Air Canada announced that it has reached an agreement with Air Transat to acquire the latter.
Air Canada to buy Air Transat for $520 million
Rumours about the sale of Air Transat have been circulating since April 30… and Air Canada has finally won the bid in the negotiations with the company.
According to Air Canada President and CEO Calin Rovinescu:
A merger with Transat represents an excellent opportunity for the stakeholders of both companies to (…)
The acquisition presents a unique opportunity to compete with the world’s leading leisure travel companies.
This will allow us to expand our Montreal hub, Pierre Elliott Trudeau International Airport, where we have added 35 routes since 2012 for the Montreal and Quebec communities, and from which we carried 10 million passengers in 2018 alone.
The current offer includes keeping Air Transat’s headquarters in Montreal.
This transaction must be finalized within 30 days and approved by the Competition Bureau.
A consolidation of the leisure market
A few days ago, we learned that the investment fund ONEX was buying Air Canada’s competitor WestJet for $5 billion… and ONEX was said to be planning to acquire Air Transat as well.
No doubt that ONEX was part of the scenery in these negotiations and that Air Canada decided to act to avoid missing this unique opportunity to strengthen its position in the leisure market.
Because the leisure market is a growing market for Air Canada via its subsidiary Air Canada ROUGE.
It is also a growing market for Air Transat as the company reported revenues of nearly $3 billion in 2018, up 6% from the previous year.
The problem: Air Transat was experiencing significant operating losses ($38 million in the first quarter of 2019 alone), suffering from fuel costs and increasing competition in markets to the south and Europe, among other things.
But… these are markets that Air Canada has been actively developing via… Red!
One less competitor?
Air Canada, through this transaction with Air Transat, wants to capture the vast majority of the leisure market. This raises questions in terms of competition.
By taking over Air Transat, Air Canada would gain almost 2/3 of the market to Europe, compared to 43% today.
As for the “sun” destinations, there was an almost equal distribution between 4 companies: Sunwing, Air Canada, Air Transat and WestJet.
This acquisition would allow Air Canada to capture half of the market to sun destinations, as opposed to the current quarter.
This is amajor reshuffling of the cards in these two markets.
The elimination of a competitor is often detrimental to the consumer who can expect higher ticket prices to these destinations. Especially since Canadians already did not have a varied offer with only a few major players: Air Canada, WestJet, Air Transat and Sunwing.
A Red – Transat grouping?
If the transaction were to be completed, the next logical step would be to combine Air Transat’s activities with those of Air Canada Rouge.
Air Transat operates several types of aircraft:
- A321
- A310 (gradually replaced by A321LR… the competitor of the B737 MAX)
- B737
Air Canada Rouge operates mainly with:
- A319
- A321
- B767
It would therefore be logical to see Air Transat’s fleets integrated with Rouge’s.
Will Air Canada go so far as to make one of the two brands disappear? The question arises and the choice will be difficult because the Transat brand is so popular with consumers.
Aeroplan in all this?
When Aeroplan was looking for ways to stand on its own two feet following the divorce with Air Canada, a partnership with Air Transat was announced for 2020.
But since then, Air Canada has taken over the Aeroplan loyalty program and any agreements with other companies have effectively expired. Air Canada also announced the transfer of Aeroplan miles into its future program to be implemented starting in July 2020.
The eventual inclusion of Air Transat destinations in Air Canada’s portfolio would provide an opportunity for Aeroplan members to redeem their miles for these flights.
However, today it is unattractive to redeem miles for Air Canada Rouge flights – especially to Europe – due to high carrier surcharges.
Let’s wait and see… but we don’t expect any new interesting opportunities on this side.
Bottom Line
A reshuffling of the cards in the Canadian sky that makes us fear a rise in ticket prices, especially for the European and sun destinations so popular with Canadians and especially with Quebecers. But that will surely reassure the 5,000 Air Transat employees who will join the 10,000 Air Canada employees in Quebec.
Come to discuss that topic in our Facebook Group!
