The Canadian airline industry is suddenly in upheaval, thanks to two major deals. The one getting the most attention is the biggest: private-equity player Onex’s $3.5-billion purchase of WestJet, the country’s second-largest carrier. But it’s the smaller transaction – Air Canada’s proposed $520-million takeover of Transat – that could have a bigger impact.
The buyer is the country’s No. 1 airline; the target is No. 3. The latter’s absorption into the former will reduce competition. On flights across the Atlantic and to sun destinations, Transat is an important competitor for Air Canada; on some routes, it’s the only one.
And on flights to Europe, where Air Canada dominates, Transat is the second-place carrier. A combined entity would control 63 per cent of the market. That’s why the Competition Bureau needs to take a long, hard look at all of this.
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Ottawa’s competition watchdog is often accused of behaving like a napping lapdog, snoozing through competition-reducing moves in markets it is supposed to be protecting. But in a recent review of a proposed merger between two small airlines in Canada’s north, it showed some teeth.
Last fall, First Air and Canadian North announced a merger. The two Indigenous-owned airlines fly routes throughout the North, with numerous connections to the south. First Air is run by Makivik Corp., owned by the Inuit of Northern Quebec. Canadian North is owned by Inuvialuit Development Corp., which represents the Inuvialuit of the Western Arctic.
The owners promised a merged airline would offer more flights to more destinations. They also pledged to maintain existing service.
In November, Ottawa began reviewing the deal. That included an analysis by the Competition Bureau. Its findings landed in February. The bureau called the deal a “merger-to-monopoly” and said it would likely lead to higher prices and fewer flights. The airline owners reacted angrily. They said the bureau ignored the “overwhelming” benefits for northerners, floated the risk of the airlines “being driven out of business” and argued a merged northern airline is the “only long-term viable answer.”
It’s up to the federal cabinet to make the final decision on the merger – but it has in its hands a Competition Bureau review that rightly questions how a significant reduction in competition is going to benefit consumers.
What one can take away from the First Air-Canadian North case is that, when it wants to, the Competition Bureau is capable of grappling seriously with competitive issues in the travel industry. So are others in government.
In a report on transportation in Canada released in 2016, former federal minister David Emerson noted that, while the airline industry was healthy and profitable, Canadians were paying “relatively high airfares, in part due to the lack of competition on many routes.”
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That’s exactly why Air Canada’s plan to buy Transat is problematic. What’s more, there’s widespread speculation that, after Onex completes its deal for WestJet, Porter Airlines would be the next logical target. Based in Toronto, Porter flies several important short-haul routes served by only one or two other carriers.
The good news is that the competitive landscape for Canadian air travel has improved somewhat in recent years. According to Statistics Canada, the average one-way domestic flight, before fees and taxes, was $164 in 2018, down from $196 a decade earlier. The typical one-way international fare fell to $298, from $356.
Mr. Emerson made several recommendations to further benefit consumers, from Ottawa reducing the “onerous rents and taxes” it charges airports and travellers, to expanding local competition through international agreements.
It’s hard to argue that what Canada needs is less competition, or fewer airlines. Unlike many countries, Canada does not have an established ultralow-cost carrier. There are fledgling efforts, such as Flair Airlines. However, the Competition Bureau is investigating WestJet for possible predatory pricing against upstart Flair. It’s hardly reassuring amid possible consolidation.
The proposed absorption of Air Transat into Air Canada is likely to diminish choice and competition on some routes. To what extent will this harm the Canadian travelling public? To answer, the Competition Bureau should ditch its rubber stamp and put this deal under the microscope.