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Ottawa greenlights WestJet's takeover of Sunwing

MONTREAL — The federal government gave the thumbs-up Friday to WestJet Airlines' takeover of Sunwing Airlines and Sunwing Vacations in a major consolidation of the Canadian aviation market following a tumultuous year for travel.
A Sunwing aircraft is parked at Montreal Trudeau airport in Montreal on Wednesday, March 2, 2022.  THE CANADIAN PRESS/Paul Chiasson

MONTREAL — The federal government gave the thumbs-up Friday to WestJet Airlines' takeover of Sunwing Airlines and Sunwing Vacations in a major consolidation of the Canadian aviation market following a tumultuous year for travel.

Proposed last March, the takeover will see Calgary-based WestJet bolster its vacation package offerings as it adds the tour operator to its fleet, though the two brands will be marketed separately.

Financial terms of the takeover have not been disclosed.

“Today's decision was not taken lightly, especially in light of everything that happened over the holidays for those who flew with Sunwing," Transport Minister Omar Alghabra said in a statement, referring to travel chaos that erupted in December amid staffing shortfalls and poor weather, impairing most airlines but leaving thousands of Sunwing passengers stranded in Mexico for days.

"After considering the pros and cons, we have made the decision that will allow Sunwing to continue to provide affordable vacation packages to Canadians, create more good jobs and protect current jobs as well as Canadians who have already purchased tickets."

Last fall, the Competition Bureau warned that the purchase by Canada's second-biggest airline would likely result in higher prices and decreased services, particularly around package deals.

The transport minister has attached conditions to the acquisition that include extending Sunwing packages to five new cities, maintaining capacity on the most affected routes and keeping both a vacations business head office in Toronto and a regional one in Montreal for at least five years.

Among the other conditions are a requirement to improve "regional connectivity" and baggage handling, boost employment at Sunwing's Toronto office and "gradually" end its seasonal plane-leasing practice to shield jobs in Canada.

WestJet and Sunwing have previously said their tour operations will be merged at the leisure carrier's current home base of Toronto, while WestJet will manage Sunwing Airlines from its Calgary headquarters.

Both companies are private outfits, with parent Sunwing Travel Group majority-owned by the Hunter family and WestJet owned by Toronto-based investment manager Onex Corp. after it took the airline private in a $5-billion deal in 2019.

WestJet and Sunwing comprise about 37 per cent of seat capacity on non-stop flights between Canada and sun destinations. That number rises to 72 per cent between Western Canada and sun destinations, the Competition Bureau said in an October report delivered to the transport minister.

"The proposed transaction will result in one of Canada's largest integrated tour operators being acquired by one of its primary rivals in the provision of vacation packages," it stated.

The regulator said eliminating the rivalry between the two will likely reduce or prevent competition in the sale of vacation packages to Canadians.

Robert Kokonis, president of consulting firm AirTrav Inc., said westerners in particularmay want to consider discount carriers such as Flair Airlines and Lynx Air, which offer cheap flights to sunny southern destinations but without package offerings.

“Any time you take away choice in a marketplace it might have an impact on pricing. But I still think we have a reasonable amount of competition in the east," he said, pointing to Air Canada Vacations and Air Transat.

"It’ll be somewhat diminished in the west."

Mark Taylor, president of the Unifor union local that represents around 470 Sunwing pilots, said he was worried about the implications of the deal for members.

"On first glance, I would say the conditions offer us nothing and likely leave us very exposed to whipsawing," he said, referring to contract negotiations with WestJet and Sunwing pilots. “It’s basically when two groups are played off against each other for the same work."

He also said that Sunwing pilots based in cities such as Quebec City, Winnipeg and Edmonton are worried about more centralized operations.

"The last thing we want is for everyone to have to work at Calgary or Toronto."

Taylor said it was "ridiculous" that the government has to mandate better service as part of its approval.

"The government's already had the chance to do that, and they haven’t.”

Advocates have been calling for stricter enforcement of compensation rules when flights are cancelled.

The transport minister pledged in January to toughen air passenger protections following the uproar over jammed terminals, overflowing baggage halls and hundreds of thousands of flight cancellations last summer and over the winter holidays.

Founded by Colin Hunter in 2002, Sunwing currently employs about 2,200 workers.

"This week marks an important milestone as regulatory reviews are complete, bringing us one step closer to finalizing the transaction," said Sunwing spokeswoman Melanie Anne Filipp in a statement.

The deal will close "in the weeks ahead," she said.

WestJet executive vice-president Angela Avery said she was pleased the process was wrapping up after more than a year in limbo.

This report by The Canadian Press was first published March 10, 2023.

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

Christopher Reynolds, The Canadian Press