Air Canada, WestJet facing new competition, thanks to COVID-19

The COVID-19 pandemic has created an opportunity for smaller airlines to make gains in the Canadian market, but they face a steep challenge against Air Canada and WestJet, according to financial analysts. National Bank's Cameron Doerksen and associate Alex Hutton wrote in a note to clients last week that while the airline industry has been disrupted by the pandemic, it has also "created an opportunity for smaller airlines to aggressively expand and for new players to enter the market." "Even though travel demand remains depressed, conditions are arguably favourable for new competitors to make their mark," the analysts wrote, pointing to several contributing factors including aircraft availability and low lease rates, a larger pool of qualified pilots, and airports that are looking to attract new airlines in order to make up for lost revenue. "Perhaps most importantly, the pandemic has significantly impacted Canada's large incumbent carriers Air Canada, WestJet, Transat and Sunwing, all of which have taken on more debt to survive the crisis. Furthermore, all these carriers have significantly reduced their networks and trimmed capacity, which could provide an opening for other smaller airlines to fill the void." The Canadian airline market is currently dominated by Air Canada and WestJet, which control about 80% of total domestic seat capacity. But, as Doerksen and Hutton noted, there is potential for a "land grab" in market share by airlines such as Flair Airlines and Porter Airlines. "We believe Flair is already having an impact on pricing on routes where it competes directly with Air Canada and WestJet," the analysts wrote.<br/>