Neha Jain: http://canadaaviationnews.blogspot.com/6

1.Bullish on Canada’s airlines

With Air Canada and WestJet Airlines Ltd. poised to deliver their fourth-quarter results next week, the Street remains bullish on both of the country’s largest airlines despite several headwinds presenting themselves in the months ahead.

Higher fuel prices have been weighing on the shares of both airlines, while the imminent round of labour talks at Air Canada has exacerbated the situation at the country’s largest carrier.

Shares of both WestJet and Air Canada have tumbled roughly 6% since the start of the year.

Rather than be scared off by the storm clouds ahead though, most analysts are urging investors to buy in at current prices.

Crude oil prices have averaged roughly US$84 a barrel in 2011, compared to a $79 a barrel average in 2010, according to International Air Transport Association figures.

2. Westjet not likely to expand to Fort St. John anytime soon

For a number of months, a petition has been circulating online requesting that Canada's second largest airline, Westjet, expand to Fort St. John.

At the same time, the airline has been posting good numbers coming out of the recession. They expanded service on some routes and said their flights averaged more than 77 percent capacity for January--it's the second busiest January in terms of percentage of full airlines in the company's history.

And while the company recently added Orange County, California to their list of destinations, that petition to bring the airline to the Peace may not be successful anytime soon.

"The challenge is, the region has to be large enough both in terms of the city itself as well as the commercial trading area surrounding the city to be able to fill an aircraft of our size," said Robert Palmer, Westjet manager of public relations.

Currently, the only major airline to connect the Energetic City and a major market is Air Canada Jazz. It flies to and from Vancouver several times a day. Their planes are much smaller than even the smallest Westjet plane and when they aren't flying at capacity, Palmer says that's enough reason for there not to be an expansion at this time.

"The smallest aircraft we have seats 119 guests," said Palmer. "When our competitors are flying the same routes with 37 and 50 seat turboprop aircraft and not even necessarily filling those aircraft on an ongoing basis, it tells us there is not sufficient demand for a jet service."

Palmer did say, however, that the company is aware of the interest from residents of the Peace to get their service to the region.

But David Tyerman, Canaccord Genuity analyst, said he expects higher fuel prices to be offset somewhat by higher fares, fuel surcharges, and other fees. At the same time, the stronger Canadian dollar should also act as a buffer because jet fuel is purchased in U.S. dollars, and a substantial portion of Air Canada’s debt is in U.S. denominations, he said.

The loonie has gained roughly 4¢ on the U.S. greenback since the third-quarter of 2010. For every one cent gain the loonie makes on the U.S. dollar, Air Canada’s profitability improves by $57-milion a year, or 11¢ a share. While WestJet’s profitability improves by $8-million, or roughly 6¢ a share, for every penny gain.

Meanwhile, Mr. Tyerman also expects both airlines to try to continue constrain their capacity growth in order to raise fares. That trend continued in January, especially at Air Canada, with its load factor increasing half a percentage point to 78% for the month compared to a year ago. WestJet also said it was encouraged by its prices in January.

“The amount of new aircraft being introduced by Canadian airlines has slowed down, while demand continues to recover,” Mr. Tyerman said. “So, buy your tickets for the summer now, or you’re really going to be paying through the nose — if you can even get a ticket.”

Air Canada’s impending labour talks have also weighed on its stock. All of its unions have put increased wages at the top of their agendas. Mr. Tyerman has modelled a 3.4% increase in wage and other benefit costs in 2011 as a result.
But he said there is a chance that the airline might be able to trade improved productivity for those wage increases.

Not everyone is as optimistic about the outcome of those talks. The labour negotiations, combined with higher fuel prices and competitive pressure, caused Walter Spracklin, RBC Capital Markets analyst, to downgrade the stock to a “sector perform” last month. He said there is a risk that Air Canada’s concessions may exceed 3.5%.

“At the very least, we see increased concern being built into the shares from a sentiment perspective until the labour issue is resolved,” he said in a note at the time.

Meanwhile, Claude Proulx, BMO Capital Markets analyst, raised some concerns about WestJet’s aggressive push into sun destinations this winter, which saw its load factor drop a percentage point in January to 77.8%.

“With a significant year-over-year increase in Sun/U.S. leisure destination flying, which typically exhibits higher load factors, it is somewhat concerning to see load factor declining,” he said.

Still, nine of the 10 analysts covering Air Canada’s stock have a “buy” rating on it, while one has a “hold,” according to Bloomberg figures. The consensus price target is $6 a share.

Meanwhile, 10 analyst covering WestJet have a ‘buy’ rating, with two ‘holds,’ and $16.46 a share consensus price target.

3. Air Canada indefinitely postpones flights to Tokyo's Haneda airport

TOKYO (Kyodo) -- Air Canada has indefinitely put on hold its plan to start a daily service between Tokyo's Haneda airport and Vancouver because demand, particularly from higher-paying business travelers, has fallen short of projections, airline officials said Friday.

The Canadian airline may consider starting the flight if it manages to secure a better slot for landing and takeoff than the current one at Haneda, which opened for full-fledged international flights last year, according to the officials. The airline was assigned slots late at night, they said.

The company had originally planned to start the service in late January but delayed it to March 5 before the latest postponement.

For customers who have made reservations for flights between Haneda and Vancouver, the carrier is arranging for them to switch to other flights, the officials said.

A major travel agency said it has been forced to cancel tours that were supposed to use the planned Haneda-Vancouver flights.

4. WestJet, Porter boost capacity in January

OTTAWA (Reuters) - WestJet Airlines Ltd (WJA.TO: Quote), Canada's No. 2 carrier, and privately held regional carrier Porter Airlines said on Thursday they boosted capacity in January as demand for air travel continued to recover.

WestJet said its load factor, a key industry measure that tracks the proportion of available seats filled with paying customers, was the second highest for the month of January in its history.

WestJet's load dipped to 77.8 percent from 78.8 percent in January 2010 as the Calgary-based airline increased capacity, or available seat miles, by 11.2 percent from the year-prior period.

Traffic, or revenue passenger miles, rose 9.7 percent, the airline said.

"We are encouraged by improved pricing and demand in the air travel market, as well as the growth of our business bookings," WestJet Chief Executive Gregg Saretsky said.

"Our capacity additions continue to be absorbed and we are happy with our strong January load factor."

Porter, a small airline that flies out of Toronto's downtown Billy Bishop Airport, said it increased capacity by 16.7 percent and traffic by 36.8 percent over January 2010.

The January load factor rose to 51.7 percent from 44.1 percent, Porter said.

"These numbers are a good beginning for what we anticipate will be another year of growth at Porter," said Chief Executive Robert Deluce.

NEHA JAIN

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