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Air Canada boosts capacity as travel demand recovers

MISSISSAUGA, ON - NOVEMBER 4: Air Canada aircraft parked on the apron at airport. Aircraft at Pearson International Airport. COVID-19 continues to be an issue as vaccinations continue, but at a slower pace than previously. CORONAPD  Toronto Star/Rick Madonik        (Rick Madonik/Toronto Star via Getty Images)
Air Canada will boost its full year seat capacity by 150 per cent compared to 2021 levels as COVID-19 restrictions ease and demand ramps up. (Rick Madonik/Toronto Star via Getty Images)

Air Canada (AC.TO) said Wednesday it will more than double its capacity for the year as travel demand recovers and domestic airline competition heats up.

The Montreal-based airline said it will boost its full year seat capacity by 150 per cent compared to 2021 levels as COVID-19 restrictions ease in Canada and around the world and demand ramps up.

But a full recovery to pre-pandemic levels will take longer, as this year's capacity levels represents 75 per cent of what Air Canada flew in 2019. The airline said it expects capacity to reach 95 per cent of its 2019 levels by 2024.

"The overall recovery is indeed getting closer," Air Canada's chief commercial officer Lucie Guillemette said at the company's annual investor day on Wednesday, adding that the airline will add new routes this year flying out of its main hubs in Montreal, Toronto and Vancouver.

"We predict to be close to full recovery by 2024. This is buoyed by a strong domestic recovery, a strong rebound in the visiting family and relative market, and the overall pent up demand for leisure travel," she said.

"The recovery in business segments or business markets will lag. However, we anticipate a strong strong rebound in 2023."

Air Canada is also bracing for increased competition in the domestic market, which has seen the several smaller carriers ramp up capacity through the COVID-19 pandemic.

Flair Airlines, which bills itself as an ultra low-cost carrier (ULCC) that keeps base fares low while charging for extras including carry-on baggage, has aggressively expanded in Canada in recent years. In fact, Flair has more than doubled its seat capacity compared to pre-pandemic levels. WestJet's Swoop was the only other Canadian airline to see its capacity increase compared to 2019, with its flights and seats increasing by 11 per cent in 2021 compared to 2019. Lynx Air, the country's newest airline that will also operate as a ULCC, will begin flying in Canada next month.

"We know that the environment now is extremely competitive. We can see the competition is intensifying here," Guillemette said.

How Air Canada will respond to the increased competition remains to be seen, but Guillemette said that the airline is in the midst of a "transition period" and assessing the strategy behind its low-cost, leisure subsidiary Rouge.

"We are currently assessing the various alternatives of how best to position Rouge, not only in the leisure space, but possibly even in some ultra low-cost market segments," she said.

"We are now in the process of really looking at the mission for Rouge and how we best want to proceed in the years to come."

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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