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How airlines are cutting fares to offset the weak economy and boost demand

Strong load factors don’t necessarily translate to a strong bottom line if the airline has to cut ticket prices to fill seats. This results in lower yields, or the average fare paid per passenger, per mile flown.

Airlines in Canada and around the world are using discounted airfares to stimulate demand, trading fuller planes for lower yields as the economy weakens.

Air Canada and WestJet Airlines Ltd. reported strong load factors in January, with both airlines filling 80.1 per cent of their available seat capacity last month.

But strong load factors don’t necessarily translate to a strong bottom line if the airline has to cut ticket prices to fill seats. This results in lower yields, or the average fare paid per passenger, per mile flown.

On a global basis, the International Air Transport Association (IATA) said 2015 was the strongest year for global passenger traffic since 2010, largely as a result of lower ticket prices.

The volume of passengers carried by all airlines rose 6.5 per cent year-over-year, with load factors hitting a record annual high of 80.3 per cent. Airfares, meanwhile, fell five per cent after adjusting for the higher U.S. dollar.

“While economic fundamentals were weaker in 2015 compared to 2014, passenger demand was boosted by lower airfares,” the association said in a statement.

WestJet, in particular, has been struggling to adjust to the impact of Alberta’s oil-price-fuelled slowdown, which CEO Gregg Saretsky described as “sudden” and “deep” on a conference call this week. About 25 per cent of the airline’s business originates in the province.

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