Report to the Minister of Transport and the Parties to the Transaction Pursuant to Subsection 53.2(2) of the Canada Transportation Act (04690)

Proposed Acquisition by WestJet Airlines Ltd. of Sunwing Vacations and Sunwing Airlines

Report

October 25, 2022

Executive Summary

Introduction

This report is being provided to the Minister of Transport ("the Minister") further to the Minister’s determination that the proposed acquisition by WestJet Airlines Ltd. (“WestJet” or “WS”) of Sunwing Vacations and Sunwing Airlines (“Sunwing” or “WG”) (the “Proposed Transaction”) (each of WestJet and Sunwing will be referred to individually as a “Party” and collectively, as “the Parties”) raises issues with respect to the public interest as it relates to national transportation pursuant to subsection 53.1(5) of the Canada Transportation Act (“CTA”). Subsection 53.2(2) of the CTA requires that the Commissioner of Competition (“the Commissioner”) report to the Minister and the Parties within 150 days (or within the time specified by the Minister should an extension of time be granted) on any concerns regarding potential prevention or lessening of competition that may occur as a result of the transaction. On May 20, 2022, the Minister granted a 50–day extension to the Commissioner and Transport Canada for their respective reviews.

The Commissioner’s views are based upon a forward–looking analysis using data and information collected for the period up to and including September 2022. The Commissioner notes that the COVID–19 virus pandemic has caused significant disruptions since early 2020. The impact of these events on the Canadian travel industry has been significant. While there are signs of partial industry recovery and a gradual return of travel demand as of the writing of this report, there remains significant uncertainty on the timing and extent of long–term recovery, and this continues to be reflected in many industry participants’ plans. Even so, the impacts of COVID–19 were taken into consideration in developing the Commissioner’s views regarding the likely substantial prevention or lessening of competition related to the Proposed Transaction set out in this report.

Based upon analysis of facts and information prior to and during the COVID–19 pandemic, the Commissioner has determined that the Proposed Transaction is likely to result in substantial anti–competitive effects through the elimination of rivalry between WestJet and Sunwing in certain areas of overlap between their networks. In particular, the Proposed Transaction is likely to result in the following if it proceeds in its current contemplated form:

1. a substantial lessening or prevention of competition in the provision of vacation packages on 31 routes between Canada and Mexico or the Caribbean;
2. a merger to monopoly of the only two carriers and integrated tour operators offering vacation packages through direct service on 16 of these 31 routes; and
3. a significant reduction in travel by Canadians in the overlap markets.

Approach

In assessing the potential competitive effects of a merger, whether under the Competition Act or pursuant to subsection 53.2(2) of the CTA, the Commissioner assesses whether a merger or proposed merger prevents or lessens, or is likely to prevent or lessen, competition substantially. The Bureau’s analytical approach to merger review is set out in its Merger Enforcement Guidelines. The Commissioner assesses the potential competitive effects of a merger transaction by applying the test set out in section 92 of the Competition Act, having regard to the factors identified under section 93 of the Competition Act. The CTA does not contemplate an efficiencies analysis consistent with section 96 of the Competition Act. Accordingly, the Commissioner did not conduct an efficiencies analysis as under section 96 of the Competition Act.

The Bureau’s assessment of the Proposed Transaction involved the consideration of a broad range of sources of information, including:

• hundreds of thousands of records that include the Parties’ strategic, marketing, and business planning documents;
• submissions, supporting information and expert analysis provided by the Parties;
• millions of lines of detailed transaction data received from the Parties, competitors, and other market participants;
• numerous strategic documents, business records, and detailed submissions provided by a number of third parties;
• interviews with various stakeholders in the relevant markets, including travel agents/distributors, customers, tour operators, airlines, hotels, and airport authorities as well as comments and submissions received from additional stakeholders in the market, including Canadian consumers.

The Bureau also retained an independent empirical economic expert, who provided views and analysis regarding the competitive effects likely to result from the Proposed Transaction.

Concerns regarding potential lessening or prevention of competition

WestJet and Sunwing operate two of Canada’s four largest integrated airlines and tour operators offering vacation travel to Canadians, including to sun destinations. The airline and travel industries play a critical role in the Canadian economy, generating economic growth, creating jobs, and facilitating international trade and tourism. Leisure travel, including travel to sun destinations, is of particular importance to Canadian consumers, and can be expected to take on an even greater importance in the wake of the unprecedented COVID–19 pandemic. Leisure travel is widely projected to lead the post–pandemic recovery, as pent–up demand drives growth in Canadians’ travel for holiday purposes. In this environment, maintaining and encouraging healthy competition in leisure travel markets is particularly vital to the interests of Canadian consumers.

