Category: 3. Business

A by-product of the drop in Canada-US transborder demand, after shifts in US trade policy, was the decision by Canadian airlines to redeploy some capacity back into the domestic market.

A lingering question from the reallocation of capacity is whether there’s a danger of a supply-demand imbalance occurring in Canada’s domestic market.

For now, Canadian airlines seem optimistic that a rational marketplace will ensue, as they navigate the northern summer high season.

Summary

• Air Canada foresees a stable domestic environment in 2Q2025 and 3Q2025.
• Porter Airlines sees a shift among Canadians – to local travel.
• Flair Airlines believes that shifts by Canadian airlines from US transborder routes will remain in place for the near future.
• WestJet cancels some transborder routes, and uses new domestic flights to feed its European network.
• Canadian operators are waiting to see if transborder demand changes are going to be permanent.

Air Canada foresees a stable domestic market as its network diversification provides competitive shield

Canada’s airlines had to quickly reorient some US transborder capacity into domestic and other warm-weather markets during 1Q2025, after tariff threats by the US and discussions about Canada becoming the 51st state dampened demand for Canadian point-of-sale.

Air Canada executives told analysts and investors in May-2025 that it was experiencing booking declines on point-to-point transborder routes in the low teens, on average, for the next six months.

See the related CAPA – Centre for Aviation report: Air Canada’s network diversification efforts create a buffer against falling US demand

But the company’s management also reported that Canada’s domestic market looked stable in terms of passenger growth for the second and third quarters of 2025, and Air Canada’s own domestic capacity growth would remain in the single digits.

Data from CAPA – Centre for Aviation and OAG show that Canada’s overall domestic seats are forecast to grow 7% year-over-year for the week of 21-Jul-2025.

Canada’s weekly total domestic seats, from 2020 to late Nov-2025

Source: CAPA – Centre for Aviation and OAG.

*These values are at least partly predictive up to 6 months from 16-Jun-2025 and may be subject to change.

Porter sees strong domestic demand in Canada for busy northern summer period

Before the US trade upheaval, the US transborder market played a key role in Porter Airlines’ expansion with its growing Embraer 195-E2 fleet.

But the airline joined its Canadian counterparts in opting to reallocate some of its US capacity back into Canada.

Earlier in 2025 Porter explained that domestic operations during the peak summer season in the northern hemisphere would represent 80% of its network, versus previous plans of 75%. However, the airline did state that its presence in the US market should still be 25% larger year-over-year for the northern summer time frame.

“We’re allocating quite a bit more of that capacity in Canada…we feel the summer season is already the strongest domestically, and we feel this summer will be even stronger as a result of Canadians wanting to travel locally”, Porter CFO Robert Palmer told CAPA TV during the CAPA Airline Leader Summit Americas in Apr-2025.

Porter Airlines, EVP & CFO, Rob Palmer, at the CAPA Airline Leader Summit Americas 2025

Source: CAPA TV.

He added that those travellers now prefer to travel cross-country to visit destinations that include Vancouver and Halifax, “instead of going someplace in the US”.

Porter has recently launched a slew of new routes in Canada, including Hamilton to Vancouver and Halifax. It’s the lone airline on the Hamilton-Halifax and Ottawa to Victoria route pairings.

WestJet has pulled out of some of Porter’s new routes, including Hamilton-Halifax and Toronto-Deer Lake, as it places more emphasis on its hub in Calgary.

Competitor two-way seats on some of Porter Airlines’ new domestic routes, as of mid-Jun-2025

Source: CAPA – Centre for Aviation and OAG.

Domestic routes represented nearly 76% of Porter’s departing frequencies in mid-Jun-2025, and when Mr Palmer spoke with CAPA TV in Apr-2025 he explained that Porter had recorded a reduction in bookings to popular US destinations over the previous six weeks.

Porter Airlines: domestic versus international departing frequencies, as of mid-Jun-2025

Source: CAPA – Centre for Aviation and OAG.

The Canadian ULCC Flair caps growth for 2025, and believes transborder shifts will remain in place until 2026

Flair Airlines’ CEO Maciej Wilk told attendees at the CAPA Airline Leader Summit Americas conference in Apr-2025 that the airline had no plans to add aircraft to its fleet this year, noting “ironically, this is good news right now”.

The airline operates 18 Boeing 737-8s and two 737-800s, according to the CAPA – Centre for Aviation Fleet Database.

Flair Airlines’ fleet summary as of mid-Jun-2025

Source: CAPA – Centre for Aviation Fleet Database.

He also said that schedule changes implemented by Canadian airlines in the previous weeks would likely remain intact for the foreseeable future, adding that operators would likely reassess again when planning begins for summer 2026.

