EU Begins To Look Into Air Canada’s Transat Purchase

Air Canada’s acquisition of Canadian leisure carrier Air Transat is under further scrutiny. The news, made public today, indicates that the European Commission is investigating concerns that the deal may reduce competition for commercial passenger travel between Europe and Canada.

air-tranAir Transat Aircraft in Canadasat-plane-snow
Air Transat is in the process of being acquired by Air Canada, but the deal is far from complete. Photo: Air Transat

Investigation details

According to Aviation24.be, the European Commission is conducting an in-depth investigation under EU Merger Regulation. The heart of the matter is the threat to healthy competition and keeping airfares low for travelers.

Although numerous European carriers, as well as Canada’s WestJet, provide passenger services between Europe and Canada, Air Canada and Air Transat are the largest and provide the most routes.

Between the two airline networks, there are normally a total of 29 routes between Canada and 10 European countries:

  • Belgium
  • Croatia
  • France
  • Greece
  • Ireland
  • Italy
  • The Netherlands
  • Portugal
  • Spain
  • The United Kingdom
WestJet Boeing 787 Dreamliner
WestJet received its first Boeing 787 Dreamliner in January 2019 and has been using it for transatlantic operations to Europe. Despite WestJet’s presence in the market, the European Commission does not believe it is enough to ease concerns over competition. Photo: WestJet.

The European Commission had the following to say on the matter:

Air Canada and Transat are the two leading airlines operating a wide network of routes between Europe and Canada. We will carefully assess whether the proposed transaction would negatively affect competition in these markets leading to higher prices, reduced quality or less choice for travellers flying over the Atlantic. This is a challenging time, especially in markets severely impacted by the coronavirus outbreak, but a return to normal and healthy market conditions must be based on markets that remain competitive.” -Margrethe Vestager, Executive Vice-President of the European Commission via Aviation24.be

How competition is affected

According to CTV News, the preliminary investigation points out that Air Canada and Transat have been competing directly with each other for passengers. This competition has likely kept fares low for passengers as airlines do their best to attract business.

Currently, even though Air Canada’s mainline brand offers a more upscale product to leisure-focused Air Transat, its Rouge brand operates a lower-cost model more akin to Air Transat. It seems natural that absorption of Air Transat into Air Canada would mean one less rival in the air.

EU Begins To Look Into Air Canada’s Transat Purchase
Air Canada is Canada’s largest airline and one of three Canadian carriers operating transatlantic services. Photo: Air Canada

If the two airlines merge, this competition will vanish. The commission has gone so far as to say that even if WestJet were to expand its transatlantic operations to Europe, it may still not be enough.

Already, Canadians are suffering from a lack of competition with regard to domestic air travel. With WestJet and Air Canada dominating the market, prices are incredibly high when compared to the same service-level and distance covered in other parts of the world. While there are other factors at play, competition is often mentioned as at least one influence. New ultra-low-cost-carrier Flair Air is hoping to disrupt this on some level, and the airline’s lower fares demonstrate that more competition can indeed benefit travelers.

767 rouge
Air Canada Rouge flies a product similar to what Air Transat offers. Photo: Air Canada

Aviation expert and former airline executive Mr. John Gradek highlights Vestager’s remarks on the impact of the coronavirus as a ‘very telling comment.’ Indeed, there is a real risk that there will be even less competition in the Canadian transatlantic market once the full effects of this pandemic are realized.

Where do we go from here?

The European Commission will take its time to conduct the investigation. This is something that an Air Canada spokesperson told us is part of the “normal, ongoing regulatory review process.”

For its part, Air Transat added:

“Transat has informed Air Canada of its decision to activate the first one-month extension of the outside date set for the transaction, provided for in the Arrangement Agreement. It is therefore postponed for the time being to July 27, 2020, from June 27. The Arrangement Agreement provides for the possibility of postponing the deadline for three one-month periods simply by notification from one of the parties, and then for three additional periods under certain conditions.”

The airline also noted that the transaction is subject to a public-interest assessment conducted by Transport Canada, whose report was submitted on May 1 to the Canadian Minister of Transport.

BNN Bloomberg notes that the European Commission has set a September 30th deadline to rule on the deal, leaving us potentially waiting all summer to see what will happen.

We found out in May 2019 about Air Canada’s plan to purchase Air Transat. Initially reported to be a deal worth US$520 million, a bidding war was one factor in the price being raised to US$720 million.

EU Begins To Look Into Air Canada’s Transat Purchase
Air Canada could use Air Transat to expand in additional leisure markets. Photo: Air Transat

Like the European Commission, Canada’s Competition Bureau also had concerns about the merger. The Globe and Mail had reported in March that the Competition Bureau’s concerns were outlined in a report delivered to Canadian Transport Minister Marc Garneau. The report was to inform Transport Canada’s own public interest review, scheduled to be provided by May 1st. We haven’t heard any news on the subject since – which is likely due to the current global health crisis.

What’s your opinion? Will this deal lead to lower competition to the detriment of travelers? Let us know your thoughts in the comments.

Simple Flying also contacted Air Transat for comment. However, at the time of publication, no response has been received.

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