Air Canada’s proposed takeover of Transat AT Inc. has received Canadian government approval, and is now under antitrust scrutiny by the European Commission. The C$5 per share arrangement is significantly lower than the C$18/share offer made by Air Canada in 2019, when the deal was initially being discussed. This speaks to the troubles faced by the Canadian aviation industry as a result of the COVID-19 crisis, a situation made even more challenging by the suspension of Mexican and Caribbean flights from Canada at the end of January 2021.
With a similar product offering as most North American and European full-service operators, Air Canada is the country’s flag carrier and its largest airline. Air Canada also operates Air Canada Rouge, a low-cost subsidiary that is integrated into the Air Canada mainline and Air Canada Express networks.
For its part, Air Transat is a budget operator flying scheduled and charter flights on leisure and transatlantic routes with dense cabin layouts in economy and recliner style seats in business. Canada’s third largest airline, Air Transat maintained regular service to several key European destinations before the coronavirus pandemic. On 11 December 2020, its parent announced that revenues for the fiscal fourth quarter ended 31 October had plummeted by nearly 96%. It posted a net loss attributable to shareholders of C$238.1 million for the quarter.
When Canada’s Competition Bureau previously reviewed the proposed acquisition, the agency concluded that it was “likely to result in a substantial lessening or prevention of competition in the sale of air travel or vacation packages to Canadians”.
The report highlighted 49 overlapping routes between the two airlines in the Canada-Europe market and 34 overlapping routes in the “sun destinations” of Mexico, Central America, Florida and the Caribbean. It noted that these routes would likely experience the worst effects of reduced competition, particularly increased ticket prices and reduced travel options.
News that the Canadian government has approved the purchase of Transat AT Inc. has been met with some concern, including from Canada’s second-largest airline, low-cost carrier WestJet.
Canadians today are waking up to a monopolized transatlantic and sun market with the shocking @AirCanada / @airtransat approval that will increase fares and stifle competition. https://t.co/bx5w5tZF84 pic.twitter.com/DdTRGWPWCn
— WestJet (@WestJet) February 12, 2021
“This decision shows blatant disregard for all Canadians who believe in healthy competition,” said WestJet president and CEO Ed Sims in a statement. “When Canadians look to explore the world and reunite with family and friends once again, they will face fewer choices and higher fares.”
Sims pointed to the prior Competition Bureau report as evidence that the deal is anti-competitive. “It is hard to imagine a deal as anti-competitive in any industry where the number one player buys number three without meaningful remedies.”
Details of the deal
Air Canada will maintain Air Transat’s brand, as well as its head office in Montreal, Quebec, per the Canadian government’s requirements.
But the deal raises questions about the future of Air Canada Rouge, which suspended services to sun spots following the new restrictions on non-essential travel. Air Canada recently retired Rouge’s long-haul Boeing 767s, leaving a fleet of Airbus A320 family aircraft. Some observers wonder if the takeover of Air Transat will result in the brand becoming the low-cost subsidiary of Air Canada.
Air Transat’s fleet of high-density Airbus A330 family aircraft with nose-to-tail seatback IFE, for instance, could tick the box for European services. Nine-abreast A330s are considered among the tightest configurations in the world fleet.
Air Transat also flies Airbus A321s, including the new A321neoLR, the type of long-haul narrowbody aircraft which is seen as pivotal to industry recovery. In October 2019, it became the first airline to operate the A321neoLR on a transatlantic service to the UK, and the first to bring the aircraft to London Gatwick. Like the A330s, the LR offers in-seat IFE.
Other aircraft types in Air Transat’s fleet offer wireless IFE to passengers’ own devices.
Canada’s approval of the deal, contrary to the concerns of its own Competition Bureau, may have been prompted by the devastating financial effects of the pandemic on the industry. However, for the flying public, it could represent a further reduction in flying options in a market where fares are significantly higher than similar length routes in the US market.
“With the approval of Canadian authorities now in hand, the other significant regulatory approval remaining to allow the parties to consummate the arrangement is the approval of the European Commission,” says Air Transat.
It anticipates a decision will be rendered in the first half of 2021.
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