Post by
Tempo1 on Mar 25, 2024 9:31pm
Atlantic market update by Nat bk
A Nat. bank report published march 3.
Summary:
Trans-Atlantic market in summer 2024 - can last summer's strength be sustained?
The trans-Atlantic (Canada to Europe) has historically been an important market for Canada’s air carriers and is one of the largest drivers of profitability in the peak summer period. In the first full post-pandemic summer for air travel, last summer saw exceptionally strong demand and pricing for Canada's airlines on routes to Europe and one of the key questions for 2024 is whether that strength can be sustained.
Industry capacity up 13.6% y/y and well ahead of summer 2019
Our analysis of the trans-Atlantic market for summer 2024 shows total planned industry seat capacity between Canada and destinations in Europe up 13.6% y/y and up 11.3% against 2019. Air Canada’s trans-Atlantic summer seat capacity is scheduled to be up 5.3% y/y and 4.1% ahead of 2019. Transat's seat capacity is projected to be up 13.1% y/y and 0.1% higher than 2019.
Demand still strong, but expect some pricing pressure this summer
After an exceptionally strong demand and pricing environment for trans-Atlantic travel last summer, early indications point to another strong summer this year from a demand perspective. However, with capacity up considerably, we expect to see some pricing pressure this summer. While our initial survey of airfares on select trans-Atlantic routes done in January showed that fares across most routes during the peak summer period were generally mixed but overall, not significantly different y/y, our most recent survey from late-February shows a more meaningful decline in prices y/y.
We rate Air Canada Outperform with a target of $31.00.
The trans-Atlantic market accounted for ~36% of Air Canada's total passenger revenue in Q2 and Q3 last year (up from ~30% in the same quarters of 2019) and will likely still be one of the most important contributors to profits this summer. While we believe that prices in the summer will come under some pressure due to higher industry capacity and AC will also face very tough y/y comparisons on routes to Europe, if transAtlantic market conditions should weaken, the airline has the flexibility to shift capacity to other international markets.
An extract (pricing) from the full report:
Whereas our initial pricing survey done in January (which we compare to our January pricing survey from a year ago) showed that trans-Atlantic fares across most routes were generally mixed this summer but overall, not significantly different y/y, our late-February survey (compared to our survey done in early-March last year) mostly shows a meaningful decline in prices y/y. For example, while Toronto-London fares in January were down 2.0% y/y on average, February shows a more significant decline with prices on the route down 11.0% y/y, on average. Notably, Montreal-Paris fares are now seeing the biggest drop, down almost 30% y/y (with all four carriers we track showing steep declines) compared to January where prices were roughly flat (-0.4% y/y). Toronto-Dublin is also down a considerable 25.4% y/y (-6.0% y/y in January) while prices for Vancouver-London flights are up a modest 1.5% y/y (+14.8% y/y in January).
Across all four routes, Air Canada’s prices are down an average of 24.1% y/y with Transat’s down 15.0% y/y compared to January where prices were down 6.5% and 4.5% y/y on average, respectively. However, we would highlight that our fare survey only covers routes to Northern Europe, but on its Q4 earnings call, Air Canada noted that travel to Southern European destinations is seeing considerable strength with forward bookings running ahead of last year, so the company’s trans-Atlantic yields this summer will likely not be as negatively impacted as what our fare survey suggests. We expect Transat may also be seeing similar strength on Southern European destinations (Transat will provide an update on its Atlantic demand and yields with its fiscal Q1 results to be released on March 14th). Additionally, while fares from our most recent survey show a more meaningful y/y decline in pricing than what was seen in our initial check, we note that prices have still generally increased from January to now (albeit not to the same magnitude as was seen last year). This can partially be explained by the fact that some airlines had specific European sales going on at the end of February with Air Canada’s ‘Grand Europe Sale’ running until March 6th and Air France offering promo fares on economy seats for its Montreal-Paris flights.
Comment by
Rob8043 on Mar 25, 2024 10:03pm
The outlook for AC is a disaster. Q1 ER will send shares below $15 IMO. Porter is eating their lunch big time.