MORE RUNWAY
TRANSAT EXTENDS WALK- AWAY DATE ON PLANNED MERGER WITH AIR CANADA.
TORONTO • International air travel isn’t expected to soar to pre- pandemic levels anytime soon, but it’s presenting another hangup in the proposed merger between Air Canada and Transat A.T.
Holiday travel operator Transat has pushed back the date that either it or Air Canada can walk away from the $ 720- million deal without penalty after European regulators announced plans to conduct an in- depth investigation of the merger between the two Montreal-based airlines over fears of higher prices and less choice for flying over the Atlantic.
It’s another hurdle for a deal already beleaguered by the stay-at-home orders and travel restrictions caused by the COVID-19 pandemic. Investors question whether the deal will go through at $18 per share since Transat’s stock price has fallen to about $ 7 per share, a 65 per cent drop since the beginning of the year.
Transat said the onemonth extension to July 27 is to take into account regulatory decisions complicated by the pandemic. Terms of the deal allow either party to postpone the outside date by one month with no questions asked, with potential for three additional postponements.
Air Canada, whose stock has plummeted about 65 per cent to $ 17.67 since January, can reportedly walk away from the deal if Transat is harder hit by the pandemic than the aviation industry as a whole, according to Reuters.
Canadian airlines’ flight volumes have dropped as much as 95 per cent since March, and Air Canada executives estimate it could take three years to re- establish pre- pandemic flight volumes. Ratings agency DBRS Morningstar predicts it could take up to four years to recover in its worst- case scenario, according to research published Tuesday.
When stay- at- home orders lift, trips to Europe won’t be the first thing on Canadians’ minds, based on the experience in China where domestic travel recovered to about half of pre-pandemic levels
“We think it is likely that the initial recovery in air passenger traffic will be led by domestic travel ( similar to China) as international travel is subject to the effectiveness of each country’s containment measures and fiscal and monetary policies,” DBRS stated.
From a global perspective, North America and Europe have been hardest hit by the pandemic, leading to a severe drop in air traffic. The International Air Transport Association predicts airlines will lose a collective $ 314 billion in revenue due to the pandemic.
Still, the European Commission said Monday it must conduct a more thorough investigation given the overlap in routes between the two airlines. It expects to make a decision by the end of September.
“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 for competition policy, said in a statement.
Combined, the airlines could snag as much as 60 per cent of the trans- Atlantic market share, with up to two-thirds of the flights from Toronto and Montreal, based on pre- pandemic estimates from the National Bank.
Canada’s competition regulator raised concerns about the market share the joint entity would enjoy, but the decision ultimately lies with Transport Canada. While Transport Canada’s decision is of more significance, there is no deadline for a government decision, Altacorp Capital noted to clients Tuesday.
Regardless, Altacorp expects travellers to remain cautious even as domestic traffic starts to recover in the second half of 2020.
About 75 per cent of Canadians agreed or somewhat agreed they will be nervous about flying until a vaccine is developed, according to a Nanos Research survey of 1,001 Canadians conducted for low-cost carrier Flair Airlines.
ANOTHER HURDLE FOR A DEAL ALREADY BELEAGUERED BY STAY-ATHOME ORDERS.