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Globe Investor Challenging year for airlines but price hikes still in the cards: report

A WestJet airplane comes in for a landing at Calgary International airport, home of Canada's WestJet Airlines in Calgary, Alberta, May 5, 2009.

TODD KOROL/REUTERS

Canadian airlines can count on rising prices this year to compensate for modest growth in traffic, according to the Conference Board of Canada.

A slowing domestic economy, a weak economic recovery in the United States and hard times in Europe all add up to a challenging 2013 for the airline industry, the think tank says in a new study.

That shouldn't prevent the sector from putting price hikes in place thanks to better controls over capacity and costs, says the board.

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After two years of losses, the country's airline sector should return to profitability this year thanks to the tighter measures, it reports.

"As well as keeping increases in costs under control, limiting capacity growth also provides Canadian airlines with stronger pricing power. Following more than a decade of little or no growth in prices, the industry managed to raise its prices beyond inflation for a second consecutive year in 2012. And this trend is expected to continue in the near term, with overall capacity in North America forecast to grow at a slower pace than any other region in the world at just 0.7 per cent," says the study.

Traffic is expected to grow at a slower pace this year than in the last two years, making higher prices a key driver of revenue growth, it said.

In order to keep higher prices from dampening demand, the airline companies are increasingly looking to upgrade fares, says the board.

WestJet, for example, has said it anticipates the introduction of three new fare levels this year to contribute to an annual increase in revenues of up to $80-million, according to the report.

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