THE ‘REAL LOSERS’
CONSUMERS WILL PAY THE PRICE FOR AIR CANADA’S TRANSAT TAKEOVER, WARNS WESTJET CEO.
OTTAWA • The chief executive of Westjet is “deeply disappointed” by the Liberal government’s approval of a proposed takeover by Air Canada, saying the transaction will make the Canadian airline industry less competitive and ultimately raise prices for Canadians.
In a blog post on Friday, Ed Sims, head of the Calgary-based airline, said Air Canada’s potential takeover of Montreal-based Transat A.T. effectively undoes years of work toward ensuring industry competitiveness, and was approved by Ottawa without “meaningful remedies.”
“The real losers in all of this are Canadians who believe in open and healthy competition,” Sims wrote on the company’s website.
Canada’s Competition Bureau had itself recommended against approving the merger, saying it would reduce travel among Canadians in part due to higher prices for flights.
“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,” the Bureau said.
The Liberal government nonetheless disregarded its own advice and approved the $190-million acquisition on Thursday. In a press release, Federal Transport Minister Omar Alghabra said the transaction would be “subject to strict terms and conditions that are in the interests of Canadians.”
Those included the introduction of a seemingly toothless “price-monitoring mechanism,” a commitment by Air Canada to introduce new destinations in the next five years, and a contractual obligation to “facilitate aircraft maintenance in Canada, prioritizing contracts in Quebec.”
In the blog post on Friday, Sims argued those measures don’t even begin to address competitiveness worries following the proposed transaction. The price-monitoring mechanism only forces Air Canada to “disclose pricing trends on the overlapping routes to both europe and sun destinations,” according to Transport Canada’s release.
Air Canada now owns 94 per cent of Canadian carrier space to european destinations; a nearly 70-per-cent market share in flights departing from Toronto to Paris, Rome and London; and a 54-per-cent overall share of flights from Toronto to sun destinations, compared with Westjet’s 19 per cent, according to Sims.
“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,” Sims wrote. “This is akin to telecommunications giants bell and rogers becoming one without significant concessions.”
The deal works out to about $5 per share of Transat stock, well below the roughly $18 per share Air Canada had proposed for the company in 2019.
In a Dec. 3 testimony before the House of Commons industry committee, Matthew Boswell, commissioner of competition at the bureau, had warned against opportunistic pandemic-related mergers similar to Air Canada’s.
“Sadly, in the months ahead, it is possible that we will see a rise in merger transactions involving failing businesses,” he said. “In assessing these transactions, we must maintain our normal rigour and analytical framework. relaxing our standards in a crisis period could cause irreversible enhancement of market concentration, leading to deeper and longer-term harm to consumers and the economy.”
Alghabra on Thursday acknowledged that the COVID-19 pandemic was a “key factor” in his approval of the takeover.
“Noting the effects of the pandemic on air service in general, and on Transat A.T. in particular, the Government of Canada has determined that the proposed acquisition offers the best probable outcomes for workers, for Canadians seeking service and choice in leisure travel to europe, and for other Canadian industries that rely on air transport, particularly aerospace,” he said in the release.
His comments come as Canadian airlines struggle with a complete collapse in flight bookings, which has in turn threatened the ability of smaller airlines to remain in operation.
In a committee meeting last week, Air Canada and Westjet both called for clarity from Ottawa on when travel restrictions might be eased, saying they are bleeding cash at unsustainable rates.
Westjet has seen its bookings drop 95 per cent compared with pre-pandemic levels, the company said, while both companies have laid off tens of thousands of employees. Air Canada posted a staggering $1.16-billion loss in the fourth quarter of 2020.
Meanwhile, Alghabra also suggested in his Thursday decision that cancelled Transat flights would be redeemed under Air Canada following the transaction. Ottawa is still in discussions with airlines over refund policies.
“Refunds are an integral part of the negotiations with airlines regarding any assistance plan, and the government will continue to take into account the needs of Transat A.T. customers.”