Canada’s Big 3 Airlines Play To Their Strengths

Although Canada often takes a back seat to the U.S. in North America’s market, the reality is Canada was dynamic before the COVID-19 pandemic. Now, the country’s major airlines are evolving to ensure they maintain their edge.

Canada’s second largest airline, WestJet, made a surprise move in 2019 when it agreed to be purchased by private equity firm Onex for C$5 billion ($3.6 billion). Prior to the purchase, WestJet had launched its ultra-low-cost carrier (ULCC) subsidiary Swoop, was managing its regional operator Encore and was in the midst of introducing Boeing widebodies to its fleet.

• Despite minor ULCC interludes, not much changes in Canada
• Mainstay carriers remain powerful

One advantage that WestJet’s former CEO Ed Sims highlighted about becoming private was the ability to escape the scrutiny of the shorter-term demands of financial markets.

Sims opted to retire at the end of 2021, and former Austrian Airlines CEO Alexis von Hoensbroech assumed the helm in early 2022. He pivoted WestJet in a different direction, opting to steer the airline back to its low-cost roots and double down on its strength in Western Canada.

The airline’s widebody fleet was capped at seven Boeing 787-9s, and WestJet chose to base its twin-aisle jets at its largest base and headquarters in Calgary, Alberta. Additionally, WestJet still operates transatlantic flights, offers transpacific flights to Tokyo’s Narita International Airport and plans to launch new service to Seoul this summer. But longer-haul flights are not the airline’s focus for the near future.

Nevertheless, the airline has not abandoned Eastern Canada permanently, National Bank of Canada analyst Cameron Doerksen tells Aviation Week. “I think they’ve sort of solidified their position in Western Canada” and now will be opportunistic in adding routes in the eastern part of the country, he says. The airline operates numerous transatlantic routes from Eastern Canada in the summer time period and this year is adding new service from Halifax, Nova Scotia, to Edinburgh, Scotland.

WestJet completed it acquisition of Sunwing in May 2023, which broadened the airline’s leisure customer base as well as boosting WestJet’s vacations business. The company is in the process of integrating Sunwing’s 18 737-800s into mainline operation while the vacation businesses of Sunwing and WestJet continue to operate separately.

Air Canada made its own effort at consolidation in Canada’s market in May 2019 when it outlined plans to acquire Transat, the parent company of Air Transat for C$190 million. The carriers opted to abandon the acquisition after the European Commission stated it would not approve the transaction.

Roughly three years later, Air Transat and Porter Airlines, Canada’s third largest carrier, are working to establish a joint venture, which still requires all the necessary approvals. The two airlines have estimated that at the 10-year deal’s full potential, Porter’s connecting flights are forecast to account for 15-18% of Air Transat’s passenger traffic, based on assumed fleet growth at both airlines.

Immediately after announcing their plans, Porter exercised options for 25 additional Embraer 195-E2 jets, which increased the airline’s firm order for the aircraft type to 75. Porter operated 26 De Havilland Canada Dash 8 Q400s and 28 E195-E2s as of mid-April, according to the Aviation Week Network’s Fleet Discovery database. The Embraer jets are the future of the airline’s fleet, allowing Porter to deepen its transborder presence and inject competition on Canadian transcontinental routes.

Doerksen characterizes the tie-up as mutually beneficial for Porter and Air Transat. It provides some international demand for Porter’s domestic routes, he says, “and for [Air] Transat, one of the things they’ve lacked over many years is the ability to feed their international routes with some domestic traffic.”

Porter appears particularly bullish about the new joint venture. The airline’s CEO Michael Deluce has stated the partnership has the potential to transform the competitive landscape in Canada, noting there will now be a stronger third option for consumers in the market.

Air Canada, the country’s largest airline, continues to capitalize on strong international demand, growing its international capacity 10% this year while domestic growth will remain flat year-over-year. The airline also is making a transpacific push, says Mark Galardo, executive vice president of revenue and network planning. “We’re still in the middle of the recovery in the Pacific and still think there’s some good opportunity there,” he says.

Even with their distinct strategies going forward, Canadian carriers are not immune to the supply chain challenges plaguing the aviation industry worldwide. Air Canada had hoped to start accepting its 30 Airbus A321XLRs on order this year, but the first delivery has been pushed back to 2025. Galardo told Aviation Week in 2023 that the airline has tapped the leasing market for interim lift. Air Canada ended 2023 with a total of 243 aircraft and expects its fleet to grow to 250 this year.

Aviation Week’s Fleet Discovery database shows WestJet has 48 737-10s and 14 -8s on order. The timing for certification of the -10 continues to remain uncertain, and the knock-on effects for WestJet could pose challenges, given the -10 comprises roughly 77% of the carrier’s aircraft on order.

Air Transat also is incurring costs from leasing additional aircraft, as some of its A321neos will be grounded due to issues with the geared turbofan engines powering those aircraft. In late 2023, executives from the airline’s parent company Transat said five or six aircraft could be affected by the end of 2024. Fleet Discovery shows Air Transat has 12 A321neos in service, two in storage and one aircraft parked.

Although aircraft manufacturing challenges and engine issues continue to plague the industry and limit the ability of airlines to grow, at the same time “it probably allows for more stability in airfares if there’s less capacity in the market,” Doerksen says.

Some capacity already has exited Canada’s aviation market after ULCC upstart Lynx Air ceased operations in late February. The Calgary-based airline launched operations in 2022 and operated nine 737-8s when it exited the market, with 37 of the aircraft on order.

Lynx was part of a group of ULCCs that entered the Canadian market during the past few years that included WestJet’s Swoop, which was folded into mainline operations late last year, and Flair Airlines.

Canada’s remaining airlines appear to be behaving rationally after the exit of Lynx. “If we look at domestic capacity plans overall for the industry in the second quarter, the number of seats are still below 2019 levels,” Doerksen says.

Pricing traction among Canada’s airlines also seems favorable. Citing Canada’s recent consumer price index data, Doerksen says airfares in the country during March were up 2.9% year-over-year and up 24% compared with 2019. The increase in airfares during March is the first year-over-year increase in the airfare index tracked by Statistics Canada in roughly a year, he adds.

“There has been a little bit of pressure on fares” to some Sun destinations from Canada, Doerksen explains, “where there’s a little too much capacity.” He says the key market to watch this summer is the transatlantic, “where demand still looks good.”

“There is a fair amount of capacity being added into that market—Canada to Europe—for the summer,” he says. “I would suspect there may be a little bit of pricing pressure on that market.”

Despite some pricing pressure in specific regions, Doerksen notes Canada’s population has increased 7.5% versus 2019, “so it would seem as though you’ve still got a fair ways to go to kind of get back to a trend line type growth based on that population growth alone.”

Even though Canada’s economy appears weaker than others, “it seems as though air travel has remained a priority,” Doerksen says.

“The population growth we’re seeing is certainly helping,” he adds. “Seeing the airfares being relatively strong suggests to me there’s still a pretty good outlook for air travel demand growth.”