MONTREAL – Canada’s air transportation industry is expected to earn healthy profits over the next five years despite a continuing decrease in airfares, according to a new report from the Conference Board of Canada.
The agency anticipates airlines and travel companies will earn nearly $7.5 billion in pre-tax profits over the next five years, more than twice that in the period between 2000 and 2015, which included the global financial recession.
The sector earned a record $1.56 billion in estimated pre-tax profits in 2015, up 31 per cent in one year and more than double the $685 million earned in 2012.
“The skies have rarely been as bright for Canadian air travel as they were in 2015,” said the board said in its report released Wednesday.
Revenues were $25.8 billion last year and are expected to reach $31.7 billion in 2020.
“The combination of booming demand for air travel and the drastic reduction in material costs has proved to be the most positive event to strike the industry in a very long time,” it said.
Although profits are expected to remain well above pre-2015 levels, the board they should dip roughly 2.5 per cent annually in the coming years as companies deal with the threat of new low-priced competitors and higher costs, before recovering in 2020.
Airline profit margins are expected to decrease as revenues are partially offset by increased costs, including a forecasted nearly two-thirds increase in fuel prices between 2016 and 2020.
Meanwhile, the board said the weaker loonie has altered travel patterns.
Fewer Canadians are travelling from nearby U.S. airports and the number of Canadians travelling to the U.S. is down. Visits by Americans to Canada are up as are the number of international travellers flying to Canada.
The number of Canadians flying overseas has increased by 33 per cent since 2010, including a 10 per cent gain in 2015.
Airlines have responded by adding offshore capacity. WestJet (TSX:WJA) will start flying large planes to London Gatwick this summer while Air Canada (TSX:AC) is adding Casablanca and four European destinations.
“Healthier international demand, coupled with the fact that Canadian airlines can now tap more foreign markets than ever before, will provide the final piece that solidifies the industry’s expansion over the next five to six years,” the Conference Board said.