Neha Jain: http://canadaaviationnews.blogspot.com/1

Porter Airlines calls itself Canada's third-largest scheduled carrier. President and CEO Robert Deluce leads the company, which is based in Toronto.

1. Business Briefs: American Airlines reaches agreement with Canadian airline

New deal for American
American Airlines and Canada's WestJet Airlines announced a new code-share and frequent-flyer agreement Monday, following an interline agreement they signed in October. The code-share agreement, which allows the carriers to sell each other's flights, is subject to regulatory approval. The carriers say it will allow American customers connecting service to up to 20 new Canadian cities. WestJet will initially put its code on American flights from Canada to Chicago and Boston, with other U.S. cities following later. -- Andrea Ahles
China and U.S. securities
China, the biggest buyer of U.S. Treasury securities, owns a lot more than previously estimated. In an annual revision of the figures, the Treasury Department said Monday that China's holdings totaled $1.16 trillion at year's end, an increase of 30 percent over the government's estimate two weeks ago. The change was based on more accurate information obtained in an annual survey that better determines owners of Treasury securities.
-- The Associated Press
Madoff's yacht dispute
The trustee liquidating convicted con man Bernard Madoff's firm asked a bankruptcy judge to approve an agreement with an investment firm over the disputed ownership of Madoff's yacht, the Bull. Financiere Meeschaert SA will pay $500,000 to Madoff Securities International Ltd. and drop its claim to the yacht. The U.S. attorney's office in New York, which has forfeited the yacht, won't pursue any civil claims against Meeschaert regarding its attempts to seek ownership of the yacht, according to the filing. A U.K. court last year declined to rule on the ownership of the $7 million yacht. The Bull had been seized by French authorities the previous year at the request of Meeschaert.

2. Oil price shock has airlines oversold: analyst

Soaring oil prices have sent airline stocks into a tailspin in recent weeks. But the cost of crude may actually be presenting an opportunity for airlines and investors alike.

The rising turmoil in Libya has pushed the price of crude up by more than US$10 on the New York Mercantile Exchange since Feb. 18 to US$96.86 a barrel Monday. Over the same period, the Bloomberg World Airlines Index has fallen by nearly 6% with investors fearing higher fuel prices would drag on the profitability of airlines.

The rationale behind the sell-off appears sound since fuel accounts for up to 30% of the average carrier’s costs. But David Tyerman, Canaccord Genuity analyst, said he doesn’t believe higher fuel prices will dent the earnings of airlines nearly as much as investors fear.

This is in a large part due to a strengthening economy and a tight supply/demand equation in Canada that has allowed carriers to steadily increase fares and offset rising fuel prices, he said. While the sharp spike in fuel prices in 2008 wreaked havoc on the airlines, the steady increase in the WTI since early 2009 has been matched by improved pricing and profit.

“Our research shows that economic conditions appear to be a far stronger driver of airline profitability and share prices than oil prices,” Mr. Tyerman said in a note to clients.

In addition, he said higher fuel prices provide a perfect foil for carriers to continue to test the upper threshold of where higher fares begin to diminish demand.

“We believe most consumers would expect airlines to raise ticket prices to cover higher fuel costs,” he said. “In an improving supply-demand environment, higher fuel costs may provide the perfect cover to raise ticket prices to cover increased fuel costs and widen margins.”

While airline industry is certainly a price-sensitive business, despite several fare increases this year, Canadian carriers have not seen much in the way of diminished demand yet, he noted.

WestJet implemented yet another fare increase on its flights Friday of between $5 and $10 depending on the route. It was the third fare increase at the airline since Jan. 1.

Gregg Saretsky, WestJet chief executive, said the previous two increases were sufficient to cover off oil prices of up to US$90 a barrel.

Air Canada has also been aggressively offsetting rising fuel costs with higher fares and increased its fuel surcharges on its international routes.

Even slight fare increases have the ability to offset higher fuel prices. Mr. Tyerman noted that WestJet and Air Canada would only have to increase a $239 fare between Toronto and Montreal by about 0.3%, or 72¢, to offset every US$1 increase in the WTI.

“You can see the relative airfare increase required to offset the oil price increase is not gigantic,” he said in an email.

Ben Cherniavsky, Raymond James analyst, keeps a running tally of a random sampling of 26 lowest fares available for forward bookings at each carrier. He said his February fare index was up 34% and 46% compared to the year before for Air Canada and WestJet respectively “marking the highest absolute values” he has ever recorded for the month.

“We do not know where demand destruction ultimately kicks in (nobody does), but it is obvious that at some point consumers and (less so) businesses will eventually balk at price increases and just stay put,” he said in a recent note. “It appears that Canada’s airlines are prepared to test these price sensitivity limits — at least that is the main conclusion that we have drawn from our latest survey of lowest available fares in Canada.”

3. Canada debut for Qatar Airways

Qatar Airways will launch its first Canadian route this summer, with the start of flights to Montreal.

From June 29, the middle eastern airline will start flying between its Doha hub and Montreal.

The long-haul flight, operated using a Boeing 777 in a two-class (economy and business) configuration, will take 13 hours and 20 minutes.

Akbar Al Baker, Qatar Airways’ CEO, said the launch would mean a new chapter in the airline’s “remarkably short” history.

4. Porter Airlines coming to Windsor

Porter Airlines is expected to offer three flights a day to Toronto out of Windsor Airport by late April.

The announcement will be made today, said a source who didn't want to be named.

The city has been trying to attract more airlines to fly out of its Windsor International Airport for years.

Porter Airlines, which calls itself Canada's third-largest scheduled carrier, is based at Billy Bishop Toronto City Airport, where it recently opened a new $49-million terminal and introduced many new routes.

In addition to Toronto, the airline serves Ottawa, Montreal, Quebec City, Moncton, Halifax, St. John's, Thunder Bay, Sudbury, New York, Chicago and Boston. It also has seasonal flights to Mt. Tremblant, Que., and Myrtle Beach, S.C.

Its flights to Toronto would put the airline in competition with Air Canada, which offers six flights out of Windsor daily on weekdays.

Porter Airlines will join four other air carriers at Windsor Airport including Air Canada, WestJet with flights to Calgary, Sunwing with seasonal flights to Cuba and the Dominican Republic, and Cameron Air with winter flights to Pelee Island.

When The Star reported in November that Porter might be coming to town, Windsor Airport CEO Federica Nazzani said the airline would likely start with flights to Toronto. She said service to other destinations could be added if the demand was there.

At that time, Nazzani said the airport had been discussing opportunities with Porter for more than two years.

She said the airline's arrival would be beneficial because Windsor and Essex County residents account for 1.4 million annual flights, but the local airport only sees about seven per cent of that traffic.

Many people fly out of Detroit and Toronto, she said.

Porter Airlines has expanded in the last few years and has ordered up to 10 new aircraft, potentially increasing its fleet to 30 by 2012. Four new planes are expected by the spring. The airline flies 70-seat Bombardier Aerospace Q400 turboprop airplanes.

NEHA JAIN

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