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Increased competition in the Canada market is squeezing airline profits, says Lufthansa sales chief Jens Bischof.FEDERICO PARRA/AFP / Getty Images

Foreign airlines' growing appetite to serve Canada is squeezing industry profitability as supply outstrips demand, says the sales chief of German carrier Deutsche Lufthansa AG.

"Overcapacity is playing a huge role when it comes to the market environment here in Canada," Jens Bischof, executive vice-president of sales and chief commercial officer at Lufthansa, said in an interview Tuesday in Montreal ahead of an event to celebrate the carrier's 60th year flying to Canada. "We'll all take a hit from this."

Several airlines are adding significant capacity in the Canadian market, he said. That includes giants Air France-KLM as well as smaller players like Royal Air Maroc, Iceland's Wow Air and Turkish Airlines, which is expanding into Montreal with bigger planes. Air Canada has also been boosting flights around the world, while WestJet Airlines Ltd. is making a big push into London.

Middle East-based Emirates and Etihad Airways are still restricted to six flights a week into Canada under bilateral agreements, but are pushing to increase that number. "They're knocking on the door," said Hans DeHaan, director of Lufthansa's Canadian operations. "They want to fly more."

Statistics show that the number of people travelling to and from Canadian cities by air to international destinations other than the United States grew by an average of 11 per cent a month from May to the end of August, 2015. The growth of multicultural communities in Canada and changing demographics are cited by industry experts as among the reasons for the increase.

Still, this summer, demand is not as high as the supply out of the Canadian market, Mr. Bischof said. He said smaller carriers without commercial partnerships will be especially hard-pressed to fill their planes. Lufthansa, one of the the world's 10 largest airlines by revenue as well as passengers carried, operates 65 flights in and out of Canada a week.

Summer ticket prices from Canada to international destinations are 16 per cent lower than they were last year, according to Hopper, a mobile application that uses data to predict and analyze airfares for consumers. It cites increased competition as the main reason.

"You can only sustain an environment like this if you are in a strong position," Mr. Bischof said, noting Lufthansa is one of the few global carriers with an investment-grade credit rating. "It's going to be a tough summer."

London is the main battlefield among Canadian carriers.

WestJet has now sparked what Raymond James analyst Ben Cherniavsky calls "a new clash over London" with the wide-body aircraft service it introduced from six Canadian airports to England's largest city last month. Air Canada has responded by boosting its own service to London, offering fares that remain as much as 35-per-cent below its prices to the city before WestJet entered the market, the analyst says.

Montreal-based tour operator Transat A.T. said earlier this month that a 15-per-cent increase in market capacity to Europe and fears of terrorist attacks on the continent are compelling it to cut prices to fill its planes. "We'll still make money but we'll make less money," Transat chief executive officer Jean-Marc Eustache said.

Pricing power "remains nowhere to be seen in the industry," Mr. Cherniavsky said in a June 13 research note entitled "London fares are falling down, falling down, falling down." He said pressure on yield, a measure of average fare paid per mile flown, for the Canadian carriers "is now spreading from the domestic market to the transatlantic."

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