At the same time, Mr Wilk also struck a cautionary note, explaining that shifting transborder capacity back into Canada due to decreased demand “doesn’t solve the issue[,] because everybody’s doing the same”.

He noted that the “…billion dollar question is whether this is something that will continue for the next 3-4 years, or emotions will cool down and the summer of 2026 will be more or less back to normal”.

As it navigates shifting demand patterns, Flair’s domestic departing frequencies are nearly 88% – the highest among Canada’s airlines.

But as an ultra-low cost airline, Flair’s focus is domestic and near international service.

Flair Airlines’ domestic versus international departing frequencies, as of mid-Jun-2025

Source: CAPA – Centre for Aviation and OAG.

WestJet cuts US routes and adds Canadian pairing to funnel passengers to Europe

Back in Feb-2025 WestJet CEO Alexis von Hoensbroech told CTV News that the tariff announcements had resulted in a significant drop-off in transborder sales – approximately 25%.

In May-2025 Aviation Week Network reported that the airline was suspending nine transborder routes for parts of the summer, citing declining demand for travel to the US, amid growing tensions between the neighbouring countries.

An airline spokesperson explained to the publication that WestJet had “seen an increase in demand for domestic travel, specifically between Eastern and Western Canada,” and would add capacity on domestic transcontinental routes.

Some of WestJet’s new domestic services set to debut in late Jun-2025 and early Jul-2025 include Winnipeg-St John’s, and Halifax to Saskatoon and Regina.

WestJet concluded that those routes would offer connections to its European network from Canada’s east coast; the airline operates Boeing 737-8s from St John’s to Dublin, London Gatwick and Paris and from Halifax to Amsterdam and Dublin.

Additionally, WestJet bases its seven 787-9s at its Calgary hub, operating flights to Tokyo Narita, Seoul, Barcelona, Dublin, Edinburgh and Paris.

WestJet Group: fleet summary, as of mid-Jun-2025

Source: CAPA – Centre for Aviation and OAG.

WestJet’s long haul flights also provide the airline some additional network flex, as its domestic/international departing frequency split is 70%-30%.

WestJet: domestic versus international departing frequencies as of mid-Jun-2025

Source: CAPA – Centre for Aviation and OAG.

What does the future hold for US-Canada dynamics in 2026 and beyond?

Canada’s airlines arguably moved quickly to disperse capacity slated for US transborder routes elsewhere.

For now, it seems as if the addition of some capacity back into the domestic Canadian market is not creating an irrational marketplace; but more clarity should emerge as the busy summer season unfolds.

All of Canada’s airlines are waiting to see if this is a permanent shift, or if a return to normal trends is in store for 2026.

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Retail traders “buying the dip” in US stocks this year have racked up the biggest profits since the early stages of the Covid-19 crisis, helping to fuel a rally that has pushed Wall Street equities to record highs.

Individual investors have poured a record $155bn into US stocks and exchange traded funds during 2025, according to data provider VandaTrack, surpassing the meme-stock boom of 2021.

They continued to buy even as President Donald Trump’s blitz of tariffs on US trading partners sent stock markets tumbling in April — and their faith in the time-honoured strategy of piling in after stocks fall in anticipation of a rebound has paid off.

The Nasdaq 100 index of large-cap US technology stocks has risen 7.8 per cent this year. But an investor who bought the index only when it had fallen during the previous trading session would have locked in a cumulative return of 31 per cent over the same period, according to analysis by the Bank of America. 

“Pops and drops will occur . . . but the dip-buying belief has become the new religion,” said Mike Zigmont, co-head of trading and research at Visdom Investment Group.

The habit of buying into stock weakness has become increasingly hard-wired into investors in the decade and a half of buoyant US markets that followed the 2008-09 global financial crisis, during which downturns have tended to be shortlived.

This year’s returns are the best for the BoA’s hypothetical dip-buying model at this stage of the year since early 2020, and the second best return in data going back to 1985. 

Vanda’s senior vice-president of research Marco Iachini said “retail investors remain a major force in the market” and that their “dip-buying bias is fully intact”.

The rebound in US stocks — which hit fresh all-time highs last week even as the dollar and US Treasuries remain under pressure — has been “powered by a buy-the-dip dynamic that by some metrics has been even stronger than that seen in the latter stages of the 90s tech bubble,” said BofA equity analyst Vittoria Volta. 

Professional investors have eyed the rally with caution due to lingering concerns over the impact of Trump’s landmark tax and spending bill on America’s national debt and the potential hit to US economic growth from his tariffs. 

Deutsche Bank strategists said this week that there had been “few signs of strong bullish sentiment and risk appetite” among institutional investors since their demand peaked in the first few months of this year.

But dip-buyers are playing a risky game by opting not to cash out when prices surge, according to Rob Arnott, chair of asset management group Research Affiliates.

