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Return to profit forecast for Canadian airlines

Canada's airlines are expected to return to profitability this year, despite high fuel prices and a reliance on seat sales to persuade recession-wearing travellers to take to the skies.

The Conference Board of Canada forecasts that the Canadian airline sector will have pretax profit totalling $192-million in 2010, a big turnaround from combined losses of $381-million last year.

"Passenger counts are up and airlines are enjoying a much-improved 2010, but the industry is still several years away from approaching its prerecession profit levels," conference board economist Maxim Armstrong said in his report. "Air travellers are willing to fly, but only if the price is right, so airlines have limited ability to increase fares even when costs such as fuel are on the rise."

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Mr. Armstrong predicts average base airfares will barely budge in 2010, perhaps rising a mere 0.1 per cent. Other industry watchers note that Air Canada and WestJet continue to hold frequent seat sales, though the bargain-basement ticket prices offered during the recession in 2009 have largely vanished. As well, Air Canada has enjoyed a resurgence in business-class bookings in 2010, albeit with airfares at the front of the cabin that remain below prerecession levels.

Tour operator Transat which oversees Air Transat, anticipates that its vacation packages will sell briskly this fall, allowing the company to increase prices as aircraft and hotels fill up.

Mr. Armstrong cautioned that a tepid economic recovery in the United States has cast a cloud over Canadian carriers, too, with American visitors hesitant to make trips north of border as the U.S. dollar weakens against the loonie.

He said fuel prices, which account for more than one-quarter of a carrier's operating expenses, appear to be on an upward trend. But assuming the economy strengthens, the Conference Board envisages airlines being in a better position to raise average base airfares next year.

Amid the airline industry's return to generating profit, Canada's tourism sector still needs to regain its footing, according, an online reservations network.

Canadian cities saw some of the steepest rate increases for hotel rooms globally in the first half of 2010, compared with last year, making Canada less attractive to budget-conscious travellers. Room rates in Montreal rose 7 per cent, while they climbed 4 per cent in both Vancouver and Toronto. Nevertheless, the market for inbound tourists is slowly on the mend, including from Europe, Asia and even the United States.

The stronger loonie has been a blessing for Canadians flying abroad, reducing the final cost of accommodation. "In some cases, the actual price in euros at the hotels may have increased slightly, but the strong buying power of the Canadian dollar made it more affordable this year for Canadians to maintain the quality of their accommodation, but spend less to get the same," president David Roche said in a statement.

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Ben Cherniavsky, an industry analyst at Raymond James Ltd., said Air Canada will benefit from "significant exposure to robust demand for international travel."

Both Air Canada and WestJet bolstered their seat capacity and enjoyed improvements in traffic last month.

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About the Author

Brent Jang is a business reporter in The Globe and Mail’s Vancouver bureau. He joined the Globe in 1995. His former positions include transportation reporter in Toronto, energy correspondent in Calgary and Western columnist for Report on Business. He holds a Bachelor of Commerce degree from the University of Alberta, where he served as Editor-in-Chief of The Gateway student newspaper. Mr. More

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