Canada's Top Two Airlines Say 'Calm Down'

Air Canada and WestJet say they're doing just fine.

Dear readers,

Several weeks ago, Air Canada — which traditionally does not engage with foreign press — sent out an aggressive missive to reporters, telling us that an OAG report from late March about an eye-popping, headline-triggering drop in future transborder bookings was inaccurate. At the time, Air Canada did not share the actual number, but now we know. It’s a giant discrepancy.

Transborder bookings to the United States are down "in the low teens" for the next six months — not the 70-plus percent OAG reported, citing data from a major GDS supplier. Air Canada executives shared this on May 9 during the airline’s first quarter earnings call. After a strong January, “we witnessed progressive weakening of demand caused by raised levels of uncertainty, macroeconomic concerns, and trade tensions,” newly named chief commercial officer Mark Galardo told analysts. “This affected more acutely the transborder market and was mostly felt in the month of March.”

Within the transborder segment, there’s a wide discrepancy in demand trends. As you’d expect, traditional leisure routes to the United States (such as to Las Vegas and South Florida) have been struggling, as Canadian vacationers avoid visiting the country whose president has attacked their nation’s sovereignty. Those routes were some of the first that Air Canada cut during the late winter. “We saw a big shift in travel demand away from U.S. leisure destinations,” Galardo said.

But business travel has held up well enough that Galardo said he’s loath to make material cuts on key routes like Toronto-to-Chicago and -New York, where corporate customers prefer frequency. In addition, Galardo said he has not made reductions that would affect Air Canada’s lucrative sixth-freedom business — one-stop traffic from the United States to the rest of the world.

"We have not adjusted or touched any of our flights that connect into our international banks at any of our three hub airports," Galardo said. "In fact, we've increased capacity at those specific times to make sure that we can promote as much sixth-freedom traffic as possible, and early results show that was a good move."

It's another reminder that Air Canada is a well run airline. Executives clearly still understand they cannot rely only on the Canadian market if they want to be a major player in global aviation. No doubt executives would prefer that Canadians still wanted to visit United States, or that the domestic market was stronger (it is saturated with supply as competitors have moved narrowbodies back to Canada). But all things considered, Air Canada is doing OK.

"When compared to other network carriers, we have a much more diversified network balanced between domestic, transborder, and international, allowing us to connect Canada with six continents," CEO Mike Rousseau said.

Its first quarter earnings were fine, if not spectacular. Air Canada reported a net loss of $102 million Canadian ($72.91 million U.S.) on total revenues of $5.2 billion Canadian.

Its guidance is decent, too. As U.S. carriers either suspend guidance or offer huge ranges, Air Canada opted for a haircut. Full-year adjusted EBITA had once been projected between $3.4 billion to $3.8 billion Canadian; now it is slated to be between $3.2 and $3.6 billion Canadian.

What’s Air Canada’s secret? Read on to find out. And then keep reading for highlights from my interview with WestJet CEO Alexis von Hoensbroech, who claims he’s very excited that Delta and Korean Air will own part of his airline, with Air France-KLM expected to join soon. He also fills us in on WestJet’s growing Halifax transatlantic focus city and his new status as a Lufthansa Group board member.