“Turbulence ahead for airline investors”, National Post, January 22, 2008
This article is about how things are not going so great for the Canadian airline industry. Last year in 2007, both airlines Air Canada and WestJet reported higher yields even after increasing their capacity into the marketplace. However, this year, things are not going as well. The purchasing power of the loonie is not as high anymore, oil prices are very high, and the economic outlook for the air travel industry is weak. For the first time in four years, the capacity growth of planes is higher than the growth of demands. This will probably pressure the airlines to keep the prices high.
In chapter six, we learned about cash’s purchasing power, and its effects on a company. Cash’s purchasing power is the ability for it to be exchanged for goods and services in the future. This article relates to the chapter by showing how the Canadian airlines face challenges due to the subsiding purchasing power of the loonie. Because the Canadian dollar isn’t super high, and fuel prices continue to soar, $1.00CDN would buy less oil than before. That would pressure the prices to remain high; therefore less people would travel, leading to a weak economy for the airline industry.
In my opinion, I think the airlines should slow down their increase in capacity of airplanes since the demand is less. Otherwise, prices would just continue to remain high and increase, causing less and less people to want to travel. Furthermore, I think this challenge could possibly continue past 2008. The prices of oil and fuel continue to rise and don’t seem that they will decrease at all, or even stay constant. Unless the Canadian economy will become better, the airline industry will continue to face lower share prices. New air line companies are also increasing the competition.
http://www.nationalpost.com/news/story.html?id=253939
5 comments:
I disagree with WestJet and their need to increase more planes. I think that since the price of fuel is still quite high, then there’s no need for them to create new planes, since there will be a decrease in passengers that will be traveling. With even more competitors in the air field, like Porter Airlines, and New Air & Tours, I feel that it will be even less likely for any company to do well. However, there will still be people who will have to travel, like business woman and men, but others who travel for fun, leisurely, will be decreased dramatically. WestJet representatives still seems to be pretty optimistic, as they believed there will be a 23% increase in 2008 and 2009, so I think that if they have hope, then something will happen, and they will not be disappointed with the outcome, and hopefully they will succeed.
After looking through their annual report in a prior assignment, I can understand WestJet's position on expansion. Their past growth has always been steady and it's just unfortunate how the loonie has been weakened. I would expect WestJet to continue expansion this year and focus on customer appreciation / amenities the following. I don't believe that they would drastically lower their plane production because of the economic stance of Canada and the United States at the current moment. I can expect better customer care so that people would be more enticed to fly with them. This could help them in the long run, rather than cutting production in the early stages.
Alex Ng - Block D
I think you make a good point when you say that you think the airlines should slow down their increase in the capacity of airplanes. Because their demand is low for flights due to increased prices, they have been having problems. The inflated prices of oil have decreased the purchasing power of the Canadian dollar, and therefore airline expenses are increased. It seems that the price of everything is going up nowadays, especially the prices of staple goods that many people require. I often wonder how effective the Canadian dollar will be in the future, depending on its purchasing power. If oil prices, and prices of other goods, continue to inflate, it is obvious that there will be problems in the future regarding the strengths of economies. To keep on par with rising prices, the value of currencies on a global level will be required to increase. This would probably be a trend of the past, because as prices increase, so would wages and the amount of money printed to satisfy consumer demands, causing the value of currency to be lower than in the past. The result would be a type of positive feedback that would keep on repeating.
I don't think that Westjet should lower their production with their planes. Since the price of the fuel is already high, people will resent traveling as much so there wont be a need for more planes. I agree with Kelly how she said business people will still have to travel, but they’ll probably be smarter and take advantage of the competition and chose the company with better everything, including customer service, seats, food, etc for the price they offer. But I think I'd probably be one of those people who will refrain from traveling by plane because the average teenager won't be able to afford it with the minimum wage part-time jobs they have.
Fiona
Blk D
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