Canada's two largest airlines signalled that passenger demand remains strong heading into the summer season as they both flew fuller planes as growth in passenger traffic outpaced additional capacity in May.
Air Canada (TSX:AC.B) posted a record load factor of 83.3 per cent in the seasonally slower month, up from 81.8 per cent a year earlier.
System-wide traffic, including at its low-cost subsidiary Rouge and regional partners, increased 10.1 per cent, led by increases in the U.S. transborder, Latin America, Caribbean and Atlantic markets. Capacity was up 8.1 per cent.
"Air Canada generated greater traffic for the month of May in all markets the airline serves," CEO Calin Rovinescu said in a news release Wednesday after markets closed.
Rouge itself had an 84.9 per cent load factor in the month. Load factor refers to the proportion of its fleet that is filled with passengers.
Traffic, as measured by the distance flown by passengers, was up 18.8 per cent between Canada and the U.S., 12.5 per cent in the Atlantic market, 14.1 per cent in Latin America and the Caribbean and seven per cent in the Pacific.
Domestic Canadian traffic increased five per cent, while capacity grew 2.1 per cent pushing up the load factor to 81.1 per cent.
David Tyerman of Canaccord Genuity said the market can handle Air Canada's capacity growth.
Although the airline didn't comment on pricing trends, he said the "quarter appears to be shaping up very well" given that most of the second quarter's traffic is now reported.
Earlier, WestJet (TSX:WJA) said its passenger traffic increased 4.8 per cent on a 4.1 per cent boost in capacity.
As a result, its planes were fuller with the load factor increasing to 79 per cent, up from 78.5 per cent in May of 2013.
"We are very pleased with our continued strong year-over-year traffic growth as a record number of guests in May chose to fly with WestJet," president and CEO Gregg Saretsky said in a statement.
The Calgary-based carrier said it flew 1.6 million passengers in May, a 5.1 per cent increase from the same time last year.
WestJet recently launched its regional discount service Encore and has said it could start an international service in the coming years.
In May, WestJet posted first-quarter net earnings of $89.3 million, or 69 cents per diluted share, down two per cent from the same quarter last year.
Chris Murray of AltaCorp Capital said WestJet's good off-season performance, in which traffic numbers beat his forecasts, sets up the airline for a strong summer.
"We expect the company to continue to experience strong demand in all segments of the business, while input costs and the Canadian dollar appear to have stabilized which is supportive of continued earnings growth," he wrote in a report.
Tyerman said the slowing capacity growth from 9.1 per cent last May could help WestJet generate a 13.2 per cent average annual earnings per share growth from 2014 to 2016.
He said the heavy capacity growth of more than nine per cent in the last 12 months has made it difficult for the carrier to recover higher costs. But the significantly slower capacity growth could make it easier for it to increase prices to offset higher costs, he noted.
Cameron Doerksen of National Bank Financial said his weekly tracking of fares indicates that they continue to increase heading into the summer travel season.
On the Toronto Stock Exchange, Air Canada's shares closed at $9.51, up 33 cents or 3.59 per cent in Wednesday trading. WestJet's shares gained 36 cents, or 1.45 per cent, to $25.26.
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