In a widely publicized deal, Transat has agreed to a $520 million CAD purchase offer from Air Canada. The buyout has yet to gain shareholder or regulatory body approvals.
On its face, the deal unites two award-winning, Montreal-based companies. Skytrax, which hands out awards among 300 worldwide airlines on the basis of traveler votes, this year crowned Air Canada “Best Airline in North America” and Transat “Best Leisure Airline in the World.”
The buyout will do more than merge the two airlines, though. Transat is a vertically integrated company specializing in holiday travel, offering vacation packages, hotel, and air to the Americas and Europe. In addition to its global flight business (it is a founding member of the Star Alliance), Air Canada Vacations sells packaged holidays. Together, the two companies reportedly control 60% of the flight business between Canada and Europe; and nearly half of the flights to U.S., Caribbean, and Central American sun destinations. In addition, Transat has 500 holiday travel retailers across Canada.
When the deal was announced, Air Canada and Transat declared their intention to maintain the companies as two separate entities and brands, each with head offices in Montreal. Whether that separation lasts once they achieve regulatory sign-offs, a deal of this scope and magnitude will inevitably change the Canadian travel industry landscape, and how travel advisors do business.
Travel Market Report asked current agency members of Air Canada's Circle of Excellence (limited to the 50 top-performing agencies who book the most Air Canada business annually, and have the closest ties to the carrier) for their insights about the potential impact of the deal and any resulting decrease in competition.
Transat's sale comes as no surprise. George Clark, president of British Columbia's Elan Travel, notes: “They lost quite a lot of money last year. How long would such losses be sustainable? What would their future hold if they did not find a buyer?”
If the deal with Air Canada ultimately fails to go through, Flemming Friisdahl, founder of The Travel Agent Next Door, predicts, “Transat will look for another buyer.”
In fact, other offers had been on the table, for even more money. But significantly, Transat accepted the only offer from within the travel industry, a move that reveals awareness of the unique benefits to both sides in joining forces. The benefits to struggling Transat are obvious, but Air Canada benefits, too.
"Air Canada obtained some aircraft at a discount, which was very smart, especially as the MAX 8 fiasco seems far from over,” points out Clark. “On the whole, I think it is a very good deal for Air Canada and Transat shareholders, and the public. Less so for WestJet, of course.”
Many details of the deals as it stands today — and how pending government, shareholder and employee union approvals may change any potential integration of the companies and the two brands — are still unknown.
“On the leisure side, it all depends on whether both brands do continue to operate as separate tour operators or whether they will ultimately be merged — and will the product still be differentiated,” says Friisdahl. “However, anything that lessens competition is usually not great for retailers or for the consumer.”
Friisdahl anticipates “potentially a loss of capacity and product options. Less competition is likely to push prices up and perhaps reduce options and agent compensation.”
“I don’t think this deal will result in lower prices,” acknowledges Clark. “But there are many factors affecting prices to a greater extent than this deal: fuel costs, the dollar, the economy influencing demand, etc. As for Europe sales, the biggest effect on prices may be Brexit's downward pressure on the Euro and the Pound.
“We sell a fair amount of Transat, especially their Europe air and ground packages … Air Canada Vacations is a very small part of Air Canada's Circle of Excellence criteria, but if the Transat air-only product, particularly Europe, is removed, that will only boost our Air Canada sales.”
Potential new positioning of Transat's retailers isn't a competitive concern. “They have always been there,” says Friisdahl. “And we have always enjoyed a level playing field in terms of our compensation.”
“The devil may be in the details” of the buyout for both brands, says Clark. And Friisdahl warns consolidation “never happens without fallout.”
The final word: Stay tuned.