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Airfares set to climb higher Add to ...

Consumers looking for bargain airfares will be disappointed to see higher domestic ticket prices on many routes this summer, but it's a sign of the Canadian airline industry's fragile recovery after a rough 2009.

Air Canada and WestJet will still have seat sales, though they won't be as frequent and the fares won't be slashed as dramatically as they were during the recession, industry experts say.

For the carriers, the momentum in "pricing power" is expected to boost revenue as traffic rises along with consumer confidence, though it's too early to declare victory for the carriers' bottom lines because of volatile jet fuel prices.

During last year's economic downturn, Air Canada and WestJet sharply discounted fares on numerous routes. Heading into the summer of 2010, however, Canada's two largest airlines have positioned themselves to charge more in hopes of increasing yields, which measure average ticket prices collected to fly one passenger one mile. WestJet's yield fell 11.2 per cent last year to 16.5 cents, while Air Canada's slipped 7.6 per cent to 17.7 cents.

For consumers such as Yvonne Squires, the prospect of higher airfares is an unwelcome development, though she concedes that the deeply discounted seat sales that Canadians have grown accustomed to, especially during the recession, couldn't last forever.

In April, she managed to secure a round-trip WestJet ticket this summer between Ottawa and Vancouver for $155 each way, before taxes and other charges. A similar flight would now cost at least $229 each way as WestJet shifts away from deep discounts.

"The economy is picking up, and people seem willing to pay more to travel," said Ms. Squires, an Ottawa-based marketing co-ordinator at the Conference Board of Canada.

In a message to consumers on YouTube, WestJet communications vice-president Richard Bartrem said the Calgary-based carrier remains committed to offering value, notably to customers who miss seat sales and end up paying full-price fares. "If you're travelling at peak times in the year, such as Christmas or Thanksgiving, or you need a last-minute fare, those full fares have actually now come down on average 25 per cent," Mr. Bartrem said.

Versant Partners Inc. analyst Cameron Doerksen said he has noticed that the cheapest available fares have climbed, based on two-week advance purchases, boding well for the financial results in the second and third quarters.

"It does appear that the pricing trend is moving in the right direction, and unit revenues at both Air Canada and WestJet will almost certainly be improved for Q2 and Q3, relative to the lows reached in 2009," Mr. Doerksen said in a research note Wednesday.

On short-haul routes such as Toronto-Montreal, Air Canada and WestJet consistently offered one-way fares below $100 a year ago, but the cheapest fares this week were $119 each way, depending on the flight, he said.

Raymond James Ltd. analyst Ben Cherniavsky tracks six-week advance ticket prices on key domestic routes to help gauge general trends. The Raymond James airfare index showed higher fares for tickets purchased in March, April and May this year at both carriers for a basket of domestic routes, though there was a levelling off in June.

"There was a distinct trend of year-over-year gains in average lowest available fares," Mr. Cherniavsky said in an interview, cautioning that ticket prices can and do change quickly. "Generally, we have seen fare strength, or less discounting in the market."

The Raymond James survey shows that on the Toronto-Calgary route, it cost $229 one-way to book in mid-June for an off-peak WestJet flight in six weeks, compared with $189 a year earlier, for instance.

The balancing act for the airlines is to raise fares to a point where it doesn't also scare away passengers. "Some Canadians think that access to cheap travel is a divine right," Mr. Cherniavsky said.

 

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