Air Canada

Westjet slams Air Canada – Transat merger approval

“It is hard to imagine a deal as anti-competitive in any industry,” said Westjet chief executive Ed Sims.

Westjet slams merger
A Westjet Boeing 787 departs Vancouver International Airport December 24, 2020 (Brett Ballah).

Calgary-based WestJet is slamming the federal government’s decision to approve the merger of Air Canada and Transat.

“This decision shows blatant disregard for all Canadians who believe in healthy competition,” said Ed Sims, WestJet President and Chief Executive Officer in a statement late Thursday. “When Canadians look to explore the world and reunite with family and friends once again, they will face fewer choices and higher fares.”

The federal Cabinet gave its blessing to the merger Thursday afternoon. Air Canada will pay $5 a share – about $190 million – for Transat. The deal is still subject to an ongoing review by European regulators. A statement by Transport Minister Omar Alghabra said the deal “will bring greater stability to Canada’s air transport market.”

He indicated COVID-19 played into the decision. Transat has indicated it will need $250 million in financing to survive the year, if the deal does not go through.

“As Transat A.T. itself noted in December 2020, current uncertainty casts doubt on its ability to continue, as it faces significant financing challenges,” the government said. All Transat flights are currently grounded because of government-imposed border restrictions. “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.”

Bloc Québécois critic Xavier Barsalou-Duval said the decision set a dangerous precedent for market concentration.

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Uncertain conditions

The minister imposed seven conditions Air Canada and Transat. Among them, that Transat provide communications and services in English and French.

“This authorization is subject to the implementation of significant undertakings agreed to by Air Canada, the object of which is firstly to ensure effective competition, and secondly to ensure public interest benefits (including maintaining a Transat head office in Québec, the preservation of jobs and the Transat brand, and the launch of new routes),” Transat said in a statement late Thursday.

The government is also imposing a price monitoring mechanism. And it is calling for “Measures to facilitate and encourage other airlines to take up former Transat A.T. routes to Europe.” However, the minister did not provide details how either provision would work.

There is also no condition limiting the combined airlines’ market share. Air Canada and Transat dominate the trans-Atlantic market, particularly from Toronto and Montreal. Estimates produced before the pandemic showed Air Canada, Transat and their alliance partners flew two-thirds of all capacity between Canada and Europe.

Westjet and its partners controlled just 17%.

The Competition Bureau released its analysis of the merger in March 2020. The agency said the merger would restrict or eliminate competition on 83 routes. And it wouldn’t be easy for new airlines to muscle in.

‘Canadians should be profoundly disappointed’

“In Europe, access to slots and infrastructure at key airports is likely to affect potential entrants,” the Bureau reasoned. “For example, the evidence indicated that entrants would face slot or infrastructure constraints in each of the following airports: Amsterdam Schipol, London Heathrow, London Gatwick, Dublin International Airport, Paris Orly and Lisbon Portela Airport.”

While Canadian airports were more open, the Bureau said, access to the best gates was already constrained in Montreal. And Toronto operated at capacity in the key late afternoon period when flights to Europe depart. Combined, that would discourage competitors from service Canada’s two largest cities.

“It is hard to imagine a deal as anti-competitive in any industry where the number one player buys number three without meaningful remedies,” said Sims. “This is a serious setback to Canada’s economy. The Competition Bureau themselves described such cosmetic remedies as inadequate. Canadians should be profoundly disappointed.”

Sims elaborated on his position in a blog post released Friday.

“To be 100 per cent clear, here is what we asked the government for:

  • Air Canada must be prohibited from using its Aeroplan loyalty program on Air Transat routes, or from using of exclusivity agreements or similar incentives with travel agencies, as these tactics will limit the ability of consumers to exercise competitive choice. Loyalty programs lock customers in by creating significant costs to switching carriers, while they similarly drastically increase competing airlines’ costs for acquiring such passengers.
  • Critical slots and infrastructure must be made available to Canadian airlines at London Heathrow (LHR) and Amsterdam Schiphol (AMS) to help offset the international travel market dominance of a merged Air Canada/Air Transat.
  • The merged firm must be prohibited from operating at Terminal 3 of Toronto’s Lester B Pearson Airport (YYZ). 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.”

The European Commission is also reviewing the deal. It was to have decided by early February, though the deadline has been pushed back. A decision is now expected in the first half of 2021.

Air Canada and Transat set a merger deadline of February 15. Transat said it will discuss an extension with Air Canada. After that, the company said the Arrangement Agreement will remain in effect, unless terminated by one of the parties.

“We are currently working on adjusting all of the deadlines, including our financing agreements, in order to align them with the anticipated completion of the Commission’s review process” said Jean-Yves Leblanc. He’s the Chair of the special committee of the Board of Directors of Transat steering the merger.

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Categories: Air Canada, Air Transat, Westjet

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