In a joint statement by both companies on 2nd March 2022, Canadian airline company Westjet Group announced the acquisition of rival Sunwing Airlines for an undisclosed cost. This acquisition is the first major move for Westjet since private equity firm Onex acquired it for 3.5 billion USD in 2019. The deal is set to be completed in the later stages of 2022, pending regulatory approval. As part of the deal, Westjet will also acquire the travel booking site Sunwing Vacations.
Westjet is Canada’s second-largest airline founded in 1994 and provides customers with both national and international flights. Initially, Westjet started as a budget low-fare airline, but in recent times has transitioned to a more premium and upmarket airline. Westjet carries around 26 million passengers a year, with total revenue of 2.8 billion GBP.
The Toronto based airline Sunwing, founded in 2005, provides domestic travel within Canada as well as holiday packages to popular destinations such as Mexico and the Caribbean. With 700,000 annual passengers, Sunwing is an attractive business for Westjet to acquire. Westjet is a large airline looking to further break into the leisure market and Sunwing, being a smaller leisure-focused airline, will allow them to do this.
This acquisition will increase Westjet’s fleet to 130 aircraft from 102. ATB Financial analyst Chris Murray said he did not expect the deal would create much new capacity. Instead, this is seen as an attempt to widen brand exposure and push into the leisure travel market, which is one of the markets to recover fastest after the pandemic. A similar outcome has been seen in previous events, such as after 9/11 and the 2008 global financial crisis. This was particularly evident seeing as business air traffic had not recovered to pre-financial crisis levels before the COVID-19 outbreak in 2020. In addition to this, the shift to online and remote work during the pandemic will likely amplify this difference and cause the leisure travel market to recover even more rapidly than markets such as business travel as restrictions ease.
This acquisition is a continuation of the trend of consolidation currently happening in the industry. This has been sparked by the pandemic, which caused the valuation of airlines to decrease dramatically due to imposed travel restrictions. This decrease in valuation has facilitated a stream of mergers and acquisitions before the markets recover. As restrictions relax and the market begins to recover, valuations will likely see a significant increase.
From 28th February, relaxed restrictions will make travelling to and from Canada much easier and cheaper, and therefore more appealing. This positive news has been echoed across the globe by the merger of US carriers Frontier Airlines and Spirit Airlines, as well as Chorus Aviation and Brookfield Asset Management’s acquisition of plane-leasing firm Falko Regional Aircraft Ltd.
The news of this acquisition comes a week after Onex reported a fourth-quarter 5% growth in investing capital. However, they also reported that profits dropped 64%. Despite this news, Onex is not worried and look to press on opportunistically into the budget airline and holiday travel markets. Alexis von Hoensbroech, CEO of Westjet, says that the acquisition will allow Westjet to “accelerate growth in value-oriented travel, already the fastest-growing segment of the airline market.” This acquisition will allow Westjet to recover within the airline industry at a much faster rate thanks to the increased exposure and presence in the leisure travel market. It will also likely cause an increase in competition by providing more access to low-cost flights. This will drive other airlines to lower prices or add extra value to their current offerings.
Airlines are an economy of scale, with every airline having very similar and expensive administration and service costs. Through the acquisition, Westjet will be able to lower its overheads as the separate costs of the two companies can be centralised and reduced. In addition, currently competing routes of the two companies can be coordinated, allowing Westjet flights to become more efficient and profitable.
By Stephen Wass
Sector Head: Hortense Comon