TORONTO — It’s been a busy few weeks for Canada’s airlines, with headlines ranging from lawsuits to more government funding for airports.

But the biggest news to have emerged this month, at least with regards to Canada’s four major airlines, was the federal government’s approval of the WestJet-Sunwing deal.

Announced on March 13 by Minister of Transport Omar Alghabra, the decision to give WestJet the go-ahead to acquire both Sunwing Vacations and Sunwing Airlines was “not taken lightly,” given the industry’s recent bouts with flight delays, cancellations and bottlenecks. But the deal, which industry experts expected to be approved ever since it was first announced in March 2022, is proceeding as planned to “help maintain the stability of the sector,” said the Minister.

Though the financial terms of the deal have not been disclosed, what we do know is that both airlines will have to adhere to strict terms and conditions set forth by the federal government. The transition from two airlines to one entity will be closely watched, to say the least, particularly by Canada’s Competition Bureau, which previously raised concerns over “substantial anti-competitive effects” in areas of overlap between the airlines’ respective networks.  

Canada’s two other major airlines, Air Canada and Transat, will also be closely watching as the deal will surely impact coveted sun markets where Sunwing has long been a price leader. 

Speaking with Travelweek, John Gradek, Faculty Lecturer and Coordinator of McGill’s Aviation Management Program and former member of the Transportation Appeal Tribunal of Canada, says the deal will most likely result in higher prices for travellers.

“With this WestJet acquisition, Sunwing, the price leader in sun markets, has been absorbed by a financially strong operator, assuring Canadians of continued service to these markets. But in my opinion, pricing will change upwards, benefitting the carriers and operators but to the chagrin of Canadian sun travellers,” says Gradek.

Noting the “rather unenforceable package pricing oversight as contained in the government’s conditions,” Gradek adds that consumers will largely be the ones to keep pricing in check.  

“Monitoring will most likely be in the hands of consumers as prices are hiked, with some pressure from the government for restraint. How this will work remains to be seen,” he says.

As for the terms and conditions that the government has enforced for both WestJet and Sunwing, will they be easily met? Here’s how Gradek breaks down each of the government’s conditions:

• Extending Sunwing vacation package offerings to five new Canadian cities. 

“There are no details on the five new Canadians cities – why only these five? How were they chosen? There’s no mention made of minimum frequencies to be offered – will it be 1x/weekly, 6 weeks only, or more? There are a lot of questions when the government stipulates flight service levels in approving a transaction.”

• Maintaining capacity on routes most affected by the merger.

“I’m assuming this refers to routes served by both carriers simultaneously. Will WestJet be required to have two aircraft running side by side on the same route, or will they be required to do double-dailies (ie. early a.m. and evening flight) with the same aircraft? Again, if the government gets involved in flight scheduling, what is their role, their competencies in evaluating and understanding commercial decisions?”

• Increasing regional connectivity. 

“I’m not sure what the criteria will be to measure this condition. Will WestJet have to initiate connection service to its Canadian airport services to offer connections for regional traffic? We’re now getting into enforcing service levels in regional/small markets.”

• Improving baggage handling for better passenger experience.

“Measured how? What about delayed baggage? Customer responsiveness by the carrier? This is new territory for government oversight.”

• Maintaining a vacations business head office in the Toronto area and a regional office in the Montreal area for a minimum of five years.

“This is a standard political condition. Look for consolidation after the five years.”

• Increasing net employment by 20% over three years in the Toronto office.

“Again, this is a political directive but will it be made at the cost of transferring people from other WestJet Holidays or Sunwing offices? How should we interpret ‘net’?”

• Ensuring better passenger experience by investing in IT technology solutions to improve Sunwing’s communications.

“This must be in reference to Sunwing’s poor response to customers who tried to get information about operating issues during the Christmas period. The government must be assuming that IT technology – and Sunwing’s supposed lack of such technology – would improve the handling of disrupted operations. I would suggest an analysis of what went wrong in customer communications during this period, and ensure that appropriate action – whether it be increased staffing, better training or better flight decision-making – would be needed.”

• Supplying airfare data on vacation packages for monitoring of post-acquisition price trends.

“This would infer a return to pricing oversight of vacation packages, which might be encroaching on current provincial oversight of vacation packages. It gets a little tricky here, wherein there might be a suggestion of government edicts to monitor and enforce vacation pricing practices.”

• Gradually ending Sunwing’s seasonal leasing practice to protect Canadian jobs.

“This is very much a political statement to end Sunwing’s traditional operating practices of balancing aircraft against their demands. The government has traditionally approved such practices in the past, but now deems such practices as not politically acceptable?”

APPR CHANGES ARE COMING

According to Minister Alghabra, the Government of Canada is also working on significant reforms to the Air Passenger Protection Regulations (APPR), which were first introduced in July 2019 and later broadened in September 2022 to provide passengers with their choice of either a refund or rebooking in the event of a flight cancellation or a lengthy delay due to a situation outside the airline’s control. 

Just yesterday, Travelweek reported that NDP transport critic Taylor Bachrach plans to table a private member’s bill that aims to close APPR loopholes, increase fines for airlines and make compensation automatic for impacted travellers. 

When asked how the WestJet-Sunwing deal will make APPR more challenging for travellers and travel agents, Gradek says we’ll have to wait and see.

“I’m not sure what the revised APPR will contain but listening to pronouncements made to date, the Minister has indicated that the onus for validating payment of compensation will be inverted to the practices of airlines – and potentially tour operators – for justification as to why compensation claims should not be paid,” says Gradek.

“I believe the Minister is looking to the industry to make compensation payments automatic to affected passengers, as well as eliminate the ‘loopholes’ he claims are currently in the APPR. It’s interesting that travel agents are now being included in discussions about the application of the APPR, though how this would be done is quite opaque,” he adds.

NEXT STEPS FOR WESTJET AND SUNWING

So now that they’ve been given the green light by the federal government, what’s next for WestJet and Sunwing? How early can we expect to see changes to their operations?

Noting that the transaction has yet to be “consummated” by the players, Gradek says that the financial and operational terms are most likely being worked out, taking into account recent events, namely Sunwing’s winter sun flight cancellations out of Winnipeg, Saskatoon, Atlantic Canada and northern Ontario. 

“One has to wonder whether the financials of the transaction might have changed as a result of Sunwing’s poor brand image during the Christmas period and whether [WestJet’s parent company] Onex might attempt a reduced financial value for Sunwing. We might be hearing some ‘noise’ to that effect,” says Gradek. 

“In terms of formal integration, I suspect that the Winter 2023-24 WestJet Holidays season will reflect some integration of services, but I’m not sure how much rebranding might occur. Will the Sunwing brand still be around this upcoming winter season in Western Canada, and will we see WestJet livery on Sunwing’s aircraft? We know that WestJet would like to keep the brands separate but will that extend to aircraft as well? Only time will tell,” he adds.