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Air Canada and Transat terminate tie-up plans

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Air Canada on 2 April announced it has reached mutual agreement with Air Transat parent Transat A.T. Inc. to terminate its proposed acquisition of the budget carrier, explaining that the deal — even with concessions to address antitrust concerns — is unlikely to receive European Commission approval in its current state.

“After careful consideration, Air Canada has concluded that providing additional, onerous remedies, which may still not secure an EC approval, would significantly compromise Air Canada’s ability to compete internationally, negatively impacting customers, other stakeholders and future prospects as it recovers and rebuilds from the impact of the COVID-19 pandemic,” said Air Canada in a statement.

“Especially in this challenging environment, it is essential that Air Canada focus on creating the optimal conditions for its full recovery by preserving and leveraging all of its key strengths and assets including its strong employee culture.”

Air Canada will pay Transat a termination fee of C$12.5 million.

Some Canadians are applauding the decision, as they were worried that an Air Canada-Air Transat tie-up would further limit choice in an already competition-constrained market that sees Air Canada and WestJet enjoy a sort of duopoly.

Others suggest that Air Canada’s decision to walk away from the deal is a prime example of how the Canadian aviation industry is suffering due to extended lockdowns and stringent travel restrictions. And they wonder if Air Transat will even survive in the long run.

It’s no secret that the Canadian aviation industry faces a lack of competition. Steep fares have long been a concern and a complaint of Canadian air travelers. Price comparisons are hard to obtain right now, given that some airlines are not even taking future bookings. However, in the past it was often cheaper to book a transborder flight to the US than to fly even short-hops within Canadian borders.

Often, there is very little difference in price between Air Canada and WestJet on trunk routes, even though WestJet began life as a low-cost alternative to Canada’s legacy carriers, Air Canada and Canadian Airlines — the former of which acquired the latter in 2001.

Many southern Ontario residents regularly opt to simply drive over the border and fly out of Buffalo, New York to save money. And indeed, I’m considering doing the same later this fall, when business may take me to Los Angeles.

The Canadian air travel landscape

Outside of Air Canada and WestJet, Canadians can choose to fly Air Transat, which serves many sunspots in the US, Mexico and the Caribbean during the winter — that is, when services are not grounded due to COVID-related restrictions. In the summer, Air Transat’s focus switches to Europe, with flights to the UK, France, Spain and other European destinations (it is for this reason that the EC was poised to weigh in on an Air Canada/Transat merger.)

Elsewhere in Canada, Canadian low-cost carrier Sunwing usually offers scheduled and charter services from Canada to destinations within the US, as well as Mexico, the Caribbean, and Central America. However, due to the federal government’s restrictions, many of these flights are presently grounded.

Based in the Etobicoke district of Toronto, Sunwing also serves a cluster of Canadian cities during the summer months. “While family and friends might not be able to head to paradise together quite yet, Sunwing is making it easier for Canadians to reconnect with loved ones closer to home by launching their domestic summer program for the 16th consecutive year,” assured Sunwing in a recent statement. “Flights will commence in May and run weekly until the beginning of September, with convenient weekly routes to some of Canada’s most popular destinations.”

Another low-cost carrier, Swoop, offers domestic flights, and serves Montego Bay, Jamaica, but it hardly counts as a totally separate entity since it is owned by parent company WestJet.

Regional operator Porter Airlines provides service to a cluster of nearby Canadian and US cities from Toronto City’s downtown Billy Bishop airport. A codeshare with JetBlue enables Porter customers to connect through Boston and Newark on JetBlue to more than 50 destinations. Due to the COVID-19 crisis, Porter’s flights are grounded until at least 19 May.

This brings us to Edmonton, Alberta-based Flair Airlines, which serves 19 Canadian destinations, mostly to smaller regional airports. In a statement last week, Flair said it is expanding service to include Montréal–Trudeau International Airport starting 1 July 2021, with direct flights to Toronto, Vancouver, Halifax and Abbotsford.

“The addition of Flair’s service to Montreal marks an incredible milestone for the airline as it brings the first domestic ULCC service to the region,” it said. Given the small pool of competition in Canada, Canadians are quite rightfully excited about Flair’s planned growth.

In Canada, there are also a handful of smaller regional airlines with limited route networks, serving northern parts of the country or providing quick hops to Canada’s island destinations.

Canadian start-ups

Other would-be carriers have attempted to enter the Canadian market. In 2016, an entity called New Leaf tried to emerge as the “people’s airline”. It was absorbed by Flair in 2017, which now boasts it is “Canada’s only independent ultra low-cost carrier”.

Nolinor Aviation subsidiary OWG late last year announced plans to start services to Cuba even though the COVID-19 pandemic was raging. It accomplished some flights. But on 25 January, OWG released a statement that it would pause service to Cuba in part due to the travel restrictions put in place by the Government of Canada.

Another start-up, Canadian Jetlines (Jetlines) recently postponed its entry into service as a possible ULCC due to its reported inability to secure enough investment.

If you talk to Canadians, you’ll discover that many don’t even know that these airlines exist. And even then, the route/service options are so limited when compared to those on offer by the ‘big two’.

Air Transat’s survival as a standalone company could mean that a competitive market might be something of a reality in the future as the airline and others such as Flair slowly secure their space in the market. Regarding Air Canada’s decision not to acquire Transat, one commenter on Twitter said Flair and Transat might just help to tip the scales in time. Many Canadians share the same hope.

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Featured image credited to istock.com/shironoso