Passenger traffic is increasing for Canada's two largest airlines, but it's not growing as fast as their capacity.
Both Air Canada and WestJet Airlines Ltd. said traffic as measured by revenue passenger miles grew more slowly in December than available seat miles, a trend that caused both airlines to report lower load factors in the month than a year earlier.
The two carriers have been adding flights and increasing the number of destinations they serve, but some analysts are worried that the airlines are more ambitious than they should be given the state of the economy.
Air Canada, the country's largest airline, said traffic rose 8.3 per cent last month, while capacity rose 8.5 per cent, which led to a load factor of 82.6 per cent, compared with 82.7 per cent a year earlier.
"Led by an increase in traffic in the U.S. transborder market of 16.2 per cent, Air Canada generated greater traffic for the month of December in all markets the airline serves," chief executive officer Calin Rovinescu said in a statement.
For all of 2014, Air Canada reported a record load factor of 83.4 per cent, compared with 82.8 per cent in 2013.
A one-percentage-point increase in load factor generates about $120-million in operating profit, said industry analyst Chris Murray, who follows airlines for AltaCorp Capital Corp.
WestJet said traffic jumped 5.1 per cent last month, but capacity grew 6.1 per cent. WestJet increased its capacity by 6.7 per cent last year, while traffic grew 6.3 per cent, reducing its load factor to 81.4 per cent from 81.7 per cent in 2013.
Passenger traffic hit a record, CEO Gregg Saretsky said, and the airline's annual load factor was its third-highest.
Analysts are still trying to determine how much of a benefit the drop in oil prices and thus jet fuel will be to the two carriers, given the importance of the oil industry to the economy of Western Canada. "Although the recent oil price decline should provide carriers with a little more wiggle-room to lower fares and stimulate demand, we remain mindful of the potential for offsetting demand destruction related to slower economic growth in Canada, especially the West," industry analyst Ben Cherniavsky of Raymond James Ltd. said in a research note last month.
Mr. Murray said he expects strong profit growth to continue at both airlines.
While part of Air Canada's increase in traffic and load factor came from its operations at Billy Bishop airport in Toronto, the airline said it is reassessing its operations at the island airport in light of "current imposed terminal rates and terms."
The airline's 15 daily Q400 turboprop flights from Billy Bishop represent less than 1 per cent of its 1,500 daily flights across the country.
Air Canada operated out of the island airport for more than 18 years until 2006. It resumed flights in 2011, but the number of takeoff and landing slots it possesses is restricted.
Air Canada's revenue from Billy Bishop declined 15 per cent for the first nine months of 2014 to $100-million, according to Fadi Chamoun, an analyst at BMO Capital Markets in Toronto.
"It is not entirely surprising that AC is evaluating its options at this airport," Mr. Chamoun said in a note to clients.
Mr. Rovinescu has described Billy Bishop as a "private playground" for Porter Airlines Ltd., which owns the terminal, although it is in the process of selling the facility. The airport itself is owned and operated by the Toronto Port Authority, which is examining a Porter proposal to lengthen a runway at the island to allow new Bombardier Inc. planes to land at the airport.
Porter CEO Robert Deluce said his airline is happy with Billy Bishop.
"We would apply for any slots that became available at the airport to continue expanding our route network," Mr. Deluce said in a statement.
With files from Bloomberg News.