WestJet Comes Out Strongly Against Air Transat-Air Canada Deal

Archrival to Air Canada, Canadian carrier WestJet has finally spoken out publicly on its rival’s acquisition of leisure carrier Air Transat. WestJet’s CEO issued a public statement on the airline’s blog, expressing disappointment over the government of Canada’s recent approval of the deal. Stating that Canadians will see higher fares and reduced service, let’s look further into WestJet’s dismay and if the airline’s claims have merit.

WestJet Comes Out Strongly Against Air Transat-Air Canada Deal
WestJet says the merger will lead to a less competitive market, primarily with transatlantic and sun destinations. Photo: WestJet

“I am deeply disappointed with the approval by the government of Canada on February 11 of the acquisition of Transat by Air Canada, without meaningful remedies. The real losers in all of this are Canadians who believe in open and healthy competition. According to the Competition Bureau, what they will get by contrast is higher prices and reduced service.”  – Ed Sims, president & CEO, WestJet, via a statement seen by Simple Flying.

Increased fares and reduced competition

In a multi-front campaign, WestJet posted to social media while elaborating further with an official press release and lengthy message (blog post) from the airline’s chief, Ed Sims.

The Twitter post plainly states that the government’s approval of the merger will lead to increased fares and reduced competition, followed by a link to the airline’s official press release.

On the blog post, Sims blasts the government for not heeding the findings of Canada’s Competition Bureau. The Bureau reviewed hundreds of thousands of documents and heard from dozens of stakeholders on the proposed acquisition and noted that “Eliminating the rivalry between these airlines would result in increased prices, less choice, decreases in service and a significant reduction in travel by Canadians on a variety of routes where their existing networks overlap.”

Competition concerns not addressed

Sims goes on to point out that the Commissioner of Competition saw significant deficiencies in what Air Canada was proposing to address competition concerns, finding that the proposed measures:

  • Were inadequate
  • Did not conform to the principles of merger remedy design
  • Were unlikely to result in effective entry for new competitors

“For the relatively low cost of $190 million (essentially the cost of a single wide body aircraft like WestJet’s 787 Dreamliner), years of effort to foster true competition has been undone.” –Ed Sims, President & CEO, WestJet

WestJet had asked the government of Canada for the following concessions with regards to Air Canada’s acquisition of Air Transat:

  • Air Canada’s prohibition from using its Aeroplan loyalty program on Air Transat routes, or from using exclusivity agreements or similar incentives with travel agencies. Loyalty programs lock customers in by creating significant costs to switching carriers, while similarly increasing competing airlines’ costs for acquiring such passengers.
  • Critical slots and infrastructure must be made available to Canadian airlines at London Heathrow (LHR) and Amsterdam Schiphol (AMS) to help offset the international travel market dominance of a merged Air Canada/Air Transat.
  • Prohibition from operating at Terminal 3 of Toronto Pearson Airport (YYZ). Terminal 1 boasts 3.7 million square feet with only 14 airlines operating, whereas Terminal 3, built 30 years ago, has 28 airlines operating in 1.9 million square feet.

Looking at the terms of the approval, it doesn’t look like WestJet got much of what it had requested.

WestJet Comes Out Strongly Against Air Transat-Air Canada Deal
A term of the acquisition will see the Air Transat brand retained in Quebec. Photo: Air Transat

Will Air Canada actually dominate?

WestJet also says that once this merger is complete, Air Canada will hold 94% share of Canadian carrier capacity to Europe. Out of Toronto, Air Canada will have nearly 70% market share on routes to London, Paris, and Rome and over half of the market share to select sun destinations.

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While the numbers presented by WestJet’s CEO point to a combined Air Canada/Air Transat holding significantly more market share, the numbers miss out on some other factors. It should be noted that in the transatlantic market, European and US carriers remain as competitive forces. Whether it’s British Airways, Air France, KLM, or Lufthansa, the non-stop-flight competition on the other side of the Atlantic will still offer travelers a wide variety of options.

An Air France Boeing 777-200ER parked at the gate at Los
Air France serves both Montreal and Toronto. Photo: Getty Images

The same goes for sun destinations as US carriers could also provide enough competition to fight off fare increases. In this case, however, transferring through a US airport is much more of a process (without US border pre-clearance at the origin airport). This is definitely a drawback for US carriers competing against Canadian airlines.

Therefore, in referencing the Competition Bureau’s findings, WestJet’s CEO has a point in showing reduced competition among Canadian carriers. However, one would hope that the presence of international carriers would maintain at least a little competition in the absence of an independent Air Transat.

What do you think? Do you agree with WestJet and its CEO on this merger? Let us know in the comments.