Just as the airline industry has been dealt a significant blow with the COVID-19 pandemic, Air Canada’s merger with Air Transat which was announced in 2019 is still up in the air. As the entire process has now dragged on for about a year and a half, the purchase price has twice been adjusted, first from an initial C$13 per share to C$18 per share, and now in light of the pandemic, down to C$5 per share.
Air Transat ended the financial year with a $238.1 million net loss as a result of pandemic related consequences and the lack of government support for the airline industry in Canada. President and CEO Jean-Marc Eustache said that, “It seems that in Canada our industry doesn’t exist… It’s time for the government to provide targeted support for the airline sector to ensure the existence of a competitive industry in Canada over the long term.” Still, these calls for support have gone unanswered.
As far as the deal is concerned, even with a reduced price per share at C$5, Eustache urged shareholders to approve the offer. Despite the fact that early stages of negotiation saw several key shareholders hold out for a better offer, which they ultimately received at C$18 per share, the change in circumstances up to this point will likely put them off from blocking a deal that will salvage whatever financial capacity Transat is left with.
By acquiring Transat, the country’s third largest airline, Air Canada has evoked concerns regarding competition in the industry, namely among European and Canadian lawmakers as well as competitor WestJet. In March, the federal Competition Bureau informed Minister of Transport, Marc Garneau that there were 83 routes between Canada and top destinations where competition would be reduced or eliminated altogether. Europe’s regulatory body also came up with 33 routes between Canada and Europe where competition would be significantly reduced as a result of the merger.
Concerns not only stem from public regulators but also private sector competitors. WestJet, the nation’s second largest airline faces the brunt of the hit on competition if this merger goes through without significant conditions. Especially now, when circumstances have tied up the airline and general travel industries immensely, WestJet will likely be calling for conditions to ease competition, allow it to function with a similar market share as it had done prior.
While Air Canada will acquire Transat’s assets and consumer base, Air Transat will continue to operate under its current brand, at least for the time being. This consideration will likely be leveraged by regulators if not voluntarily by Air Canada to diversify the services of the airline’s flights. Because Air Canada, Rouge, and Transat will retain their brands, their operations may also be distinguished by separate Aeroplan programs or different flight specializations like long-haul and short-distance paths. In any case, Canadian regulators will likely block any effort to entirely centralize the airline into one single brand and congruent operating fleet.
Competition is and will always be an important pillar of healthy capitalism, but in times of economic decline corporate consolidation will retain the assets and capacity of smaller operators that would otherwise not survive. Without any indication of government support on the way for Canadian airlines, Air Transat’s future is bleak unless it clings to an operator with more liquidity like Air Canada. Even still, as Canadians move into a time where the travel industry will inevitably face modest demand for an extended period of time, such high competition as the pre-pandemic market allowed is no longer necessitated by its new reality.