Trans-Pacific challenges cloud Air Canada’s bullish outlook for the rest of its network

Premium Analysis

Conclusions presented by Air Canada at the end of 1Q2017, that trends were moving in the right direction in domestic, US transborder and trans-Atlantic markets, have largely come to fruition. The airline posted positive passenger revenue growth and yield increases in each of those entities in 2Q2017, and believes the positive momentum should continue into 2H2017.

The airline still faces challenges on its Pacific routes, and will transfer capacity deployed from its Vancouver hub to Beijing and Shanghai to the Atlantic, where demand is stronger.

It is not clear when yields on Air Canada's Pacific routes will turn positive, but the company's own capacity growth of more than 20% year-on-year in those markets has also pressured yields as it cycled through introductory pricing on routes launched in the trans-Pacific during that period.

Air Canada's system capacity growth should slow in 2018 as it nears completion of a widebody fleet revamp and turns its attention to updating its narrowbody fleet. Growth in the airline's average stage length will also start to slow down, which will mitigate the decline in yields Air Canada has experienced during the past few years as it has worked to bolster its international network.

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