Editor’s Note: Please see our analysis of the latest news from our other Dividend Champions in the Portfolio Update section following the article below.

For 12 days, it looked as though Canada might soon have a new—and cheaper—airline in its skies.

On Jan. 6, startup NewLeaf Travel announced that it would start taking reservations for flights slated to start Feb. 12. In a direct challenge to Air Canada (TSX: AC, OTC: ACDVF) and WestJet Airlines (TSX: WJA, OTC: WJAVF), the No. 1 and 2 carriers, respectively, the new airline planned to fly between seven smaller Canadian cities for as little as C$89 one-way.

But on Monday, NewLeaf abruptly called off its launch, citing a Canadian Transportation Agency review of licensing requirements for “indirect air service providers.” (Unlike the major airlines, NewLeaf mainly sells tickets, while another company provides the planes, crew, maintenance and license.)

NewLeaf hopes to restart ticket sales in the spring. And it isn’t the only competitor taking aim at the two leaders. Two others, Canada Jetlines and Jet Naked (a temporary name, fortunately), also hope to begin service this year.

On the international front, in May, Icelandic carrier WOW Air plans to start selling tickets to Iceland for C$99 and other European destinations for C$149.

So can these new players threaten the incumbents, including Dividend Champion portfolio holding WestJet?

A Steep Climb

If history is any indication, they’ll have a tough time carving out a place in Canadian skies. According to WestJet VP Sales & Development Lyell Farquharson, 85% of airlines started in Canada are no longer in business.

The reasons will sound familiar to American readers, namely fluctuating fuel prices, intense competition and a business that’s closely tied to wider swings in the economy. The result—as has been the case in the United States—has been a wave of consolidation, including big mergers such as Air Canada’s tie-up with main rival Canadian Airlines in 1999.

In other cases, carriers have simply gone bankrupt, sometimes spectacularly, like when discount airline JetsGo grounded its planes without warning in 2005. This was on the Friday before March Break—the country’s busiest travel day—stranding thousands of passengers across Canada and the U.S.

Even flag carrier Air Canada filed for bankruptcy protection in 2003, following the September 11 terrorist attacks and an outbreak of severe acute respiratory syndrome (SARS) in Toronto.

Of all the major challengers to Air Canada over the years (other names include Canada 3000, Zoom Airlines, Greyhound Air and recently shuttered Canjet), just two are flying today: WestJet, which took to the skies in 1996, and privately held Porter Airlines, which dominates the downtown Toronto City Airport, a handy access point for business travelers.

Even if it does get off the ground, NewLeaf, with just five Boeing 737-400s, likely won’t cause the incumbents’ execs to lose much sleep, according to National Bank analyst Cameron Doerksen: “NewLeaf will have two large, financially strong competitors with huge networks to contend with,” he wrote in a note to clients quoted by the Financial Post.

Beyond Alberta

WestJet’s network consists of 100 domestic and international destinations, plus agreements that give it easy access to dozens of other carriers’ flights.

The oil-price plunge has been a big plus for the company, chopping the price of fuel to the tune of 28% year-over-year in the third quarter. But it’s not without drawbacks, including the economic slowdown in the oil-rich province of Alberta, where 25% of WestJet’s capacity originates.

Meantime, despite the ripple effect the oil crash is having on Canada’s economy, both WestJet and Air Canada have been adding planes. That’s spooked investors, who have sent WestJet shares down about 46% on the TSX in the past year. Air Canada has dropped 39%.

Those concerns aren’t unfounded: for the full year, WestJet’s passenger count rose 3.3%, to a record 20.3 million, but capacity outpaced that growth, increasing 5.1%.

But there are also reasons to believe the drop is an overreaction.

For one, WestJet has a long record of managing its business profitably (turning a profit for 42 straight quarters). It also doesn’t hesitate to shuffle its planes when markets turn soft. In December, for example, it suspended flights between Fort McMurray, Alberta—the oil patch’s epicenter—and Kelowna, British Columbia.