“We have a president who likes to surprise people, who likes to keep people off balance, to confuse his adversaries. All of this is a recipe for a higher volatility regime, and higher volatility means buying low and selling high is more profitable than in trending markets with stable policy,” Arnott said.

“Dip-buying works brilliantly until it doesn’t,” he added. “When you have a meltdown, it’s a quick path to deep regret.”

As a former manager of Guns N’ Roses and Morrissey, Merck Mercuriadis knows a few things about making a comeback. Now, the veteran music executive is attempting to stage his own after a rollercoaster ride on the public markets left him out of a job and on the sidelines of an industry he helped transform.

Hipgnosis, which Mercuriadis launched in 2018 to buy song rights and was sold last year, is back with bigger ambitions. Mercuriadis plans a new investment group under the same name, bringing together artists and their managers as co-owners in a partnership structure to make music and to buy the rights to songs from others.

The 61-year-old Canadian-born executive can already claim to have transformed the modern music business, taking a once esoteric industry in owning composition rights and helping create a multibillion-dollar asset class on the radar of the world’s biggest investors.

He was at the vanguard of a wave of institutional money into the sector as Hipgnosis went on a $2bn spending spree, buying the catalogues of artists including Shakira and Mark Ronson.

Now, having kept his silence since leaving Hipgnosis when it was sold to Blackstone (and rebranded as Recognition Music), he says he has unfinished business. He acknowledges, given he found the investment community to be as cut-throat as the music business, that there were questions about why he would want to return to the industry. But he adds: “The work that we started is not complete yet, because the music industry is only beginning to be institutionalised.”

Meeting in his London home — with its vast collection of floor-to-ceiling vinyl — Mercuriadis is clad in trademark black Prada that he says he always wears to avoid having to spend time choosing something else. He would rather think, he says, about music, an art form that has been a life-long passion and that still seeps into his every conversation.

Mercuriadis says he came up with the idea for Hipgnosis in 2009 when he saw the growing popularity of Spotify. A US platinum record used to mean selling 1mn copies in a country that has almost 340mn people, he says, but “streaming [gave] the other 339mn a reason to pay for music”.

Mercuriadis often seems to know everyone in music, dropping anecdotes about helping one 1970s legend prepare for Glastonbury and others to reinvent their careers. He has a neat trick of asking people about their favourite artist only to respond that he has worked with them, counts them as friends, owned their songs or at least seen them before they were famous.

This is the reason many musicians trust him as a manager or owner of their music. One former colleague describes him as a music obsessive and “ultimate fanboy who just wants to be part of the world that his heroes inhabit”.

You pay the price you know is the right price . . . You’re only ever going to be able to buy the Red Hot Chili Peppers once

Investors, however, have had a trickier relationship with the LA-based executive, who was previously an artist manager and boss of Sanctuary, a UK-based music company that came close to collapse amid questions over its accounting.

Mercuriadis encouraged Wall Street, hungry for new sources of returns, to buy into his vision of a long-term asset class, alongside his own higher-minded ambitions to help songwriters whose work could, he says, “languish after they’ve had their hit parade time”.

He sold the concept of song rights bringing a steady income based on performance, streaming and use in TV, gaming and films and Hipgnosis and its rivals’ abilities to “work” assets by encouraging this use and giving a new lease of life to many tracks.

“The opportunity for institutional investors was massive, and massive enough to be able to both change valuations and give people a great return,” he says.

By the end of 2021, his public company was trading at its highest ever share price. But its fortunes turned when the sharp rise in interest rates after the start of the Ukraine war pushed up the discount rate used to calculate asset values and its dividend looked less attractive.

Cuts to the value of Hipgnosis’s portfolio and questions over its debt levels and corporate governance brought a strategic review by a new board, which led to last year’s sale of the company. Mercuriadis stepped down following the acquisition, with some rivals in the industry predicting that this time it would be tough for the music executive to bounce back.

Mercuriadis was accused of fuelling excessive pricing by rivals by flooding the market with money and overpaying for rights. He rejects this, saying Hipgnosis’s portfolio was valued in line with industry “average” multiples of close to 16 times, with returns guaranteed by a “101-year copyright-protected income stream”.

Former colleagues say he often seemed better suited to being a manager of music than money. But he does not seem bruised by the downfall of Hipgnosis and the criticism he faced, blaming activist investors for the sudden end of his former company. The $1.6bn sale to Blackstone — and subsequent returns for the US private equity fund — has shown the deals he led to be good, he says.

“I’m proud of the work, I’m very proud of the catalogue, I am proud of the return that we gave to the investors . . . You pay the price that you know is the right price because the asset is going to become more valuable. You’re only ever going to be able to buy the Red Hot Chili Peppers once.”

