Onex paying big to get WestJet and that will send airfares soaring, says CWT

TORONTO — Air travellers will see airfares climb in 2020 and that’s especially true for Canada, according to a new report from CWT.

The 2020 Global Travel Forecast, released by CWT in partnership with GBTA, says that while air prices in North America overall are expected to make a “slow and steady” rise of 2.3%, in Canada CWT predicts an even higher jump, by 3.2%, fuelled by Onex’s proposed acquisition of WestJet.

Rising costs for North America airlines – including pay raises for airlines and maintenance workers, with many major union contracts up for renewal in 2020 – can be mitigated somewhat by increased fees for ancillaries like checked baggage, lounge access and the like. “Upping ancillary costs will cover some of the spend, but it is likely that airlines will need to look at airfares as well,” says the report.

The situation gets even more interesting in Canada, with Onex’s WestJet buy, announced in May and now past the first level of approvals.

“In Canada, we are seeing a slightly different story. A more aggressive price rise of 3.2% (based on USD) is expected, primarily due to private equity firm Onex paying over the odds for Canada’s WestJet in a US$5 billion deal, doubling the share price of what the market was asking; a first in the industry,” says CWT.

“To help make their money back, we will see a rise in prices across the board in the country, with domestic economy taking the brunt of this with a predicted 5.7% rise in prices.

“While the projected price rise for business class flights is less dramatic, the buyout is likely to affect airfares and ancillary charges over the next few years while the market rebalances.”

CWT adds: “If successful, this deal may lead to private equity companies looking more closely at airlines as investment opportunities, opening the door for the air travel industry to enhance their margins, expand routes and increase flexibility.”

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