AirCanada and WestJet Get Some New Competition

Includes: ACDVF, WJAVF
by: FP Trading Desk

Porter Airlines’ expansion has not only significantly increased competition in the so-called Eastern Triangle, but it has also driven down fares for consumers on flights between Toronto, Ottawa and Montreal in the process, according to a new report from Cameron Doerksen, Versant Partners analyst.

He said:

Porter has grown into a more significant competitor to Air Canada (AIDIF.PK) and WestJet (OTC:WJAVF) with a fleet that has expanded from four aircraft two years ago to an expected 20 planes by early 2010.

Mr. Doerksen estimates Porter’s seat share on flights between Toronto and Montreal by all three competitors has grown from 12% to 20%, and from 19% to 24% between Toronto and Ottawa since 2007. These gains have not only been made by fending off WestJet’s expansion, but by eating into the business travel market of Air Canada, he added.

“Even though [WestJet] has been very aggressive with its fares in order to attract traffic, it has actually cut back on capacity,” he said, noting that the Calgary carriers weekly departures in the Eastern Triangle has shrunk from 7% of its total takeoffs two years ago to 4.8% today.

He goes on to say:

In our opinion, Air Canada has seen a greater impact since we believe Porter is attracting a meaningful share of Air Canada’s higher yielding business travelers.

Air Canada noted on its first quarter conference call that revenues on its Chicago and New York routes have also been depressed year over year.

Mr. Doerksen said:

We believe that it is no coincidence that New York and Chicago are Porter’s first two routes into the U.S. As Porter adds new U.S. routes, it will be interesting to watch how much of an impact it has on Air Canada’s US transborder yields.

However, in the grand scheme of things, Mr. Doerksen cautioned that Porter’s impact on the larger carriers will be relatively limited.

Despite the increased competition, we stress that these routes still make up a relatively small part of both WestJet’s and Air Canada’s total network.