The wave of dealmaking started by Hipgnosis shows no sign of stopping: last year Sony alone struck deals worth more than $1bn for songs written and performed by Queen and Pink Floyd.

Mercuriadis’s new venture already has investor commitments in the “hundreds of millions” of dollars, according to people familiar with the matter. Talks are taking place for the first two acquisitions.

“I’m going to amass five or six really important management companies, all of which have superstar artists and superstar managers that go with them”, Mercuriadis says. “It’s all about them having control and all about them making the majority of the money [rather than labels].”

Blackstone are very smart people. They’re getting a great return on the catalogue that I put together

Increasingly, he says power lies with artists that have amassed large followings on social media before record labels approach them. Why should they hand over the financial benefit to labels?

Mercuriadis describes this as a “value shift” from music companies to artists and managers. The company will work with labels, streaming platforms and talent agencies as “service providers” but the “equity [and income] will be in favour of the artist”.

Mercuriadis will also buy music catalogues that will provide “very predictable, reliable, low-risk” income, and sit alongside the new music being created by its artists. His ultimate ambition would be to buy back the $2bn of music he amassed at Hipgnosis.

“One of my goals is to buy the catalogue back. Blackstone are very smart people. They’re getting a great return on the catalogue that I put together. So I’m going to have to pay properly for it. The one thing that everyone has said post the sale is, ‘OK, this now seems cheap.’”

Mercuriadis also wants to create a songwriters’ “guild” to help them negotiate with streaming platforms. “It all starts with the song . . . yet these people continue to be the lowest-paid people in the room,” he says.

“It’s these people who helped make me who I am . . . and I want to keep giving back.”

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Sixteen years after Britain’s first high-speed rail service was launched, an official government review into the economic impact of HS1 on the south-east has concluded the £7.3bn scheme provided “poor value for money”.

The report, which was sat on by ministers for two years, comes at an awkward time for the government as it struggles to prevent further cost overruns and delays on the much larger HS2 scheme from London to Birmingham. 

HS1, which links London St Pancras International station with the Channel Tunnel and Kent, was opened in 2007 after receiving the go-ahead in 1991. It was sold at the time as a regeneration plan for the south-east, promising faster journey times and increased rail capacity.

“The starting point for a value for money assessment is that HS1 provides poor value for money,” said the government-commissioned report by Steer Consulting, an advisory group set up by Jim Steer.

Steer is an advocate for high-speed rail who helped spur the launch of the current HS2 railway project more than a decade ago.

The study said that international passenger numbers using HS1 were lower than forecast at the time the project was approved, and that it had failed to deliver the economic benefits to the region that were promised.

Although HS1 boosted population growth in Ashford and Canterbury, this was “largely associated with increased commuting to London”, said the report, which was released by the government in June.

The result was that “local economic indicators, such as GVA [gross value added] per capita, have not increased significantly compared with peer locations, which have not benefited from HS1”, it added.

The government is struggling with how to proceed with the new HS2 railway, which was originally intended to connect London with Europe and Scotland but has since been scaled back to run between the capital and Birmingham.

The cost has soared to at least £80bn, while there is still no plan for how to get trains into Euston station in central London despite demolition work starting on the site nearly a decade ago.

Transport secretary Heidi Alexander admitted last month that the project would be delayed by several more years. The government also revealed that HS2 may initially have to run at slower speeds than expected to prevent further delay to its opening.

Andrew Gilligan, a former Conservative transport adviser and head of transport at Policy Exchange think-tank, said: “This study, based on more than a decade of real-world evidence, disproves the overhyped claims about the economic benefits of high-speed rail.”

He added that HS1 was still “a much better project than HS2, costing two-thirds less per mile in real terms”. 

HS2 cost taxpayers £7.7bn in 2024, 57 per cent more than was spent on local public transport across the entire country last year, according to official figures. The line is now not expected to open until the mid- to late-2030s.

HS1 was sold in November 2010 to a consortium of private investors on a concession from the UK government to run the line for 30 years for £2.1bn. It is now owned by investors including HICL Infrastructure and Equitix.

Renamed London St Pancras Highspeed, it has recently offered financial incentives to operators to run services between London and mainland Europe. It aims to boost demand after its own study found that it could increase international passenger numbers from 1,800 an hour to nearly 5,000.

London St Pancras Highspeed said it had “announced an ambitious growth incentive scheme . . . which incentivises an increase in services, passengers and new destinations, and encourages greater use of existing stations domestically in the south-east”.

The Department for Transport said HS1 had successfully delivered on its objectives, more than doubling capacity for international rail services.

It added that the report had “methodological limitations”, such as not looking at regeneration impacts in London or wider, longer-term economic effects of the project.