Competition watchdog warns against Air Canada's proposed deal to buy Transat

MONTREAL — Air Canada's proposed acquisition of Transat AT Inc., which owns Air Transat, likely will hinder competition and result in less choice for Canadian travellers, the Competition Bureau says.

In a report delivered to Transport Minister Marc Garneau, the watchdog said Friday that eliminating the rivalry between the two Montreal-based carriers would result in higher prices, fewer services and ultimately less travel by Canadians on a range of competing routes.

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The bureau's analysis found that the deal would impact 83 overlapping routes, including 49 between Canada and Europe and 34 between Canada and sun destinations in Florida, Mexico, Central America and the Caribbean.

The agency noted that its report released after markets closed draws on information collected prior to the COVID-19 pandemic, which has cratered airline revenues as borders close and travel demand plummets.

Shareholders at Transat approved a $720-million acquisition offer from Air Canada in August, but the deal also faces scrutiny by European regulators eyeing the impact of a takeover that would see the country's biggest airline control more than 60 per cent of transatlantic air travel from Canada.

Transport Canada has until May 2 to complete a public-interest assessment and provide it to the minister.

Transat said the report "does not affect the company's confidence" in the deal.

"The commissioner’s role is limited to studying the impacts on competition in the marketplace...without taking the public interest more broadly into account," CEO Jean-Marc Eustache said in a statement.

"Transport Canada's assessment will provide a more comprehensive overview of the nuts and bolts of the transaction and of all the benefits for the Canadian public and economy."

The COVID-19 crisis, which prompted Transat to halt all flights until April 30, is "calling into question the relevance of any analysis conducted prior to its outbreak," Eustache added.

He characterized the merger in near-opposite terms from the Competition Bureau, saying it will "improve customers' choices and opportunities" with more flight connections and frequencies.

Earlier this month, Canaccord Genuity analyst Doug Taylor said the deal "now carries a question mark" due to the then-34 per cent plunge in Transat's share price over the previous two months — 41 per cent at end of day Friday. Taylor noted the widening spread between Air Canada's $18-per-share bid and Transat's current stock, which is now 47 per cent cheaper.

Air Canada said its priority for the moment is to cut costs, conserve liquidity and safeguard employees and passengers.

"Given the unprecedented impact of the COVID-19 crisis on the airline industry and the state of emergency worldwide, we will consider the findings of the Competition Bureau in due course," the airline said.

This report by The Canadian Press was first published March 27, 2020.

Companies in this story: (TSX:AC, TSX:TRZ)

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