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Canadian Airline Consolidations and Acquisitions Hurt Consumers

There has been a wave of Canadian commercial airline consolidations and acquisitions lately. This is very similar to what took place in the United States in 2008.

WestJet is going Private, triggering an Uncertain Future

Credit: WestJet

WestJet is in the process of being acquired by a private equity firm with a transactional value of $5 billion. The equity will buy all outstanding shares of the company at $31/share. The price represented 67% of its value.

The agreement became definite on June 27, 2019.

Although its “business as usual,” the airlines’ future as private equity in the United States has turned them into ULCC’s or Ultra-Low-Cost-Carriers.

I haven’t been a passenger of WestJet, but turning this airline into a ULCC would be an unnecessary headache. The WestJet business model has been successful so far.

Their expansion of long routes using the Dreamliner (Boeing 787) should be an excellent addition in the competition against Air Canada.

Air Canada vs WestJet video

How good is WestJet compared to Air Canada? Credit: YouTube

Air Canada’s acquisition of Air Transat

The Canadian airline consolidations and acquisitions mania are extending further.

Another airline whose long-range future looks uncertain is Air Transat. Air Transat is an airline based in Montreal with a fleet of 40 aircraft.

Air Canada has now acquired Air Transat. This happened during the same week that the WestJet transaction took place.

Is that a coincidence?

While this author does not believe in such things Air Transat and Air Canada will continue as separate airline brands.

Air Canada has stated that both companies, Air Transat, and Air Canada, will remain separate brands.

Air Canada and Air Transat merger video

Air Canada and Air Transat merger. Credit: YouTube

One company, two airline brands

Air Canada has said they will keep both brands separate for the foreseeable future.

If Air Canada wanted to squeeze and bolster its “Rouge” fleet, it should wait for the government approval and then fuse it like a merger of airlines. Unless Air Canada wants the IAG model, that is.

Could the IAG model work for Air Canada?

The International Airlines Group (IAG) is a merger agreement in which the anchors of the airline consortium British Airways and Iberia would form one group. Spanning from Ireland to Austria, the International Airlines Group has taken airlines through a time when the investment was needed.

While I see that this business model could be spreading to other airlines and regions into the future, for that to work in Canada, however, it requires two to tango.

Air Canada took on “its partner” in Air Transat, fusing two airlines located in the same country. That would raise as many eyebrows as what IAG did with their transactions between the UK and Spain.

They are maintaining appearances

They are saying that not to scare Canadian Regulators into approving the deal. Air Transat on one side, Air Canada Rouge on the other separate from the other, and no hanky-panky until the regulators deem so.

In the United States, there is a “veil period” in which airlines cannot speak of each other while the process is ongoing.

Air Canada appears to be playing the same game as U.S. airlines. They decided to go the same route. That’s after Air Canada noticed how successful the American, Delta, and United airline mergers were.

I believe this is the most likely explanation.

Consumers could get hurt in the mergers

Every company tries to spin mergers differently, including airlines. Every airline merger triggers doubt in the minds of passengers. Air Transat was a strong competitor in the Canadian market.

This definitive agreement eliminates a competitor, which is good for business, but bad for consumers. Operating under separate appearances does not give the impression of belonging to one parent company.

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