BUSINESS

WestJet and Porter end year with record passengers; face uncertain 2012

01/05/2012 03:08 EST | Updated 03/06/2012 05:12 EST
MONTREAL - Canada's largest airlines ended 2011 seemingly untouched by global economic concerns as they brace for a slow domestic economy recovery and higher fuel prices this year.

WestJet (TSX:WJA) and regional carrier Porter Airlines reported record load factors in December while Air Canada (TSX:AC.B), the country's largest carrier, saw its passenger traffic grow slightly from a year ago.

The Montreal-based airline's load factor increased to 81 per cent from 80.8 per cent in December 2010 as system traffic, including capacity purchased from regional airlines, increased three per cent on a capacity increase of 2.8 per cent.

For the full year, Air Canada's load factor slipped slightly to 81.6 per cent from the record set in 2010. Capacity grew by 4.7 per cent while traffic was up 4.5 per cent.

"For both the month of December and 12-month period, we experienced traffic growth in all markets Air Canada serves. These strong results underscore the effectiveness of our disciplined capacity management and award-winning product," stated CEO Calin Rovinescu.

Calgary-based WestJet said it flew a record 1.4 million passengers in the month as the airline reported a load factor of 80.9 per cent, tying its second-highest December load factor ever.

Toronto-based Porter, which offers routes in Eastern Canada and the United States, also reported a strong December, a month that featured continuing volatility on stock markets amid continuing fears for the global economy, including a return to recession in parts of Europe.

Its load factor for the month was 63.9 per cent, up 1.5 percentage points from December 2010 and a record for the airline.

Chris Murray of PI Financial Corp. said the result shows the carriers aren't experiencing any drop off in traffic that's associated with economic weakness.

"We keep looking for the shoe to drop," he said in an interview.

International cargo traffic, which is a leading indicator, is down as a result of negative impacts in Europe.

With few new aircraft expected to be added in Canada this year and weak economic growth, the traffic results should soften in 2012, he said.

"I'm expecting that as we start entering into the year we'll see more muted year over year comparisons."

So far, positive signs include increasing consumer confidence and stable business travel. But higher fuel prices that force increased fares or fuel surcharges could dampen demand.

Robert Kokonis, president of airline consulting firm AirTrav Inc., said fuel prices are "the big wild card right now."

"As long as there's not any major seismic shifts in the economy in the U.S. or further deterioration in Europe for the sector overall, I think 2012 looks reasonable with the exception of where oil is going to be at," he said in an interview.

For Air Canada, the domestic load factor dipped in December to 81.2 per cent as capacity measured in available seat miles grew by 1.4 per cent and outpaced the 0.7 percentage increase in revenue passenger miles.

Transborder load factor on routes to the United States was up slightly to 75.5 per cent.

For WestJet, revenue passenger miles increased eight per cent in December from a year earlier as capacity grew 7.1 per cent over the same period.

"We finished the year with strong traffic results confirming that our capacity continues to be absorbed by the market," president and CEO Gregg Saretsky said in a statement accompanying the results.

"On a full-year basis, we have flown over 867,000 additional guests in 2011 versus last year," he added.

For the full year, WestJet reported a load factor of 79.7 per cent, down slightly from 79.9 per cent last year as available seat miles grew 8.5 per cent to 21.2 billion from 19.5 billion. However, revenue seat miles lagged slightly, rising 8.2 per cent to 16.9 billion from 15.6 billion.

Saretsky recently mused about pushing to become the country's largest airline within five years by expanding its regional service to smaller communities.

Murray said such a move would make sense and help to feed more traffic to its mainline service, just as Jazz does for Air Canada.

Porter's load factor was based on 117.6 million available seat miles, an increase of 26.7 per cent over the same month in 2010 as the airline expanded its number of routes over the year, and 75.2 million revenue passenger miles, up 29.9 per cent.

For the full year, Porter said it flew a record 2.1 million passengers, up from 1.56 million the previous year.

"Porter is one of the fastest growing airlines in North America," president and CEO Robert Deluce said in highlighting the results. "We're proud of what we've accomplished as a team and are ready to make our mark in 2012."

Besides adding new destinations in 2011, Porter, based at Billy Bishop Toronto City Airport, took delivery of six new Bombardier (TSX:BBD.B) Q400 aircraft.

Porter's traffic results is a good indication that its network is gaining public traction, said Kokonis.

"It's evidence (Deluce is) maturing these routes and he's demonstrating there's a true demand for alternative service. Is it profitable, we still don't know yet."

Kokonis expects Porter won't launch an initial public offering until 2013 if market conditions are positive.

Porter's service to the United States could accelerate once customs clearance is added to the Toronto airport.

Air Canada's arrival at the airport last spring with flights between Montreal and the downtown Toronto airport appears to have had minimal impact on Porter. The Montreal-based carrier doesn't segment out its traffic by routes, but those who have flown the route have pointed to a high number of empty seats.