Competition regulators will eye the market as part of airlines’ merger plans

Canadian airlines are increasing the number of seats available to sunnier destinations this winter, although the capacity growth will be muted compared to last due in part to constraints from the grounded Boeing 737 Max aircraft.
The sun destination market is expected to grow 2.2 per cent between Nov. 1 and Apr. 30, according to a National Bank analysis based on data from Transat and OAG, a provider of airline scheduling data. That’s down from 8.7 per cent growth last winter.
While an increase in charter flights could bump the expansion up to 4.4 per cent, the grounded Boeing 737 Max aircraft remains a “wildcard” for growth plans and could limit growth to only 0.9 per cent if the fleet remains grounded past April, National Bank analyst Cameron Doerksen noted to clients. Three of the four major players in the market — Air Canada, WestJet Airlines Ltd. and Sunwing Airlines Ltd. — operate the 737 Max jets.
Despite tempered capacity growth, snowbirds and vacationers make up an important market for Air Canada, WestJet, Sunwing and their fourth competitor, Transat A.T.  Each captures roughly a quarter of the booming market (25 per cent, 22 per cent, 27 per cent and 23 per cent, respectively).
Overall capacity has ballooned by almost a million seats in the past five years and will reach an estimated 4.9 million seats in 2020, up 42 per cent from 3.5 million in 2013.
Competition regulators are expected to evaluate this market as part of Air Canada’s planned merger with Air Transat, Doerksen wrote. They will also examine the concentration of ownership on Trans-Atlantic routes in a review expected by May.
The combined company would capture 48 per cent of the sun destination market, not quite reaching the 50 per cent threshold the Competition Bureau uses as a screening mechanism to evaluate whether a company can abuse its market dominance. But it would have “significant” concentration of seats in Quebec with 69 per cent of the market share, Doerksen noted.
“However, we note that Sunwing has a strong presence in the Quebec market and the now-privatized WestJet (which has a non-existent presence to sun markets from Quebec) has publicly stated a goal to grow its share in Eastern Canada,” he wrote.
Regulators are also expected to evaluate whether the merger would give Air Canada and Air Transat a pricing advantage. Doerksen noted that pricing for sun destinations typically includes hotels, giving the airlines less clout since they don’t own any properties. Sunwing, the largest player, does own hotels, a strategy Transat was pursuing until it accepted the Air Canada deal.
As regulators keep an eye on market positioning, Canadians are deep in the search for vacations post-Christmas, the busiest period for booking.
In December, Transat reported that it already sold 56 per cent of its winter seat inventory and that load factors were 3.4 per cent higher compared to the prior year.
Financial Post
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