Major: Air Canada & Air Transat Call Off Merger

Major: Air Canada & Air Transat Call Off Merger

19

Here’s some major airline news out of Canada.

Air Canada’s Air Transat acquisition called off

It has today been announced that Air Canada and Air Transat have mutually agreed to terminate their acquisition agreement.

It was first announced in June 2019 that Air Canada would acquire Air Transat for $520 million. However, the deal was amended significantly in October 2020 as a result of the coronavirus pandemic, and Air Canada slashed the purchase price by 72%, to $190 million.

I guess the timing worked out well for Air Canada in that regard. The two airlines were having issues with regulatory approval, so since the acquisition hadn’t been finalized, it could still be renegotiated.

The acquisition was conditional on the approval of various regulatory authorities, including the European Commission. It has now been determined that the European Commission won’t approve the acquisition with current terms. Air Canada feels that making further concessions would “significantly compromise” the carrier’s ability to compete internationally, so the deal is no longer worth it for Canada’s largest airline.

With this deal being called off, Air Canada is paying Air Transat a $12.5 million termination fee.

Air Canada will no longer be acquiring Air Transat

What does this mean for the future of Air Transat?

It goes without saying that the airline industry has changed significantly in the past year, and the road to recovery for both airlines will be long (especially with there being no end in sight for Canada’s travel restrictions). I think the big question now is what happens to Air Transat, given that the airline has spent the past year expecting that it would be acquired by Air Canada.

Will Air Transat get additional investments and survive as an independent airline? Could WestJet swoop in and try to acquire Air Transat? I think it’s too early to know how this is going to play out, but it sure is going to be interesting to watch.

Only time will tell what the future holds for Air Transat

Bottom line

Air Canada’s acquisition of Air Transat has been called off. Ironically it’s not because of any issues that Canadian regulators had, but rather because of concerns of the European Commission. On the surface it sure seems like European regulators may have gone a bit far here, especially when you consider the dire state of the airline industry at the moment.

Only time will tell if Air Transat remains independent, or if the airline now becomes a takeover target for WestJet, or maybe another airline.

What do you make of the Air Canada & Air Transat deal being called off?

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  1. roger

    Would love to see an Investment Group step In and fund the turnaround of airTransat. Never thought a merger/acquisition by AirCanada was a good idea by reducing competition because we witnessed what happened when Canadian was absorbed by AC. There is a place for AT in the market and they need to be aligned with a competitive Alliance (ONEWORLD would be the Best) to give them a boost from outside of Canada. Even a Westjet/AT...

    Would love to see an Investment Group step In and fund the turnaround of airTransat. Never thought a merger/acquisition by AirCanada was a good idea by reducing competition because we witnessed what happened when Canadian was absorbed by AC. There is a place for AT in the market and they need to be aligned with a competitive Alliance (ONEWORLD would be the Best) to give them a boost from outside of Canada. Even a Westjet/AT tie up would be better but Canadian Authorities need to keep Delta out of meddling in the business because everyone knows They are only interested in propping up Delta. A blended Westjet/AT could be a competitive force to counter a monopolistic AC but Westjet needs to become more of a global airline to compete and distance themselves from their LCC image.

  2. FifthDim

    Thanks to Europe another Canadian business cartelization attempt failed. I wish Europeans had also a say in the Telecom oligopoly.

  3. The nice Paul

    @Brian
    I suspect the airlines hope to continue to use EU airspace. To do that, they need a licence (just as furrin’ airlines have to apply to the US DoT for a licence before they can serve US airports).

    You should be grateful to the EU for providing some passenger protection when the airline’s national regulator hasn’t bothered (though given Canada’s support for Air Canada’s theft of passenger fares during Covid, it is...

    @Brian
    I suspect the airlines hope to continue to use EU airspace. To do that, they need a licence (just as furrin’ airlines have to apply to the US DoT for a licence before they can serve US airports).

    You should be grateful to the EU for providing some passenger protection when the airline’s national regulator hasn’t bothered (though given Canada’s support for Air Canada’s theft of passenger fares during Covid, it is unsurprising that they prioritise airlines’ business interests way before the interests of the poor customers).

  4. Brian

    What would the European Commission have to do with a Canadian airline?

  5. Jack

    DenB® - "WS has no meaningful premium cabin in 95% of their flights, no meaningful lounge experience at any fare level."

    Their new narrowbody premium cabin (currently on the MAX and being retrofitted throughout the fleet in coming years iirc) is competitive with legacy carriers throughout North America. Same with their dreamliners. Yes much of their fleet is still lacking, but they're working on it.

    Lounges are the same deal (lacking but working on it)...

