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Air Canada, WestJet say added capacity being filled by growing passenger traffic

Canada's two main airlines both credit strong passenger traffic for helping them maintain healthy load factors in January.

In fact, Air Canada (TSX:AC.B) reported a record load factor of 80.0 per cent in January — up from 79.4 per cent in January 212 — as a 3.7 per cent increase in revenue passenger miles more than offset a 3.0 per cent increase in capacity, or available seat miles.

"Air Canada generated greater traffic for the month of January in all markets the airline serves . . . led by increases in traffic in Latin American, Caribbean and U.S. transborder markets," president and CEO Calin Rovinescu said.

WestJet, meanwhile, reported a load factor of 80.9 per cent, unchanged from January 2012 as passenger demand grew at the same pace as the airline added capacity.

The airline (TSX:WJA) said it flew 1.6 million passengers in the month, up 8.8 per cent or 129,000 from the same month last year.

Traffic measured in revenue passenger miles grew by 8.4 per cent, while capacity increased 8.3 per cent.

"We have had a great start to the year by tying our load factor record for January, as we saw strong traffic growth and welcomed more guests into our growing network," WestJet president and CEO Gregg Saretsky said.

WestJet told analysts Tuesday that it increased fares by two per cent last week in response to the falling Canadian dollar, a move that was followed by Air Canada and other airlines.

Air Canada reportedly had tried to increase fares before, but they didn't stick because WestJet, its main domestic rival, refused to match the increases.

The airlines are trying to adjust to the impact from the lower loonie on their costs. Saretsky said higher fares are a possibility as well as increased ancillary fees, including possibly a charge for a passenger's first checked bag.

Much of WestJet's increased capacity came from the expansion of its Encore regional service. The airline said 50 to 60 per cent of those passengers connect to its regular flights.

Industry analysts said the traffic results were stronger than expected and provided evidence of healthy demand.

Analyst Walter Spracklin of RBC Capital Markets said the new capacity has been "easily absorbed by robust demand."

He said the data also confirms demand is strong enough to support further fare increases.

Analyst Cameron Doerksen of National Bank Financial said the market is "promising" but he is concerned about the ability to raise fares on sun destination routes where WestJet and Air Canada Rouge are adding lots of seats.

"We suspect that fare increases may become more of a challenge especially for some sun destination markets where industry capacity looks to be increasing materially this year," he wrote in a report.

The Canadian Press


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