Canada’s two largest airlines embark on 2017 on solid footing; ULCC threat remains a wildcard

Premium Analysis

Canada's two largest airlines are embarking on 2017 with a tilt toward international expansion. Air Canada is continuing its march toward building a global competitive network that rivals those of its North American global airline peers, and WestJet is setting the stage to expand a long haul trans-Atlantic network. As has been the case during the past few years, the bulk of Air Canada's capacity expansion will be directed into international markets in 2017; WestJet is pledging slower system capacity growth after its expansion in 2016, which coupled with unit revenue pressure has created some investor anxiety.

Both airlines are beginning 2017 with higher valuations as Canada's economic growth should settle towards 2% in 2017. Although the country's economic growth forecast is not stellar, it is at least stable. Canada's province of Alberta is climbing out of a recession after the region's economic weakness had created challenges for Canadian airlines during the last year.

Two aspiring Canadian ULCCs are attempting to launch operations in 2017, joining NewLeaf Travel - which has recently cancelled new routes after encroachment by WestJet. Canada's first low cost airline has pledged to compete fiercely with the start-ups, and its actions are reinforcing that declaration.

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