Last week’s governmental approval of Air Canada’s proposed bid to acquire rival Air Transat for $190 million did not sit well with others in the industry, particularly WestJet.
The President and CEO of the Calgary-based carrier, Edward Sims, expressed his disdain of the approval in a blog post released late last week.
Sims alleged that the acquisition will result in decreased competition in Canada’s air travel industry and will effectively lead to reduced quality of services and higher prices for consumers.
In a separate statement, Sims stated:
“When Canadians look to explore the world and reunite with family and friends once again, they will face fewer choices and higher fares. It is hard to imagine a deal as anti-competitive in any industry where the number one player buys number three without meaningful remedies.”
According to Sims, the Competition Bureau, which is responsible for healthy competition in Canada, performed a vigorous review of the impending acquisition and came to a similar conclusion:
“Eliminating the rivalry between these airlines would result in increased prices, less choice, decreases in service and a significant reduction in travel by Canadians on a variety of routes where their existing networks overlap.”
Subsequently, Sims has made demands for the Canadian government to place conditions on the acquisition in order to stabilize the competitive landscape.
Some of these conditions include the requirement of Air Canada to be prohibited from using its loyalty program on Air Transat routes, as well as barred from operating in Terminal 3 at Toronto’s Lester B. Pearson airport.
Air Canada Takeover of Air Transat
The historic toll which the pandemic has taken on the economy, and particularly the travel industry, does not come as a surprise to most.
Unfortunately, the burden was too much for Air Transat, and it could ultimately not weather the storm. Consequently, the airline was left no choice but to shut down operations.
Air Canada stepped in to take over, with the deal later approved by the Canadian government, subject to certain terms and conditions.
The Canadian government approved the sale on the basis of their review of the best probable outcome for Air Transat’s situation, stating:
“The COVID-19 pandemic was a key factor in the final decision. As Transat A.T. itself noted in December 2020, current uncertainty casts doubt on its ability to continue, as it faces significant financing challenges. Noting the effects of the pandemic on air service in general, and on Transat A.T. in particular, the Government of Canada has determined that the proposed acquisition offers the best probable outcomes for workers, for Canadians seeking service and choice in leisure travel to Europe, and for other Canadian industries that rely on air transport, particularly aerospace.”
WestJet’s Challenge of Acquisition
Sims contends that the government was responsible for Air Transat to be in such a vulnerable position, as they practically eliminated travel demand in the form of restrictions, leaving no source for cash generation.
Correspondingly, Sims proposes that the government should have provided liquidity support to the extent at which Air Transat would not be in the position to be acquired.
Sims has requested the government to disclose whether Air Transat was offered liquidity support.
As a result of the merger, Sims states Air Canada will gain the following advantages:
- 94% share of Canadian carrier capacity to Europe
- Nearly 70% market share on routes from Toronto to London, Paris and Rome
- Over 90% share in key leisure markets like Toronto to Athens or Glasgow
- Only Canadian airline for routes from Montreal to Barcelona or Venice
- Half of the market share from Toronto to Cancun and 56% to Punta Cana
- Air Canada’s share of sun destinations from Toronto will rise to 54% while WestJet’s would be 19%
Accordingly, Sims has asked the government to place the following conditions on the merger:
- Air Canada must be prohibited from using its Aeroplan loyalty program on Air Transat routes, as “Loyalty programs lock customers in by creating significant costs to switching carriers, while they similarly drastically increase competing airlines’ costs for acquiring such passengers’
- Infrastructure and slots should be made available to Canadian airlines at London Heathrow (LHR) and Amsterdam Schiphol (AMS)
- Air Transat must be prohibited from operating at Terminal 3 of Toronto’s Lester B Pearson Airport (YYZ), as “Terminal 1 boasts 3.7 million square feet with only 14 airlines operating whereas Terminal 3, built 30 years ago has 28 airlines operating in 1.9 million square feet.”
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