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Airline analysts unfazed by competition watchdog’s warning about Air Canada deal

Air Canada

An Air Canada plane flies underneath dark clouds illuminated by some sun rays above Frankfurt, Germany, Thursday, March 2, 2017. (THE CANADIAN PRESS/AP-Frank Rumpenhorst/dpa via AP)

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    MONTREAL — The Competition Bureau’s warning about Air Canada’s proposed takeover of Transat AT Inc., which owns Air Transat, should be taken in context, analysts say.

    The watchdog said Friday that eliminating the rivalry between the two Montreal-based carriers would discourage competition by prompting higher prices and fewer services, ultimately resulting in less travel by Canadians on a range of competing routes.

    The $720-million deal proposed in August would hand Canada’s largest airline 60 per cent of transatlantic travel from Canada and 45 per cent of passenger capacity to sun destinations, according to the federal agency’s report.

    Desjardins Securities analyst Benoit Poirier said he believes the purchase will still be approved "considering the companies’ willingness to address the bureau’s competition concerns," such as potential dominance of airport slots.

    WestJet Airlines Ltd., which has tried to challenge Air Canada’s dominance on international routes by adding transatlantic flights, wide-body planes and premium fares, may be interested in Transat’s slots — scheduled landing and takeoff times, Poirier said.

    "More importantly, the impact of COVID-19 on the airline industry will be a significant factor to consider in this analysis. We believe the proposed transaction will help the Canadian airline industry recover from this crisis — an element that works in its favour."

    The Competition Bureau noted Friday that its report draws on information collected prior to the COVID-19 pandemic, which has cratered airline revenues as borders close and travel demand plummets.

    Gael Campan, an economist at the Montreal Economic Institute, said the deal would boost Air Transat’s chances of a post-recession rebound.

    "Since Air Transat is smaller, its financial backing is not as strong as Air Canada. And since its business is mainly leisure trips, we can expect that they will restart later and slower as soon as we recover from the present crisis," Campan said in a phone interview.

    The transaction is also key to strengthening Air Canada’s position as an international player in an industry that has transformed from a heavily regulated point-to-point model to a more free-market hub-and-spoke system that demands an entrenched home base, he said.

    "Consolidation, it is the way of this industry today," Campan said. "Unfortunately, the Competition Bureau relies on a static model of competition that does not take into account this natural evolution of the industry."

    Transport Canada has until May 2 to complete a public-interest assessment and provide it to Transport Minister Marc Garneau, who will consider it along with Competition Bureau’s analysis.

    Along with that report, Transport Canada’s broader assessment will factor in stakeholder proposals to foster competition, findings from public consultations and the transaction’s impact on travellers, jobs, tourism and Canadian businesses on the international stage.

    Transat saw its shares drop 4.4 per cent in midday trading Monday.

    This report by The Canadian Press was first published March 30, 2020.

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