08/06/2013 09:26 EDT | Updated 10/06/2013 05:12 EDT

Air Canada and WestJet report load factors down from year ago as capacity added

CALGARY - Canada's two largest airlines reported Tuesday that their flights for July were not quite as full compared with a year ago as both Air Canada and WestJet increased capacity.

Air Canada reported a system load factor — the proportion of seats filled on its flights — of 85.6 per cent, down from 85.9 per cent a year ago.

The decrease came as system traffic as measured by revenue passenger miles increased 1.9 per cent and capacity measured by available seat miles increased 2.3 per cent.

The results included the addition of Air Canada Rouge, which began operations on July 1, and the regional airlines that operate flights under contract for Air Canada.

Meanwhile, WestJet's (TSX:WJA) July load factor slipped to 83.1 per cent as traffic increased 8.3 per cent and capacity grew 11.1 per cent over the month last year.

The Calgary-based airline said it was the second-highest July load factor it has recorded.

It flew nearly 1.7 million passengers in July, a year-over-year increase of 6.5 per cent or about 103,000 additional people.

WestJet launched its Encore regional service at the end of June, while Air Canada (TSX:AC.B) also began service with a new secondary airline, Rouge, in July.

WestJet's June load factor was 76.8 per cent.

National Bank Financial analyst Cameron Doerksen maintained an "outperform" rating on WestJet after the traffic numbers were released, saying that cost performance was better than forecast.

Slowing capacity growth and the ramp-up of the company’s premium economy and fare bundling initiative, he added, should lead to improvements by early 2014.

"Despite the year-over-year drop on load factor, traffic results were still solid," he said in a note to clients.

"On July 31st, WestJet set a single-day record flying over 60,000 passengers with the expectation that the strong level of passengers would be at near record levels throughout the August long weekend."

WestJet also said Tuesday it has signed a code-share agreement with China Southern Airlines.

The agreement is for select WestJet flights connecting between Vancouver and Edmonton, Kelowna, Ottawa, Montreal, Winnipeg, Prince George, Calgary, Toronto and Regina.

"WestJet and China Southern Airlines have had an interline agreement since March 2012 and we are very pleased to see this evolve into a code-share," said Chris Avery, WestJet's vice-president of corporate development.

"We remain committed to partnering with top-quality airlines as part of our airline partnership strategy and we look forward to welcoming new code-share guests on board our WestJet flights."

It's the 10th code-share agreement for WestJet, which has made previous deals with partners including American Airlines, Air France, British Airways and KLM.