WestJet: A Painfully Obvious Example Of Why Monopolies Are Harmful
Say goodbye to reasonably priced vacations
Last year my wife and I spent a week in the Caribbean with a group of friends. A few days before we were scheduled to return home, we received a message from Sunwing, the company we had booked our trip with.
“Your shuttle will pick you up at 4 pm on Sunday.”
That was odd, because our flight was scheduled to leave at 9 am on Sunday.
This email was the first in a fury of confusing, and frustrating communications with Sunwing, resulting from a software outage they had experienced.
Our departure time bounced around continuously; at one point, we were scheduled to leave over 24 hours late. Eventually, we decided to book a separate flight home with Swoop, a subsidiary of WestJet, and competitor of Sunwing in the budget-flight space. We needed to get back for my wife’s overnight shift that she couldn’t miss because she was scheduled to be the only doctor working in the hospital.
Despite the financial loss we took by booking a second flight, we felt lucky to have had another option to get home with. Unfortunately, those same sorts of options now no longer exist. WestJet acquired Sunwing earlier this year and recently announced that both Sunwing and Swoop will cease to function independently.
Today we’ll discuss the numerous implications of Canada’s quickly consolidating airline industry.
How did we get here?
Back in 2018, WestJet launched a new airline, Swoop, to enter the low-cost flight space. Swoop was initially competing with Flair Airlines in the domestic market but quickly expanded to southern destinations like Mexico and the Caribbean, which had previously been dominated by Sunwing.
Last year, WestJet announced that it had come to an agreement to purchase Sunwing. The only person standing in the way of this deal going through was Omar Alghabra, Minister of Transport.
After the potential deal was announced, the Competition Bureau of Canada conducted an analysis and produced a damning report for Minister Alghabra, filled with robust economic analysis to help him decide whether or not to approve the deal.
The report illustrated that WestJet and Sunwing were the only vacation providers for many markets and routes, and that the result of the merger would be a monopoly, with negative consequences for consumers.
“The Bureau's empirical economic expert found that the Proposed Transaction is likely to result in significant competitive effects, including price increases for Canadians on a variety of routes where the merged entity would have market power.”
In response, earlier this year, WestJet and Sunwing proposed some vague, likely unenforceable, conditions for the merger, in an attempt to appease the Competition Bureau and Minister Alghabra. These feeble conditions included, among other things, a promise to improve baggage handling and to maintain Sunwing’s Toronto and Montreal offices for just five years.
The Competition Bureau found these conditions to be “insufficient in scope”. Nevertheless, for reasons we can only speculate about, Minister Alghabra approved WestJet’s acquisition of Sunwing this March.
WestJet is already exploiting its newfound market power
As noted above, it was recently announced that Swoop and Sunwing will be absorbed into WestJet. Now that WestJet owns Sunwing, it no longer needs to offer low-cost flights through Swoop, since WestJet has full control of numerous routes.
The announcement came with a host of lofty claims from WestJet.
“Competition amongst air carriers in Canada has never been healthier”
“Will the integration of Sunwing Airline’s into WestJet’s main operations mean higher prices and less choice for consumers? No. The future integration of Sunwing Airlines into the WestJet Group will only serve to enhance our ability to provide increased affordability and choice to our guests.”
Experts don’t seem to agree with WestJet’s claims. John Gradek, a professor at McGill University told CBC that "there is going to be consolidation, consumers will have less choice, and pay more".
We don’t really even need experts to help us understand how things will play out. A simple search of Google Flights tells us everything we need to know.
Here’s the price history for a return trip from Toronto to Cancun from December 23 to 30, 2023, a route that used to be serviced by WestJet, Swoop, and Sunwing. It’s not a coincidence that prices recently jumped, now that there are fewer airlines servicing this route.
We tend to focus on the upwards pressure monopolies put on prices
This is natural because price changes are easy to measure. Rising prices are the most obvious consequence of high market concentration, but they aren’t the only problem.
Consider again our debacle coming back from the Caribbean last year. We were only able to make it back in time because there was another airline (i.e., Swoop) flying our route that was unaffected by Sunwing’s software outage. Booking a flight with another airline in an emergency is less likely to be a viable option now that we have fewer airlines operating in Canada. Future travelers in the same position we were in may be left stranded, and a hospital may go a night doctorless.
Wages are also harmed by a lack of competition. Fewer options for employment mean that mechanics, engineers, flight attendants, and other workers receive lower wages than they otherwise would.
Canada has fallen behind when it comes to competition
During the same week that Minister Alghabra approved the WestJet Sunwing merger, the US Departments of Justice and Transportation moved to block the merger of two major airlines, JetBlue and Spirit.
A global movement in antitrust law enforcement has started, and Canada needs to join it before it’s too late.
Nearly every sector of our economy is dominated by monopolies or oligopolies that provide us with worse prices, wages, products, and services than what we would receive if there was more competition.
It’s time for us Canadians to wake up and realize that bigger doesn’t mean better and that stronger antitrust laws could prevent the sort of consolidation we are experiencing.
That’s all for this time.
I would love to hear any thoughts, comments, or concerns you might have about all of this. Feel free to reach out!
Thanks for reading,
Kareem
Thank you for the analysis. This is exactly what I was expecting to happen when Gerald Schwartz and his Onex Corp purchased WestJet. I have little faith in our government to control corporate greed and protect consumers. Worrying about consumers and society in general is eroding or in many cases absent in Canada which is a shame. We are a rich country. Why we choose to not “do the right thing” baffles me.