Air Canada’s purchase of Air Transat is a concern for the Competition Bureau

In 2019, at a time when the airline industry was doing well, Air Canada announced its desire to acquire Air Transat.

A transaction worth $720 million, accepted by Air Transat shareholders. However, this operation must go through several other steps before being finalized:

• The opinion of the Competition Bureau
• Transport Canada Notice (before May 2, 2020)
• The conclusion of the Council of Ministers

The Competition Bureau has just given its opinion on this transaction: it is“concerned“… and this is not really surprising!

Eliminating the rivalry between these airlines would result in higher prices, reduced service and a significant reduction in travel by Canadians on certain routes where their current networks overlap.

Bureau de la concurrence

The Competition Bureau’s concern is with the effects of the transactions on 83 routes:

• 49 overlapping routes between Canada and Europe
• 34 overlapping routes between Canada and sun destinations in Florida, Mexico, Central America and the Caribbean.

The transaction also represents a merger of the only two carriers offering non-stop service on 22 of these routes.

This is only an “opinion” of the Competition Bureau, which will be added to the elements of the file allowing the Council of Ministers to make its decision.

It is certain that the disappearance of a competitor like Air Transat, especially for “leisure” destinations, will necessarily result in a fare increase.

However, with the new reality created by the COVID-19 pandemic, the financially “weakest” airlines will have a lot at stake in order to relaunch themselves. And this is the case with Air Transat.

Air Canada has responded to the Competition Bureau’s announcement:

Given the unprecedented impact of the COVID-19 crisis on the airline industry and the global state of emergency, we will review the Competition Bureau’s findings in due course.

Air Canada

In other words: there are more important things to deal with at the moment.

As for Jean-Marc Eustache, President and CEO of Transat:

The Bureau’s report should be taken with a little distance and no conclusions should be drawn as to the final decision. The role of the Commissioner of Competition is limited to examining the impacts on competition in the market, in other words, to pointing out the difficulties, without necessarily considering the solutions or remedies that could be put in place, or taking the broader public interest into account. Transport Canada’s evaluation will shed more light on the ins and outs of the transaction and the overall impact on Canadians and the economy.

Jean-Marc Eustache, President and Chief Executive Officer of Transat

In our opinion, it is likely that Transport Canada will have a much more sympathetic view of the impact of COVID-19 on the industry. Rather than leaving two companies “in bad shape” at the end of the crisis, it would be better to have only one in better shape.

Air Canada still has to complete the transaction: it was worth $720 million, or $18 per Transat share. As of March 27, it closed at $9.49…!

The Competition Bureau has therefore issued its opinion on the acquisition of Air Transat by Air Canada, in the midst of a crisis due to COVID-19.

It will be interesting to see the advice of Transport Canada and the conclusions of the Council of Ministers. But it’s a safe bet that COVID-19 will be added as a new game-changer, and it’s not clear that this deal will go through. In any case, perhaps not in its initial conditions.