    DenB® - "WS has no meaningful premium cabin in 95% of their flights, no meaningful lounge experience at any fare level."

    Their new narrowbody premium cabin (currently on the MAX and being retrofitted throughout the fleet in coming years iirc) is competitive with legacy carriers throughout North America. Same with their dreamliners. Yes much of their fleet is still lacking, but they're working on it.

    Lounges are the same deal (lacking but working on it) but I consider their new Elevation Lounge to be the best airline-operated domestic lounge in North America, and only behind Centurion or international F/J lounges overall. And my understanding is they're planning more in the future at other airports like YYZ YVR etc.

    Westjet is moving to a full service model, if they aren't already. Modern lounges, modern premium seats, and uncompetitive prices.

  6. Alan123

    I don’t think the Quebec government will allow Transat to go under. For the sake of “national” pride. Sun travel will return in winter 2021 and transatlantic holiday travel will return in summer 2022. They just need to last until then.

    I’m predicting they will be propped up to survive, but given the long long list of failed Canadian airlines don’t count me on it.

  7. ChrisC

    Jen Fan Tse

    You can say the same about other regulators. Why should the USDOT for example have any say on non US airlines yet they do.

    The EU looks at this on a competition basis and what benefits or not would be achieved with the take over that would affect the consumer. Eliminating competition between the EU and a Canada would actually put up prices in an already expensive market which is bad for a Europeans and Canadians and then bad for jobs,

  8. DenB®

    WS has no meaningful premium cabin in 95% of their flights, no meaningful lounge experience at any fare level. They're non-legacy, they're not the flag carrier, they fly mostly leisure routes, there's one service class on all aircraft (except 787, which accounts for less than 5% of pax trips), they're not in any alliance, the list goes on... I call them LCC with a clear conscience, because the experience they deliver is LCC. All-economy is...

    WS has no meaningful premium cabin in 95% of their flights, no meaningful lounge experience at any fare level. They're non-legacy, they're not the flag carrier, they fly mostly leisure routes, there's one service class on all aircraft (except 787, which accounts for less than 5% of pax trips), they're not in any alliance, the list goes on... I call them LCC with a clear conscience, because the experience they deliver is LCC. All-economy is LCC, in my book. I fully understand why some (above) disagree with that, I really do get it about their fares. I respectfully disagree that I'm wrong to refer to them, deliberately as an insult, as an LCC. Even if they're not technically an LCC, they deserve the insult.

    As for the loyalty program...seriously? Saying they don't have one is 97% as true as saying they do have one.

    An airline that delivers so little and still charges so much is not worth defending. Those of us in this readership are willing to jump through hoops, pay fees, fly miles to get status and earn a seat in the front. With these bozos, there is no front.

  9. Allan MacDonald

    If AC can afford soooo many millions of dollars, then the taxpayer shouldn’t have to bail them. By all means help their employees during Covid layoffs, but I say not a red cent to them corporately

  10. Johny

    AC jointly with their JV partners (LH/LX/OS/SN/UA) holds almost 50% market share in Canada - EU market. TS on its own accounts for a little less than 20%. So together they would control almost 70% of the market. The third player on that list accounts for just about 5%. That's the reason why EC said: "NO WAY".

  11. Canadian Platinum

    It's been a misnomer for 20 years to call Westjet a low cost carrier from the customer's perspective.
    Westjet charges virtually the same price as Air Canada on routes they compete on. On routes in which they have a monopoly, the fares are unreasonably high.
    It may be low cost to management and shareholders but it's in duopolistic competition with AC and so the two airlines don't compete on prices. Westjet's lower operating...

    It's been a misnomer for 20 years to call Westjet a low cost carrier from the customer's perspective.
    Westjet charges virtually the same price as Air Canada on routes they compete on. On routes in which they have a monopoly, the fares are unreasonably high.
    It may be low cost to management and shareholders but it's in duopolistic competition with AC and so the two airlines don't compete on prices. Westjet's lower operating costs and their high prices have, until the pandemic, provided Westjet shareholders with an annual profit. That's a track record that few airlines can claim.
    To add another point, it was shameful of the Canadian Federal Government to support the proposed merger. The only logic was to preserve Air Transat jobs and get more votes for the Liberals in Quebec.
    Lastly, Flair Airlines is the only true LCC in Canada but we don't know if it ever has been profitable or if it will be post Covid as it is privately owned.

  12. Jack

    @DenB - "only one viable competitor to AC and it’s an LCC with no loyalty program." Worth noting Westjet isn't *really* a low-cost carrier anymore. It's basically full-service now, and their prices are literally identical to Air Canada for most markets. And it does have a loyalty program, it's just absolute dogwater.

