On Monday 25 May, the European Commission opened an in-depth investigation into Air Canada’s proposed acquisition of Transat. The Commission explained in a statement that it is concerned that the proposed transaction “may reduce competition in the passenger air transport services between the European Economic Area (EEA) and Canada”.
Margrethe Vestager, the Executive Vice-President responsible for competition policy, stated that “we will carefully assess whether the proposed transaction would negatively affect competition in these markets leading to higher prices, reduced quality or less choice for travellers flying over the Atlantic. This is a challenging time but a return to normal and healthy market conditions must be based on markets that remain competitive”.
Air Canada and Transat are the largest and second largest providers of scheduled air passenger services between the EEA and Canada respectively. Jointly, their networks include 29 routes between Europe and Canada.
At this stage, the Commission is concerned that the proposed transaction would significantly reduce competition on 33 origin and destination city pairs between the EEA and Canada, including 29 pairs where both airlines offer direct services and four where one company provides direct flights and the other indirect flights through one of its hubs.
The Commission's preliminary market investigation indicated that, historically, Air Canada and Transat have competed head-to-head for air passenger services between the EEA and Canada.
At this stage, the Commission believes that, although the Canadian airline WestJet has expanded its transatlantic business to the EEA countries, it is unlikely that it will be able to exert sufficient competitive pressure on the merged entity with respect to the origin and destination city pairs that the Commission identified as problematic in its preliminary investigation.
The Commission investigated the likely extent of the impact of the coronavirus crisis on the operations of Air Canada, Transat and their competitors beyond the short and medium term. Mergers have long-term structural effects on competition that need to be taken into account even at a time when the economy is experiencing severe shocks.
The information available to it during the first phase of the investigation was not sufficiently complete for the Commission to determine whether, in the long term, these airlines would continue to compete with each other on all of the routes where they competed before the crisis.
The Commission's preliminary view is that Air Canada and Transat are nevertheless still the closest potential competitors on the EEA-Canada routes in general and for the origin and destination city pairs investigated by the Commission in particular.
The Commission now has 90 working days to reach a decision. (Original version in French by Lionel Changeur)