Canada’s Minister of Transport is being urged to approve the merger of Air Canada and Air Transat, despite concerns about the harm it would to air air service between Canada and dozens of popular holiday destinations.
The Montreal Economic Institute – a Montreal-based think-tank – said the two airlines should be allowed to merge, particularly considering the battering they are receiving now because of the COVID-19 pandemic.
“First of all, it is clear that, in the current circumstances, a buyer in a more solid position like Air Canada would increase the likelihood of Air Transat’s recovery after the crisis and ensure its sustainability and the preservation of the maximum possible number of jobs,” says Gaël Campan, Senior Economist at the MEI and author of the publication.
“It would be irresponsible for the minister to refuse to allow this transaction, considering the situation the airline industry finds itself in, and such a refusal would end up being of no benefit at all to travellers either,” he added.
A report released Friday by the Competition Bureau concluded the merger “is likely to result in substantial anti‑competitive effects through the elimination of rivalry between Air Canada and Transat in the areas of overlap between their networks.” The conclusion was reached before the effects of the pandemic were known.
The Bureau analyzed a number of factors, including flights between Toronto and Montreal and such popular destinations as London, Paris, and Rome.
The Bureau found 83 routes between Canada and Europe, Mexico, Central America, the Caribbean, Florida and South America where competition would be harmed or eliminated. The effects would be particularly felt in Montreal, Toronto, and Quebec City, where the two airlines hold a dominant market share.
What’s worse, the Bureau found market barriers – such as slot restrictions and connecting networks – would mean that “no single carrier or combination of competitors is poised to replace Transat’s presence in the markets of concern or its offerings to Canadian travelers.”
An analysis by Western Aviation News last summer showed that a combined Air Canada and Air Transat, along with its Star Alliance partners, would control two-thirds of the trans-Atlantic market; numbers largely backed up by the Competition Bureau.
But the MEI said that analysis takes too narrow a view of airline competition.
While the Institute found a combined airline would control 48% of seats at Vancouver and a staggering 60 and 64% of seats in Toronto and Montreal, it argued travellers can search for deals around the world, and airline alliances mean there are a multitude of ways to reach any destination on the planet.
For example, in normal times a passenger flying from Saskatoon to Frankfurt could choose to fly Air Canada/Lufthansa via Vancouver, Calgary, or Toronto or Westjet/Delta via Minneapolis all with one stop. A more adventurous traveller could chose to fly Westjet/KLM via Calgary and Amsterdam or even drive to Edmonton and hop on Condor, Icelandair, or KLM.
It means you have to think globally, according to the MEI.
“Even after the acquisition of Air Transat, Air Canada remains a company of modest size compared to the world leaders and to the biggest hubs,” said Campan. “However, it would have a better chance to compete on equal footing in the global arena, to grow and to prosper, all to the benefit of its employees, its shareholders, and ultimately its passengers.”
Transat President Jean-Marc Eustache urged Ottawa to look at the bigger picture, “Particularly against the background of the COVID-19 crisis, our transaction requires a broad perspective that takes into account the company’s future, the protection of jobs, the advantages for travellers and the interests of all our other stakeholders, including our investors, our partners, and the communities where we operate.”
It’s not the first time the Competition Bureau has weighed in on a Canadian airline merger. In February, the Bureau said a merger of First Air and Canadian North would result in “a substantial lessening of competition in the provision of passenger travel and cargo service on a number of routes in Nunavut and the Northwest Territories, including reductions in passenger and cargo capacity, increases in price, and reductions in flight schedules.”
Transport Minister Marc Garneau has given himself until May 2 to conduct what’s called a public interest review of the Air Canada-Air Transat merger, though the pandemic may force him to extend that deadline.