Canadian airlines remain bullish that their domestic capacity growth is keeping pace with demand

Canada's two largest airlines believe that capacity growth in the country's domestic market is in line with demand even if the expansion is occurring at a much more rapid pace than the country's GDP growth.

Both Air Canada and WestJet are solidly expanding their domestic supply during CY2014 at rates higher than their US counterparts. But the airlines conclude the dynamics of the Canadian market place are different from the US, where a once fragmented industry has rationalised due to consolidation.

Part of each airline's rationale for expanding capacity is an ability to stimulate traffic through lower fares - a strategy WestJet has adopted since its inception. But with its decreasing costs allowing it to target a higher volume of leisure customers, Air Canada also believes it is stimulating some traffic it was previously unable to access.