Canadian airfares start to fall – but it’s still no bargain

With planes jam-packed, and airlines operating a lot fewer flights than they were before COVID struck, airfares have been sky-high this summer.

There might be some relief in sight – but when? The answer depends on who you ask with opinions ranging from as soon as this fall or as far away as the middle of next summer.

Long-time air industry watcher Fred Lazar, a professor at York University’s Schulich School of Business, says demand and prices are already starting to soften. One big reason, he says, is that many Canadians have already scratched their post-COVID travel itch.

“People went on their first trip in two or three years and got it out of their system. And I think a lot of them probably didn’t have a very good experience, ”said Lazar, pointing to delays and flight cancellations at major airports this summer, including Toronto’s Pearson International.

Lazar was surprised recently to see a Toronto to Vancouver one-way basic economy fare on Air Canada for $ 200.

“I can’t remember the last time I saw it that low,” said Lazar. “That tells me right there that they’re seeing demand soften, because all the airlines have got pretty sophisticated pricing algorithms.”

In July, airfares were 25 per cent higher across the board than they were in June, according to Statistics Canada. That rise came despite a steep drop in fuel prices.

On a recent search, the cheapest mid-September Air Canada flight round trip flight to Paris from Toronto was $ 886.91, including tax. That “basic economy” fare doesn’t include any checked bags or seat selection, and doesn’t allow changes. A round-trip flight to New York’s LaGuardia Airport in mid-September would set you back $ 366.79 for the same basic economy fare.

In a recent report to clients, RBC Capital Markets analyst Walter Spracklen said Air Canada’s fortunes are “pointed in the right direction,” but still sounded a cautionary note for investors: Airfares could still come down.

“We remain mindful of the recovery trajectory in business travel and the sustainability of high fares,” Spracklen wrote.

Christie Hudson, spokesperson for online travel agency Expedia, said the fall “shoulder season” typically sees fares drop 10 per cent from their summer peaks. But this year, she forecasts a steeper drop.

“This fall the savings are expected to be even richer,” said Hudson, pointing to a 15 per cent drop in average airfares to Los Angeles as one example.

Along with the fact that many Canadians who were eager to take their first post-pandemic flight already have, there are two other big factors which are likely to drive demand and prices lower, argued Lazar – the economy, and more competition.

“Discretionary spending is the first thing to go when the economy slows down,” said Lazar, noting that many economists are predicting a possible recession.

Lazar also pointed to the impending launch of Jetlines, a Mississauga-based discount airline.

“That could make Air Canada and WestJet feel like they need to drop their prices. It’s the third ultra low-cost carrier in the country now, ”said Lazar. The other two are Edmonton-based Flair Airlines, and Calgary-based Lynx Air.

Still, said a senior executive at Flight Center travel agency, most planes are still packed, and airlines aren’t flying anywhere near their full pre-COVID roster of flights.

That, said David Richardson, means the pricier flights could be here to stay for a while.

“To be honest, we’re not really seeing much of a drop at the moment. They’re remaining pretty high, ”said Richardson, Flight Centre’s senior vice president of supply strategy.

Part of that is because airlines and airports worldwide are still struggling with logistics problems including staff shortages, said Richardson. That means increasing flight schedules isn’t likely to happen any time soon.

“They would love to be able to put back capacity in so many markets but they just can’t,” said Richardson. “They’re restrained because their operational performance would really, really struggle. They’re getting quite a bit of criticism already. “

That, in turn, means existing flights are jammed. And if airlines are selling almost all of their seats, there’s no urgent need to drop prices, Richardson added.

“I really don’t think we’re going to see those kind of deep discounts, because right now, carriers – depending on the market – they’re seeing load factors which are plus 90 per cent. And pre-pandemic, that’s just unheard of. “

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