Canada’s Airlines Prepare for More Aggressive Competition in 2017

According to a new global airline outlook from Moody’s Investors Service, Canada’s skies will continue to be quite competitive in 2017.

The two main incumbents are aggressively boosting capacity. Air Canada (TSX:AC) is scheduled to receive a number of new Boeing jets this year, increasing its capacity by 20%. Westjet Airlines Ltd. (TSX:WJA) is also expected to take delivery of several new aircraft, which will increase its overall capacity by a more modest 5%.

More competition is coming from upstart operators as well. NewLeaf Travel is operating flights between a handful of Canadian cities. It also offered a Calgary-and-Edmonton-to-Phoenix route before it pulled the plug, citing a price war initiated by Westjet. Westjet’s CFO later told investors the company will aggressively defend its status as Canada’s only low-fare airline.

Westjet also recently launched a Winnipeg-to-Hamilton direct flight, which is a route NewLeaf currently flies.

There’s also the possibility that two new budget airlines may begin operating in Canada in 2017, aided by more generous foreign ownership rules recently proposed by the federal government. Rumors are circulating about Southwest Airlines (NYSE:LUV) expanding into Canada as well.

Canada has become a sought-after destination for several European airlines. KLM has been adding flights to Western Canadian airports, and analysts expect other low-cost carriers like Norwegian Air Shuttle and Wow Airlines out of Iceland to add more routes to Canada either in 2017 or 2018.

Overall, it looks like Canada’s incumbent airlines will maintain their dominant position in domestic flights, but additional competition could mean lower ticket prices for international travelers.