CANADIAN CARRIERS FACING TURBULENCE

A growing reluctance by consumers to spend on air travel means Canadian air carriers are facing declines in both industry profits and profit margins this year, according to The Conference Board of Canada’s Industrial Outlook: Canada’s Air Transportation Industry-Summer 2013. “The industry is going through a period of slow growth in passengers, a direct result of a slowdown in consumer spending. That said, revenues will still grow by 5% this year, thanks largely to fare increases,” said economist Kristelle Audet (pictured).

Airfares are expected to grow by 3.6% in 2013, but airlines’ pricing power is fading because Canadians are tightening their household budgets. Airline traffic is growing at a slower pace than in 2012. In particular, Canadians made fewer leisure trips overseas at the beginning of the year. Canadian airlines are investing more resources in their social media strategies to manage their brands and reputations online. In the first quarter of this year, household spending on air transportation services posted its first year-over-year decline since 2009. A combination of high indebtedness, weak consumer confidence, and sluggish job creation is putting pressure on household budgets.

The outlook is somewhat brighter for work-related travel, because the US economy recovery offers opportunities for Canadian exporters, and business travel between the two countries could climb as a result. One area with bright growth prospects is inbound travel from China, which will grow even further with the expanded Canada-China air transport agreement. However, the ongoing strike by Canadian foreign-service officers is a concern for the industry, because of a reduction of visa processing around the world. The Canadian industry is expected to turn a profit of $290 million in 2013. Profit margins are expected to decline from 2.5% in 2012 to 1.3% in 2013. Air transportation is one of 16 industries covered in the Conference Board’s Industrial Outlook series of economic forecasts.