Competition Bureau: Northern airline deal represents ‘merger-to-monopoly’

Canada’s Competition Bureau has informed Transport Minister Marc Garneau that the proposed merger of First Air and Canadian North, in its current form, is likely to result in decreased competition and reduced air services in Nunavut and the Northwest Territories.

If approved, the new northern airline would be headquartered in Ottawa and would operate under the name “Canadian North,” featuring First Air livery. However, Canada’s Competition Bureau believes that in its current form, the deal is likely to have a negative effect on northern air services. Brian Tattuinee Photo
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“In most of the affected areas, the proposed transaction represents a merger-to-monopoly,” reads a media brief published by the Bureau on Feb. 26, following the conclusion of a report filed on Feb. 25. “The effects of the transaction are likely to include reductions in passenger and cargo capacity, increases in price, and reductions in flight schedules.”

With the exception of the Edmonton-Yellowknife route, the Bureau highlighted competition concerns for passenger and cargo services on all of the airlines’ existing overlapping routes.

Many Northern communities rely heavily on air services, which play a significant role in economic development, connected communities, and the supply of food, healthcare and other services.

The review concluded that services are likely to be impacted in the regions of Qikiqtaaluk and Kitikmeot in Nunavut; on routes between Yellowknife and Inuvik in the Northwest Territories; and on trunk routes including Ottawa-Iqaluit and Trans-Arctic service (linking Yellowknife to Rankin Inlet and Iqaluit).

First Air parent company Makivik Corporation initiated merger discussions and an agreement in principle was signed with Canadian North, owned by the Inuvialuit Development Corporation, on July 6, 2018.

The parties said the new airline would be headquartered in Ottawa and that following the necessary approvals, it would operate under the name “Canadian North” and feature First Air livery, including its Inukshuk logo.

On Nov. 13, 2018, Garneau initiated a public interest review of the proposed merger, which included a review and subsequent report from the Commissioner of Competition. That report incorporates information from a variety of sources, including the two parties’ own documents, interviews with market participants, and reports from independent economic and financial experts.

Following the release of the report, Makivik Corporation and Inuvialuit Development Corporation issued a statement on Feb. 26 saying the Bureau’s “artificially restricted findings in this matter are of limited value and suggest a superficial understanding of the Inuit organizations proposing this solution for sustainable northern transportation.”

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The companies said the Competition Bureau failed to consider the efficiencies presented by the proposed merger, specifically financial and non-financial benefits for northerners. In addition, the airline operators said a merger is critical to sustaining air travel to the North and relieving “the substantial financial burden currently shouldered by Inuit Land Claim Organization owners.”

Additionally, the airline ownership groups accused the Competition Bureau of ignoring the economic realities presented by operating overlapping routes — with insufficient demand and redundant schedules — to sparsely settled communities that are separated by vast distances.

“A merger will allow us to realize operational efficiencies that are needed to bridge the service gap and continue to be financially viable,” said the airlines’ statement. They urged Garneau to evaluate the merger “holistically,” keeping in mind the needs of northern residents while respecting the proposed “Inuit-led” solution.

The final decision regarding the proposed merger will be made by the Governor in Council  (Cabinet) based on advice from the Minister of Transport.

Read the Competition Bureau report here.

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