By Dayna Fedy-MacDonald | October 26, 2022 Estimated reading time 7 minutes, 2 seconds.
The Competition Bureau — an independent law enforcement agency that aims to protect and promote competition in Canadian industry — released a report on Oct. 25 that concludes WestJet’s proposed acquisition of Sunwing Airlines/Vacations “is likely to result in a substantial lessening or prevention of competition in the sale of vacation packages to Canadians.”
The deal between WestJet and Sunwing was first announced in March 2022, as part of an effort to strengthen both companies following the drastic downturn in air travel caused by the Covid-19 pandemic.
Of course, the transaction has not officially closed, as it is subject to review by Transport Canada and the Competition Bureau — the latter agency having now completed and delivered its review to Transport Minister Omar Alghabra, who will make the final call on the acquisition.
Transport Canada is in the process of completing its public interest assessment, and will use the Competition Bureau’s report as part of its evaluation. The Canadian regulatory authority has a deadline of Dec. 5 to complete and submit its review to Minister Alghabra.
If the deal is approved, Sunwing Airlines will officially be included in the WestJet Group of Companies.
In a statement earlier this year, WestJet said the acquisition “will add increased capacity, dedicating otherwise seasonal aircraft to operate year-round in Canada — instead of Sunwing supplementing seasonal demand with imported aircraft — which translates into more jobs for Canadians.”
As well, the Calgary-based airline confirmed that a new tour operator business division would be created under the WestJet Group umbrella, to include Sunwing Vacations and WestJet Vacations Inc. as separate brands. The new division would be based in Toronto, with a Laval, Quebec, head office; WestJet would maintain its Calgary headquarters.
WestJet claimed that the deal would bring “more competitive airfares” and “affordable vacation packages” to Canadians. However, the Competition Bureau disagrees.
“Eliminating the rivalry between these integrated airlines and tour operators would likely result in increased prices, less choice, and decreases in service for Canadians,” the Bureau said. “It would also likely result in a significant reduction in travel by Canadians on a variety of routes where their existing travel networks overlap.”
As part of its analysis, the Competition Bureau observed data collected prior to and during the pandemic, and examined the competition between both airlines’ pre-pandemic networks, in addition to their current plans. The Bureau also took the devastating impacts of the pandemic into consideration.
The Bureau concluded that the acquisition would allow WestJet and Sunwing to monopolize the sun destination market. The two airlines together account for roughly 72 percent of non–stop capacity between Western Canada and sun destinations, and 37 percent between all of Canada and sun destinations.
Moreover, they’re the only two tour operators “offering vacation packages through direct service on 16 routes between Canada and Mexico or the Caribbean.” This would ultimately result in less competition for vacation packages on a total of 31 routes between the aforementioned destinations.
In response to the Bureau’s report, Sunwing issued a statement saying “the routes identified as concerns . . . are predominantly in Western Canada, account for a very small portion of Sunwing’s operations (just over 10 percent of all seats), and are primarily seasonal versus year-round routes. Also of note, Sunwing no longer operates six of the routes mentioned in the report.”
WestJet also issued a statement in response to the Bureau’s report, noting that it is “advisory and non-binding, but will support the Minister of Transport’s public interest assessment.
“The final decision . . . will consider additional factors presented in the WestJet Group’s application, including the preservation of Sunwing’s brand, the commitment to maintain Sunwing’s Toronto and Montreal offices, new flying that will be created by retaining Sunwing’s aircraft in Canada year-round, and the resulting new employment opportunities.”
WestJet also highlighted the fact that the Canadian Transportation Agency has issued a “positive determination” of the proposed acquisition.
Both airlines appear to remain optimistic about the deal, with Sunwing stating it is “confident that this transaction is good news for Canadians.”
WestJet Group’s executive VP and chief people, corporate, and sustainability officer, Angela Avery, said: “We look forward to bringing this transaction to life for the benefit of Canadian travelers, communities, and employees.”
The Competition Bureau concluded that “there are currently signs of recovery in upcoming seasons, and leisure travel (including to sun destinations) is expected to lead the recovery in demand. . . . In this environment, maintaining and encouraging healthy competition in leisure travel markets is particularly vital to the interests of Canadian consumers.”
A final decision on the proposed acquisition is expected by the spring of 2023.
