Believe it or not, the cost of an airline ticket in Canada was a relative bargain this year compared to the last several if you could manage to strip away all those new fees airlines have layered on, according to experts.
A major reason why is because Air Canada and WestJet, the country’s two biggest airlines, have been busy aggressively adding “capacity” or flights on new and existing routes as they take advantage of super low fuel prices to try and grow their businesses.
Despite sluggish economic conditions, the airlines have boosted capacity by seven per cent this year compared to last. In order to fill those seats, the airlines have nudged base fares lower, experts suggest.
“We believe both carriers are deploying a great deal of price discounting to keep flights full,” analysts at financial services firm Raymond James said in a new research note.
“We have seen this both anecdotally, with lots of different seat sales and promotions offered lately and empirically, with our monthly domestic airfare survey declining yet again in November,” they said.
And the airlines are continuing to put more seats in the sky. A recent report from National Bank Financial suggests Canadian airlines as well as big tour operators such as Transat have boosted capacity to and from sun destinations this winter by 8.8 per cent over last year.
Sharply cheaper fuel prices are at the heart of the expansion efforts, with each operator believing they can continue to make money and add capacity so long as oil remains at such low levels.
Oil prices are only expected to rebound to about $60 by late next year, while a slower economy will serve as another incentive for the airlines to keep base ticket prices in check, experts suggest.
“We believe [airfare] yields are poised to fall again in 2016 since capacity growth between Air Canada and WestJet is forecast to accelerate while the economy remains sluggish,” Raymond James analyst Ben Cherniavsky said.
“In a commoditized business like the airlines we believe it stands to reason that prices will fall when supply exceeds demand.”
WATCH: The days of flying with all the perks are long gone. A la carte pricing has taken over with airlines finding more ways to boost the bottom line. Sean O’Shea reports.
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