Canadian planes are fuller than ever, as the major airlines show they have mastered the art of setting airfares just low enough to get passengers to pack most every flight.
The country’s two biggest carriers reported record load factors for 2012, a signal that despite high levels of consumer debt, Canadian travellers and businesses are sanguine enough about the economic situation to book tickets.
The load factor is a measure of what proportion of its seats an airline is able to fill. It’s a number that is closely watched by industry analysts as a key indicator of how efficient a carrier is.
Air Canada’s load factor came in at 82.7 per cent for the year, up from 81 per cent in 2011, after the airline had a record December.
WestJet Airlines Ltd. announced its sixth consecutive month of record load factor in December. The Calgary-based carrier filled 82.8 per cent of its seats in 2012 versus 79.7 per cent the year before.
“The record December results highlight that overall air travel demand remains healthy across the geographic segments,” said Cameron Doerksen, an analyst at National Bank Financial, in a report Monday.
But industry watchers also see a more elaborate science at work in keeping the planes full despite higher fares on many routes.
Rick Erickson, an airline consultant in Calgary, notes that while many people will complain about how expensive some long-haul airfares are – such as Calgary to Charlottetown, for instance – those flights are usually booked solid.
“The airlines have got very, very sophisticated yield management tools. They’re good at this,” Mr. Erickson said. “And they have a very, very good indication of what the last-minute demand is going to be.
“There is nothing more perishable than an airline seat. Once the plane goes up, and there’s no bum on that seat, [the airline gets] absolutely no revenue [for that seat],” he said.
As a result, analysts have become fixated on capacity management – that is, how well the airlines are adjusting the number of flights they offer to match demand. Air Canada’s president and chief executive officer Calin Rovenescu regularly talks of capacity management in his public statements to emphasize that it is a focus for the airline.
WestJet’s president and chief executive officer Gregg Saretsky noted the strength of future bookings and said that “our positive momentum culminated in 2012 with a new single-day record of flying more than 57,000 guests on December 21st.”
In managing capacity, airlines look at the regular demand for last-minute, full-priced bookings for specific flights and then work backward from that – offering seats at various prices while leaving enough room for the costlier last-minute fliers.
This formula is also affected by factors such as the extra price travellers are willing to pay for comfort (important for frequent business travellers), flexibility in terms of whether the booking can be changed, and for convenience in getting the flight on a day or time customers want. These all add to the mix of how seats are priced in advance of takeoff. “They’re really, really good at that. Air Canada has 70 years of data. WestJet has 16 going on 17 years of data. So they have their pencils sharpened,” Mr. Erickson said.
But another dynamic also appears to be at play, Mr Erickson suggested. Canada’s major airlines are less interested these days in winning market share at any cost. Certain corridors will always remain highly competitive with one airline trying to eat into the others’ business. But WestJet, for instance, has indicated that on some routes, it can’t lower airfares much more.
So, as Mr. Erickson notes, the major Canadian airlines aren’t simply offering the cheapest possible airfares to fill the planes. Many of the packed flights have a lot of passengers paying high fares, which analysts see as very positive for the industry’s profitability.
Porter Airlines on Monday also announced a record number of 2.45 million passengers in 2012, 15-per- cent more than 2011, with a load factor of 62 per cent for the year compared with 2011’s 61.7.