Industry Outlook: Lower profits for Canadian airlines
The Conference Board of Canada says in its newly released Canadian Industry Outlook: Canada’s Air Transportation Industry – Winter 2011 that following record high profitability in 2010, Canada’s
The Conference Board of Canada says in its newly released Canadian Industry Outlook: Canada’s Air Transportation Industry – Winter 2011 that following record high profitability in 2010, Canada’s airlines can expect lower profits this year due to higher costs. Economist Maxim Armstrong stated that “Cost-control measures implemented during the recession helped airline profits take off when sales started improving in 2010. With costs expected to catch up with revenues, these profit levels won’t be sustainable.” He noted, however that “still, profits will remain high by historical standards.”
The Conference Board’s outlook reported that business and consumer confidence are driving growth in sales. Businesses are loosening their budget constraints and the resumption of income growth is allowing more people to fly.
Particularly encouraging for the air transportation industry is the rising number of international travellers coming to Canada, both from emerging countries and from a slight upward trend of American visitors to Canada in recent months. This trend is expected to continue in the coming years. However, domestic travel will remain the primary source of growth for the industry.
The outlook indicates that following two years of decline, costs will rise by more than nine per cent in 2011 due to higher oil prices and increased hiring.
It noted as well that pre-tax profits are expected to fall to $785 million in 2011, down from $1.2 billion last year. Profits will remain in the $700 million to $800 million range annually for the next three years.