'Prices will go up' amid Sunwing shutdown: Lecturer
Air travel industry observers say federal regulators should watch closely for consumer price impacts as WestJet winds down Sunwing Airlines.
WHAT IS CHANGING?
The development came shortly after WestJet said it would also shut down and fold in operations at budget carrier Swoop.
Calgary-based WestJet confirmed the changes to BNN Bloomberg, noting that travel tour operator Sunwing Vacations will continue to run as part of the WestJet Group.
“While we can confirm the eventual integration of Sunwing Airlines into WestJet, the anticipated timeline to do so has not been determined at this time,” spokesperson Julia Kaiser said in an email. “Our immediate focus remains on the integration of Swoop's highly successful business model across WestJet's operations.”
John Gradek, faculty lecturer in aviation management at McGill University, said he sees the possibility of steep price hikes on the horizon, particularly when it comes to Sunwing Vacations as it takes on an even more prominent position in the vacation-booking space.
“This has the potential to be a significant increase in pricing as a result of this consolidation,” he told BNNBloomberg.ca in a phone interview.
BNNBloomberg.ca has reached out to WestJet for further comment.
In the immediate future, the integration will mostly affect branding at the two airlines, Gradek said, “as the Sunwing colors and the Sunwing brand disappear.”
“It really is a way for WestJet to consolidate its operations and its overheads in managing an airline,” he said, noting that the recent contract agreement with WestJet pilots involving significant wage increases may have put pressure on the company to reduce other costs.
Gabor Lukacs, president of advocacy group Air Passenger Rights, said the consolidation is a mere technicality after the federal government approved the airline acquisition in March – a decision he described as a “terrible mistake” that will result in less competition, higher prices and worse service for passengers.
“It is the government's decision that needs to come under scrutiny,” he said. “From WestJet’s perspective, they're just doing what is logical and makes sense.”
In Lukacs’ view, the most significant anti-competitive damage to the air travel sector was done at that time of the federal approval, and the most recent news about the business integration was predictable.
“It may have some slight impact in terms of marketing techniques, but in terms of economic processes, in terms of air travel market, it has no bearing on it,” he said. “The moment Sunwing was purchased by WestJet, the competition ceased to exist.”
Sunwing Vacations will continue to operate under its own name, and Gradek said the success of that travel tour operator is likely what attracted WestJet to Sunwing in the first place.
Gradek said he expects WestJet might fold in its WestJet Vacations brand with Sunwing Vacations, as the latter is a more recognizable name that “has done a great job of positioning itself in the Canadian marketplace.”
“Sunwing will have a lot more opportunities to fly to different markets and increase their services, but the consumer will in fact be paying more for those services, because there's less choice for the type of airplanes that are going to be required to operate those Sunwing Vacations holidays,” he said.
PRICES AND OVERSIGHT
The federal government attached several conditions to the WestJet-Sunwing sale, including rules about maintaining business presence in Toronto and Montreal, keeping up capacity on affected travel routes and protecting Canadian jobs.
Gradek said he is keen to see how the government follows up on a condition that calls for “supplying airfare data on vacation packages for monitoring of post-acquisition price trends.”
He said he sees a risk that Sunwing may aggressively go after Transat, its main competitor in the holiday tour-booking space, and said there needs to be oversight of “how much does the Canadian consumer have to bear in terms of the price increases” that may arise from the consolidation.
“To me, there has to be some statement from the federal government that they will keep an eye out on pricing, particularly for Sunwing Vacations in central Canada,” he said. “I don't hear any noise coming out of Ottawa that they might want to do that.”
Lukacs would like to see the government acknowledge it “messed up” in approving the sale, and take other measures to improve competition such as allowing foreign airlines to transport more passengers within Canada.
A spokesperson for Transport Minister Omar Alghabra referenced the terms and conditions placed on the sale, and said any violation of those terms “would be a violation of the merger agreement.”