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Competition Bureau raises concerns about WestJet-Sunwing deal

OTTAWA — The federal Competition Bureau has raised significant concerns about WestJet Airlines Ltd.
A WestJet plane waits at a gate at Calgary International Airport in Calgary, Alta., Wednesday, Aug. 31, 2022. The Competition Bureau says 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 CANADIAN PRESS/Jeff McIntosh

OTTAWA — The federal Competition Bureau has raised significant concerns about WestJet Airlines Ltd.'s proposed acquisition of Sunwing Vacations and Sunwing Airlines, saying the deal will likely result in higher prices and decreased service for Canadians.

In a report delivered to Canada's transport minister on Wednesday, the regulator said eliminating the rivalry between the two companies is likely to result in a substantial lessening or prevention of competition in the sale of vacation packages to Canadians.

"The proposed transaction will result in one of Canada’s largest integrated tour operators being acquired by one of its primary rivals in the provision of vacation packages," the report stated.

"Overall, WestJet and Sunwing account for approximately 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."

WestJet announced a plan in March to buy Sunwing, a move that would bolster its holiday tour business. Financial terms of the agreement, which would see Sunwing's shareholders become equity holders in the WestJet Group, were not disclosed.

In its report, the Competition Bureau noted that a merger of the two carriers would create a monopoly on 16 routes between Canada and Mexico or the Caribbean, and would lessen or prevent competition for the provision of vacation packages on 31 total routes between Canada and Mexico or the Caribbean.

But in an emailed statement Wednesday, Sunwing spokeswoman Melanie Anne Filipp said the routes identified as concerns are predominantly in Western Canada and account for a very small portion of Sunwing's operations — just over 10 per cent of all seats — and are primarily seasonal routes.

"Also of note, Sunwing no longer operates six of the routes mentioned in the report," Filipp said. "We remain confident that this transaction is good news for Canadians."

In a news release, WestJet said the proposed Sunwing transaction is a central piece of the Calgary-based airline's commitment to prioritize leisure and sun travel from coast to coast and increase affordable air and vacation package offerings for all Canadians.

Transport Canada is also conducting a public interest review of the proposed transaction. The final decision regarding the deal will be made by cabinet, based on a recommendation from the minister.

WestJet said that decision will consider additional factors, including WestJet's promised preservation of Sunwing’s brand, its 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. 

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

The companies have said they expect the transaction to close by spring 2023, pending remaining regulatory and government approvals.

Robert Kokonis, president of Toronto-based consultancy AirTrav Inc., said he wasn't surprised that the Competition Bureau flagged issues with the proposed Sunwing-WestJet deal. 

“You knew before this whole process started that of course WestJet is the dominant player in Western Canada and Sunwing is the largest package vacation company in the country, and the two together would be a more dominant force in the West," Kokonis said.

"But I’d prefer to see the government promoting competition in other ways. For example, creating the right regulatory environment for the creation of new carriers," he said. 

Kokonis said there is nothing stopping another carrier from starting service on any of the routes that were flagged by the regulator for lack of competition.

He added the proposed acquisition of Sunwing is a major part of WestJet's plan to refocus its business in Western Canada, and said the deal will create a significant number of jobs in the West since it will turn seasonally operated aircraft into year-round jets. Currently, Sunwing meets seasonal demand by leasing the bulk of its fleet through the winter.

“The Competition Bureau's position here is likely going to be perceived as a swipe at Western Canada by the central powers in Ontario and Quebec," Kokonis said.

This report by The Canadian Press was first published Oct. 26, 2022.

Amanda Stephenson, The Canadian Press