Cheap flights for transatlantic flyers coming this summer in ‘ultra-competitive’ market

The market for transatlantic flights will be “ultra-competitive” come july 1st with 15.5 per cent more capacity on Canada-to-Europe routes, based on a brand new analysis by National Bank.

London will be the most competitive market undoubtedly, with WestJet Airlines Ltd. launching flights from six Canadian cities in the spring and Air Canada increasing its ability to the city by 14.1 percent.

“In our view, this is an irrational situation which will inevitably lead to lower prices,” National Bank analyst Cameron Doerksen wrote inside a note to clients.

There is clearly a danger that pricing will have to be very aggressive when the planned capacity is to be filled

In an analysis of airfares on specific routes in mid-July, Doerksen discovered that average prices around the Toronto-London route were down 11 percent. Montreal-Paris flights were also significantly cheaper, with fares down 7 percent annually.

While lower fuel prices are allowing airlines to reduce prices without necessarily hurting profitability, Doerksen said the 15.5 percent capacity increase could force “very aggressive” discounts.

“Our major concern for that summer is whether the airlines will be able to fill 15 per cent or more seats without having to significantly discount prices (and damage profitability) to stimulate traffic,” he wrote.

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In to fill 15.5 per cent more seats, 667,000 more people will need to take a return trip between Canada and Europe come july 1st, Doerksen said.

“Lower fuel prices will support some price stimulation, but there’s clearly a risk that pricing must be very aggressive when the planned capacity is to be filled.”

Of the 3 airlines that Doerksen follows, Transat AT Inc. is easily the most subjected to Europe, with 60 percent of its revenue coming from transatlantic markets in the summertime. Air Canada’s expansion and WestJet’s launch appear to be “squarely targeted at taking market share from Transat,” Doerksen said.