Competition Bureau Releases Air Canada, Transat Report

The Competition Bureau released its report late last week detailing its concerns over Air Canada’s proposed acquisition of Transat.

In that report, the Bureau concludes that “Air Canada’s proposed acquisition of Transat is likely to result in a substantial lessening or prevention of competition in the sale of air travel or vacation packages to Canadians.”

The report, delivered to the Minister of Transport by the Commissioner of Competition, is designed to “inform Transport Canada’s public interest review of the proposed transaction as it relates to national transportation.”

The Competition Bureau’s report says that: “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.”

And the Bureau’s analysis determined that the effects of the transaction would apply to 83 routes, including:

  • 49 overlapping routes between Canada and Europe; and
  • 34 overlapping routes between Canada and sun destinations in Florida, Mexico, Central America, and the Caribbean.

As well, the report notes that the transaction also represents a merger of the only two carriers offering non-stop service on 22 of these routes.

However, the Competition Bureau also notes that: “Our assessment is based upon a forward-looking analysis using data and information collected prior to the current COVID-19 pandemic. The Bureau recognizes that the impact of these events on the Canadian airline industry appear to be significant in the near term. The ultimate impact of these events may be relevant to the Bureau’s views on the proposed transaction but it is impossible to know the full extent and duration of any impact at this time.”

Transport Canada has until May 2, 2020 to complete its public interest assessment and provide it to the Minister. The final decision regarding the proposed transaction will be made by the Governor in Council (Cabinet) based on a recommendation from the Minister.

Transat Responds

In response to the release of the Competition Bureau’s report on its acquisition by Air Canada, Transat’s president and chief executive officer, Jean-Marc Eustache made it clear that the “report does not affect the company’s confidence in the transaction with Air Canada, which will produce many long-term benefits for all stakeholders.”

Transat’s response also pointed out that: “With the transaction now the subject of a public interest assessment being conducted by Transport Canada, the report of the Commissioner of Competition will be one of the elements of a broader analysis that will include stakeholders’ proposals for fostering competition, the findings of the public consultations, and an analysis of the transaction’s positive impacts on travellers, employment, tourism and the international positioning of Canadian businesses. The Transport Canada assessment will be submitted to Honourable Marc Garneau, Transport Minister, in early May.”

Eustache observed: “We must look at the Competition Bureau report with a bit of perspective, and not draw any direct conclusions from it with regard to the final decision.”

Transat’s president and CEO continues: “The Commissioner’s role is limited to studying the impacts on competition in the marketplace; in other words, identifying potential difficulties, without necessarily contemplating what solutions or mitigation measures might be implemented, and without taking the public interest more broadly into account. Transport Canada’s assessment will provide a more comprehensive overview of the nuts and bolts of the transaction and of all the benefits for the Canadian public and economy.”

And Eustache concludes: “Particularly against the background of the COVID-19 crisis, our transaction requires a broad perspective that takes into account the company’s future, the protection of jobs, the advantages for travellers and the interests of all our other stakeholders, including our investors, our partners, and the communities where we operate.”

In its response, Transat also pointed out that “the COVID-19 pandemic that is currently having a devastating impact on the operations of the world’s airlines is calling into question the relevance of any analysis conducted prior to its outbreak, as the Bureau itself points out.”

And it reiterated that the international air transportation market is increasingly integrated and highly competitive and experiences constant capacity fluctuations that cause price fluctuations. The new company envisioned by the merger would remain a modest player in this market dominated by large international airlines that also operate on routes between Europe and Canada. In the context of the rebuilding of the market following the current crisis, the existence of such a player in Quebec and Canada would be a major asset.