  13. Stephen Morrissey

    @Canadian Platinum is correct. That is how this will play out.

  14. Canadian Platinum

    This is good news for the Canadian leisure traveller. We need more less competition to get prices down to a reasonable level.
    Transat is a Quebec based company and it will be interesting to see if Quebec interests, including the Quebec Provincial Government will make an offer to buy Transat.
    From today's Globe and Mail:

    'An investment company headed by Quebec entrepreneur Pierre Karl Peladeau in December made an offer to pay $5...

    This is good news for the Canadian leisure traveller. We need more less competition to get prices down to a reasonable level.
    Transat is a Quebec based company and it will be interesting to see if Quebec interests, including the Quebec Provincial Government will make an offer to buy Transat.
    From today's Globe and Mail:

    'An investment company headed by Quebec entrepreneur Pierre Karl Peladeau in December made an offer to pay $5 a share for Transat if the Air Canada deal fell apart. Mr. Peladeau said on Friday the offer still stands. In a statement, Mr. Peladeau said his bid “includes a rigorous business plan focusing on areas of the company with high growth potential, on expertise and job creation in Quebec and on the development of the head office in Montreal. It ensures, by maintaining an independent Air Transat, a competitive market for the benefit of Quebec and Canadian consumers.”

    Christophe Hennebelle, a Transat spokesman, said the airline will pursue three priorities, including securing government financing, finalizing a restart plan and exploring “all strategic options, standalone or not, including examining Mr Péladeau’s offer.”

  15. Jen Fan Tse

    Outrageous that a group of elites in BRU control the fate of 2 Canadian airlines and thousands of Canadian jobs!

  16. DenB®

    The purpose of the merger was to eliminate a competitor. AC, the ultimate predatory corporation, has probably calculated that Transat will die on its own, so no need to spend money on that objective. They might, or might not, be right. summer, when TS is entirely TransAtlantic, doesn't look promising, with Europe in shambles and Canadians afraid to leave, lest they be imprisoned expensively upon return. I'm not betting on TS. And I have no...

    The purpose of the merger was to eliminate a competitor. AC, the ultimate predatory corporation, has probably calculated that Transat will die on its own, so no need to spend money on that objective. They might, or might not, be right. summer, when TS is entirely TransAtlantic, doesn't look promising, with Europe in shambles and Canadians afraid to leave, lest they be imprisoned expensively upon return. I'm not betting on TS. And I have no love for them, but an unchecked AC running the whole national show is in nobody's interest except shareholders of AC. No OneWorld carrier, no SkyTeam carrier, only one viable competitor to AC and it's an LCC with no loyalty program.

  17. AirlineInsider91

    Air Transat will go under sadly. Why would WestJet buy them when they have the most to gain? If WS do manage to launch Asia/Australian flights with the 787s then Air Canada will be under a massive threat.

  18. Steven

    Leisure markets are going to recover before business travel, I'd bet on Transat surviving if Canada can figure out how to reopen

  19. John

    Westjet won’t buy Air Transat. That would be like Delta buying Spirit or Frontier

Featured Comments Load all 19 comments Most helpful comments ( as chosen by the OMAAT community ).

The comments on this page have not been provided, reviewed, approved or otherwise endorsed by any advertiser, and it is not an advertiser's responsibility to ensure posts and/or questions are answered.

roger

Would love to see an Investment Group step In and fund the turnaround of airTransat. Never thought a merger/acquisition by AirCanada was a good idea by reducing competition because we witnessed what happened when Canadian was absorbed by AC. There is a place for AT in the market and they need to be aligned with a competitive Alliance (ONEWORLD would be the Best) to give them a boost from outside of Canada. Even a Westjet/AT tie up would be better but Canadian Authorities need to keep Delta out of meddling in the business because everyone knows They are only interested in propping up Delta. A blended Westjet/AT could be a competitive force to counter a monopolistic AC but Westjet needs to become more of a global airline to compete and distance themselves from their LCC image.

FifthDim

Thanks to Europe another Canadian business cartelization attempt failed. I wish Europeans had also a say in the Telecom oligopoly.

The nice Paul

@Brian I suspect the airlines hope to continue to use EU airspace. To do that, they need a licence (just as furrin’ airlines have to apply to the US DoT for a licence before they can serve US airports). You should be grateful to the EU for providing some passenger protection when the airline’s national regulator hasn’t bothered (though given Canada’s support for Air Canada’s theft of passenger fares during Covid, it is unsurprising that they prioritise airlines’ business interests way before the interests of the poor customers).

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