More routes will likely be shuffled this year: “As we think about 2016 and what we’re going to need to do, you’re going to see a fair amount of redistribution of our capacity away from some of these softer markets into markets that are a little more robust,” CEO Gregg Saretsky said in a January 4 Financial Post article.

Those “more robust” markets could include Ontario, which RBC expects to post 2.5% GDP growth in 2016, and British Columbia, Alberta’s next-door neighbor, which is forecast to lead the nation with a 3.1% expansion.

Finally, both Air Canada and WestJet stand to gain as the low Canadian dollar attracts more international tourists. There are signs that’s happening: overnight visits from the 11 markets monitored by tourism organization Destination Canada jumped 7.6% from January to October 2015. We see WestJet as a buy with a fair value of C$29, or US$22.

The Dividend Champions: Portfolio Update

By Deon Vernooy

Toronto Dominion Bank (TSX:TD, NYSE:TD) announced that it expects its U.S stockbroker, TD Ameritrade’s, first quarter earnings to translate into C$109 million to fiscal 2016 first quarter net income for the bank. This compares to a C$90 million contribution in the first quarter of last year. Although relatively small in the context of the larger TD Bank Group, the increased contribution will be welcomed in an otherwise difficult environment.

TD Bank will release its first quarter financial results on Feb. 25. Consensus expectations indicate a 7% increase in earnings per share for the fiscal 2016 first quarter with a C$0.51 dividend, 8.5% higher than the same period last year.

With the market meltdown over the past few weeks the stock is trading well below our fair value estimate of C$61/US$42 with an attractive dividend yield of over 4%.

InnVest REIT (TSX: INN-U, OTC: IVR.F) announced an unchanged monthly distribution of C$0.0333 per unit. Although there has been no growth in the dividend for the past four years, we remain optimistic that increased international tourism and a major revamp of the business will continue to deliver positive results in 2016 and 2017.

The stock trades below our fair value estimate of C$6/US$4 and the current yield is 8.2%.

The weak oil price environment eventually convinced the Board and a major shareholder of Canadian Oil Sands Ltd. (TSX:COS, OTC: COSWF) to agree to the offer from Suncor Energy (TSX:TO, NYSE:SU).

As we have argued all along, Suncor had to sweeten the offer to get the Canadian Oil Sands Board onside but the 12% improved exchange ratio of 0.28 Suncor shares for every Canadian Oil Sands share still seems favourable to Suncor.

The revised offer, which will remain open until Feb. 5, is also subject to at least 51% of Canadian Oil Sands’ shares being tendered and includes a C$130M breakup fee. With the Canadian Oil Sands Board now recommending that shareholders accept the offer, it seems very likely that the deal will be concluded.

The sole operating asset of Canadian Oil Sands is the majority interest (36.7%) of the Syncrude project in which Suncor and Imperial Oil are also shareholders. Syncrude currently produces around 275,000 barrels of crude oil equivalent per day of which almost half would accrue to Suncor should the deal be concluded. This would add around 20% to the estimated 2015 production for Suncor.

Suncor has a strong balance sheet (25% debt to capital ratio), very good cash flow and cash of around $5 billion placing it in a very good position to acquire assets in the current depressed energy markets.

Suncor remains one of the few commodity producers that qualify for inclusion in our Dividend Champions portfolio. The relatively safe dividend yield is currently 4.1% and although growth will be limited until the oil price recovers, the company is in an excellent position to acquire assets in the current depressed oil price environment. Our fair value estimate is C$39/US$28 but we will in all likelihood revise this when the deal is concluded.

Husky Energy (TSX:HSE, OTC:HUSKF) was sold a few months ago from the Dividend Champions portfolio when the Board of Directors decided to pay the dividend in Husky shares rather than cash. The company has now taken a further decision to discontinue the dividend completely which is probably better than handing out very cheap shares in lieu of cash dividends.

However, this dividend omission now implies that Husky will also be removed from our Dividend Champions watch list as it no longer qualifies for inclusion.