should restrain consumer spending and business travel. At the same time, new competition, particularly in the ultra-low-cost carrier segment, is heating up.”
The lower Canadian dollar has been a boon for Canadian airlines; a weak dollar lowers the incentive for Canadians to fly out of U.S. airports as the cost of doing so is now significantly higher. Moreover, fewer Canadians are flying to U.S. destinations and opting to stay within Canada for leisure travel.
Last year, the number of Canadians flying to the U.S. decreased for the first time since 2009. With the value of the loonie currently well below the average of 2015, further declines in 2016 are likely.
The biggest boost for the airline industry from the weaker currency has come from the jump in the number of U.S. visitors flying to Canada. Last year, the number of U.S. trips by plane reached a new record at slightly more than 4.5 million. The number of U.S. visits to Canada will continue to increase over the next four years, though the rate of growth is expected to slow from the pace seen over the last two years.
Crawford goes on to note, however, that despite the low loonie, “the number of U.S. visitors to Canada did no grow as fast as expected last year.” On the upside, Canada’s accommodation industry should see better results this year, as Americans are expected to react more favourably to a lower dollar. Profit margins should remain relatively low reaching 4.2% by the end of the year, well below the average of the last five years. However, as investments made in the last five years begin to pay off, revenues will increase faster than costs and the profit margin will make up ground, moving close to 6% in 2019 and remaining there through 2020.