Will history repeat itself with the WestJet-Sunwing deal? Aviation expert weighs in

Will history repeat itself with the WestJet-Sunwing deal? Aviation expert weighs in

TORONTO — Here we go again, with one Canadian airline looking to buy another and concerns being raised over competition.

As Travelweek reported last month, WestJet’s proposed acquisition of Sunwing, first announced in March 2022, was put under renewed scrutiny after Canada’s Competition Bureau raised a few red flags. Up until then, the deal – still pending regulatory approvals –  looked to be a sure thing, with both parties anticipating it to close in late 2022. If approved, the WestJet Group would have a new tour operating business unit under its belt that will include both Sunwing Vacations and WestJet Vacations, which according to the Group will add increased capacity and improve its ability to offer more affordable fares.

But in a report sent to Canada’s Minister of Transport last month, the Competition Bureau claimed the proposed acquisition “is likely to result in substantial anti-competitive effects through the elimination of rivalry between WestJet and Sunwing in certain areas of overlap between their networks.” It also noted that the deal is likely to result in substantial competitive effects such as increased prices, reduced choice and decreased services.

If all this feels like déjà vu, that’s because Air Canada and Transat A.T. went through a similar situation last year with their proposed deal, which would have seen Air Canada acquire Transat for $520 million. Like the WestJet-Sunwing transaction, the Competition Bureau was wary about the Air Canada-Transat deal, saying in a March 2020 report that it, too, would likely result in a substantial lessening or prevention of competition in the sale of air travel or vacation packages to Canadians. But despite these concerns, the Air Canada-Transat deal ended up getting the green light from the federal government in February 2021. Where it fell apart, however, was overseas, with the European Commission (EC) refusing to grant approval due to competition concerns on transatlantic routes. Shortly after, in April 2021, both Air Canada and Transat mutually agreed to terminate their agreement.

So is the WestJet-Sunwing also doomed to fail? It’s still possible for it to be approved by the federal government, of course, despite the Bureau’s worrying report. But if the Air Canada-Transat deal fell apart at the end, who’s to say the WestJet-Sunwing transaction wouldn’t see a similar outcome?

John Gradek, Faculty Lecturer and Coordinator of McGill’s Aviation Management Program and member of the Transportation Appeal Tribunal of Canada, tells Travelweek that although there are very real parallels between the two transactions, they also differ in very significant ways.

“Most of these North American leisure offerings, both either WestJet or Sunwing, are weekend-type operations and have a wide variety of Canadian and sun markets being served. The Air Canada-Transat deal was highly concentrated on a few large North Atlantic routes in peak summer operations and, likewise, higher density winter sun leisure routes,” says Gradek.

“Even with this duplicity of routes and the potential for significant service rationalization, the Canadian government approved the Air Canada-Transat transaction. The WestJet-Sunwing transaction has a great deal less duplicity and frequency impact and, in my opinion, should easily pass Canadian government approval,” he adds.

Gradek notes that the main parties intervening in the WestJet-Sunwing deal are airports concerned about reduced flight services from the rationalization of certain routes currently flown by both operators. While this will certainly occur if the transaction is approved, “I believe the upside would be an increase in the number of routes being offered by the next entity,” he says. “New markets from either regional Canadian airports to major sun markets, or new services to developing sun markets from major Canadian cities, increases the availability of leisure destinations in the Americas.”

To read the full article, check out the Nov. 17 issue of Travelweek here.

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