WestJet-Sunwing deal will lead to higher prices, less choice, says Competition Bureau; airlines respond

This story was updated on Wednesday, October 26 at 11:48 a.m. EST

The Competition Bureau has concluded that WestJet's proposed acquisition of Sunwing Vacations and Sunwing Airlines is likely to result in a “substantial lessening” or prevention of competition in the sale of vacation packages to Canadians.

The concerns of Canada’s competition watchdog are outlined in this report delivered to the Minister of Transport by the Commissioner of Competition, according to a press release issued Wednesday (Oct. 26).

The report will inform Transport Canada's public interest review of the proposed transaction as it relates to national transportation.

“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.”

The Bureau said it determined that these effects would apply to 31 routes between Canada and Mexico or the Caribbean.

Overall, WestJet and Sunwing account for roughly 37 per cent of non–stop capacity between Canada and sun destinations and 72 per cent of non–stop capacity between Western Canada and sun destinations, the Bureau found. 

The report notes that leisure travel is "widely projected to lead the post–pandemic recovery," as pent–up demand drives growth in Canadian holiday travel. 

"In this environment, maintaining and encouraging healthy competition in leisure travel markets is particularly vital to the interests of Canadian consumers," the Commissioner of Competition wrote. 

The WestJet-Sunwing transaction, first announced in March, also represents a merger of the only two integrated airlines and tour operators offering non-stop service on 16 of these routes, the Bureau concluded.

“The impacts of the COVID-19 pandemic were considered extensively to identify concerns regarding the potential prevention or lessening of competition that may occur as a result of the proposed merger,” the Bureau noted.

The watchdog said it examined competition between WestJet and Sunwing's pre-pandemic networks as well as their current plans.

Transport Canada has until Dec. 5, 2022 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 based on a recommendation from the Minister.

The Bureau’s report is advisory and non-binding, but will support the Minister of Transport’s public interest assessment. 

A familiar tune 

The alignment between WestJet and Sunwing was originally positioned as a move that would keep business competitive as low-cost carriers increase their presence in the Canadian marketplace.

The pending acquisition would also increase WestJet’s reach to sun destinations and European cities while expanding the brand’s presence in Eastern Canada.

Despite the Bureau's report, the deal may still receive approvals down the road. 

One may recall how the Competition Bureau, in March 2020, concluded that Air Canada's then-proposed acquisition of Transat A.T. would hinder competition and result in higher prices, fewer services and less travel.

Still, the Government of Canada, in February 2021, gave the green light – the economic impact of the COVID-19 pandemic, at the time, was a key factor in Ottawa's final decision.

The Air Canada-Transat deal eventually fell apart due to complications in securing approvals from the European Commission. 

Sunwing responds 

Sunwing issued a statement on Wednesday shortly after the commissioner's report was released. 

“We appreciate the Competition Bureau’s due diligence in the regulatory review process," the company wrote in an email to PAX. 

"In its report, the Bureau acknowledged the significant impact of COVID-19 on the industry. The routes identified as concerns in the Bureau’s report are predominantly in Western Canada, account for a very small portion of Sunwing’s operations (just over 10 per cent of all seats) and are primarily seasonal versus year-round routes." 

Sunwing also noted that it no longer operates six of the routes mentioned in the report. 

Those six routes are: 

• Calgary to Huatulco
• Calgary to Ixtapa
• Vancouver to Huatulco
• Winnipeg to Montego Bay
• Toronto to Nassau
• Victoria to Los Cabos

"We remain confident that this transaction is good news for Canadians," the company said. "The combination of WestJet’s and Sunwing’s complementary businesses will deliver more affordable vacation packages and competitive airfares, while enabling us to protect and create jobs at a critical time for the travel industry." 

"We look forward to the next steps in the regulatory process, including continued collaboration with Transport Canada to ensure a timely approval on the transaction.” 

“We look forward to bringing this transaction to life"

WestJet has also responded. 

“We thank the Competition Bureau and welcome their report,” said Angela Avery, WestJet Group executive vice-president and chief people, corporate and sustainability officer. “We look forward to bringing this transaction to life for the benefit of Canadian travellers, communities and employees.”

WestJet says the final decision will consider "additional factors" presented in its 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.

Separately, the Canadian Transportation Agency has issued a "positive determination of the proposed transaction," the airline noted. 

The WestJet Group says the transaction is a "central piece" to its commitment to prioritize leisure and sun travel from coast to coast and increase affordable air and vacation packages. 

The transaction is expected to close by spring 2023 pending remaining regulatory and government approvals, WestJet said. 

This is a developing story.

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