Major news in the Canadian aviation world this week: the country’s #2 airline (WestJet) announced its purchase of the #4 airline (Sunwing). If that means less competition, that must be bad for plane ticket prices, right? Not at all in this case!
Here are the details and a few initial thoughts about the impact on travelers, since we are pretty much experts when it comes to airfares.
Acquisition news
Onex Corporation, which bought WestJet in 2019, announced Wednesday that they will be purchasing Sunwing.
As with any major acquisition in an industry with so few players, the transaction will likely be assessed by the Competition Bureau of Canada. But there’s no doubt at all that it will be approved since even Air Canada’s (now canceled) acquisition of Air Transat was approved — and was a lot worse in terms of competition and concentration.
Onex has made WestJet a private company. One of the main benefits of not being publicly traded is that there’s no requirement to disclose any financial information, which means we don’t know the purchase price.
However, it can’t be that expensive. Sunwing is also a private company, but based on the fleet size they are much smaller than Air Transat. And Transat’s purchase price was only $200 million after the pandemic. And even at that price, Air Canada didn’t want it anymore (in part due to European regulators, but that won’t be an issue this time).
WestJet shared its intention to keep the Sunwing brand alive. Sunwing shareholders (the founder’s family, the huge TUI group from Europe, a Russian billionaire, and others) will get WestJet shares.
Impact on travelers
The bottom line is this:
- Travelers who want lower prices for plane tickets will likely be the winners
- Vacationers who are fond of all-inclusive resorts will likely be the losers
Why?
- The acquisition will create a competitive gap, which will help ultra-low-cost carriers (ULCCs) grow even faster and they’re the ones who have the most significant impact on prices
- The rise of ULCCs in Canada will more than make up for the higher airfares that would otherwise result from the loss of a big player
- WestJet will take advantage of economies of scale and grow in size, allowing it to better compete with the bigger player and that will have a much more important effect on prices than losing Sunwing
- The number of players in the all-inclusive segment will drop by 25%, so from that perspective, having only 3 players instead of 4 could be more of an issue
But it bears repeating, at Flytrippers, our mission is to help you travel more for less. Travel means discovering new cities and places, and interacting with locals to learn about their culture.
So, we can only recommend avoiding all-inclusive vacations, even if many people enjoy them.
If you still want a vacation type of trip, why not book accommodations that are a bit more authentic (so pretty much anything other than an artificial resort far away from everything) and relax there instead? At least, you’d have a better idea of how the locals live and you could mingle with them a little!
It’s for sure going to be a more rewarding trip. And if you go to an inexpensive country, it can also cost you a lot less!
We’d be more than happy to help you try it out and learn about the benefits if you’re a fan of all-inclusive vacations! Feel free to ask us questions about booking or planning trips; we want to help you experience authentic and independent travel!
Anyway, with that side note out of the way, here’s more information on WestJet’s purchase of Sunwing.
Prices
The acquisition of one of the 4 major airlines in Canada by another one seems quite worrisome on paper, because the only thing that drives the prices of air travel is competition (as we have already explained).
The best example is the Toronto-Vancouver route. Before ULCCs were a thing in Canada, the flights were at least $400 roundtrip.
Now, we spot them just about every day on our flight deals page for $80 roundtrip. Even legacy full-service airlines like Air Canada often offer it for $200 roundtrip.
The costs of operating this route were not magically cut in half overnight!
There’s more competition, so prices go down.
ULCCs are exactly why you shouldn’t worry too much about this purchase from a flight price perspective. And that’s probably part of why Sunwing was for sale in the first place.
There’s Swoop (a WestJet subsidiary) and Flair already… and Lynx launching soon. That’s a lot of ULCCs for a country as sparsely populated as ours.
They will come in to fill in the gap left by the loss of a major player. And not to mention Porter, another full-service airline, which is planning a major expansion to compete with Air Canada and WestJet.
WestJet
For those less familiar with WestJet, it’s the main competitor to Air Canada (which is by far the biggest player, as you probably know).
WestJet was originally a low-cost airline. However, because these are dying all over the world due to the rise of ultra low-cost carriers (not AT ALL the same thing), the airline has repositioned itself several years ago as a full-service airline, essentially an alternative to Air Canada.
They have a regional flight subsidiary, wide-body aircraft, a proper business class, an airport lounge, partnerships with global airlines… In short, WestJet is competing with Air Canada.
And Air Canada is so dominant in the country that whatever could help a bigger, stronger, and closer-in-size competitor to emerge — basically anything that will strengthen WestJet — will also greatly help flight prices in Canada in general.
Sunwing
Sunwing is actually pretty small. It’s a leisure airline and tour operator primarily. It’s not a full-service airline, but it’s also not a ULCC, and as I said, it’s very difficult to be in the middle.
Without boring you with too many concepts from my former career as a management consultant in business strategy, polarization is increasing in almost every industry: either you offer a value-added experience, or the lowest prices. The middle isn’t lucrative.
Plus, in the world of leisure travel, travelers are overly price-sensitive.
Sunwing is not a ULCC, so in terms of prices, they’re bound to always be beaten by the 3 ULCCs we now have in Canada (which offer flights for as little as $29 taxes included… which is 3 times more expensive than ULCCs in Europe, but still).
Sunwing is not a full-service airline either, so in terms of value-added experience, they’re bound to always be beaten by the 2 major airlines (which offer more destinations, more frequencies, more partnerships, more everything).
Without the premium benefits of being a full-service airline and the price benefits of being a ULCC, it’s tough. And it won’t get any better. Demand for all-inclusive vacations is quite seasonal too…
So basically, it would have been difficult to continue, especially since the impact of the pandemic of the government’s response to the pandemic (which, as far as travel is concerned, has been much more extreme here than in other places) has probably been brutal.
There’s a reason why in the USA, there are no vertically integrated tour operator airlines or “leisure” airlines whose primary business model is to sell all-inclusive vacation packages — even with 10 times the population Canada has.
Here, only Air Transat will remain… unless, of course, Air Canada decides to buy them once again to counter the WestJet/Sunwing move.
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Summary
WestJet will buy Sunwing and create a stronger competitor to Air Canada while leaving more room for growth for other competitors at both ends of the Canadian aviation industry spectrum (Porter as a full-service legacy airline and Lynx/Flair/Swoop as ULCCs).
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Featured image: WestJet and Sunwing aircraft (photo credit: Anna Zvereva and Lord of the Wings)
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