National Bank notes the air transportation component of Canadian CPI data for April edged down 1.7% after posting a 2.9% increase in March, the first irise since June 2024.
April fares were down 3.6% from March.
The decline is surprising, given Canadian airlines implemented fuel surcharges on most routes with Air Canada (AC.TO) reporting, despite the higher fares, demand has not declined, writes analyst Cameron Doerksen.
"However, we note that fuel surcharges have been more aggressive on international routes, and we believe the StatCan survey is more weighted to domestic routes which could partially explain why April data did not come in stronger," Doerksen adds.
He expects fares for Air Canada and Transat A.T. (TRZ.TO) to be higher in the short term with Air Canada also noting at the time of its first-quarter results that it was booking forward yields in the mid-teen percentages y/y. However, the longer high fuel prices persist, the more risk there is that higher airfares will lead to some demand destruction, Doerksen says.
Air Canada is rated sector perform with a $22.00 price target on its shares. Transat is also rated sector perform with a $3.00 price target on its shares.
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