The Commissioner's analysis identified the following significant competition concerns likely to result from the Proposed Transaction:

1. The Proposed Transaction will result in one of Canada’s largest integrated tour operators being acquired by one of its primary rivals in the provision of vacation packages;
2. Overall, WestJet and Sunwing account for approximately 37% of non–stop capacity between Canada and sun destinations and 72% of non–stop capacity between Western Canada and sun destinations;
3. The Proposed Transaction is likely to result in substantial competitive effects, such as increased prices, reduced choice, decreased services, and a significant reduction in travel by Canadians through the elimination of rivalry between WestJet and Sunwing in the provision of vacation packages in the areas of overlap between their networks, including by:
   1. resulting in a merger to monopoly of the only two carriers and integrated tour operators offering vacation packages through direct service on 16 routes between Canada and Mexico or the Caribbean; and
   2. lessening or preventing competition for the provision of vacation packages on 31 total routes between Canada and Mexico or the Caribbean.

The markets where the Proposed Transaction is likely to result in a substantial lessening or prevention of competition in the provision of vacation packages to sun destinations are set out in Table 1 below.

Note that the Bureau found that one or both of the Parties had not made plans to resume non-stop service on Calgary-Huatulco, Calgary-Ixtapa/Zihuatanejo, Toronto-Nassau, Vancouver-Huatulco, Victoria-San Jose del Cabo and Winnipeg-Montego Bay in Winter 2022/2023.

On each of these routes, the Bureau did not find that entry or expansion by competitors would likely constrain an exercise of market power by the combined WestJet/Sunwing post–transaction. The Bureau concluded that barriers to entry or expansion in the relevant markets are generally high, and that no single carrier or combination of competitors is poised to replace Sunwing’s presence in the markets of concern or its offerings to Canadian travelers. The Bureau evaluated the plans and capabilities of prospective entrants based on a review of network planning and strategic documents, and conducted a detailed analysis of the likelihood of timely and sufficient entry at the level of each relevant market, for each potential entrant.

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.

As a result, the Commissioner has concluded that the Proposed Transaction is likely to result in a substantial lessening or prevention of competition in the provision of vacation packages on 31 routes between Canada and Mexico or the Caribbean, and represents a merger of the only two integrated tour operators and airlines offering non–stop service on 16 of these routes.

The Parties may propose certain measures they are prepared to undertake to address these concerns pursuant to subsection 53.2(5) of the CTA. In addition to providing his report, the Commissioner shall provide the Minister with his assessment of the adequacy of any such undertakings to address competition concerns, pursuant to subsection 53.2(6) of the CTA.

1. Introduction

This report outlines the Commissioner’s concerns relating to a potential lessening or prevention of competition resulting from the proposed acquisition by WestJet Airlines Ltd. (“WestJet”) of Sunwing Vacations and Sunwing Airlines (“Sunwing”) (the “Proposed Transaction”), as contemplated by subsection 53.2(2) of the CTA (in this report, each of WestJet and Sunwing will be referred to individually as a “Party” and collectively, as “the Parties”). This report represents the third time the Commissioner has been called on by the Minister in the context of a public interest assessment under the Canada Transportation Act (“CTA”), and is being delivered to the Minister as required by the CTA. In March 2020, the Commissioner also provided a report to the Minister pursuant to subsection 53.2(2) of the CTA outlining significant competition concerns regarding the proposed acquisition of Transat A.T. Inc. by Air Canada.^{Footnote 1} In February 2019, the Commissioner provided a report to the Minister outlining significant competition concerns regarding the merger of Bradley Air Services Limited and Canadian North Inc.^{Footnote 2}

The Competition Bureau (the “Bureau”) is an independent law enforcement agency that is responsible for, among other things, the administration and enforcement of the Competition Act. The Bureau’s mandate is to ensure that Canadian businesses and consumers prosper in a competitive and innovative marketplace. The Bureau recognizes that the airline and travel industries play a critical role in the Canadian economy, generating economic growth, creating jobs, and facilitating international trade and tourism. The Bureau also notes that leisure travel is of particular importance to Canadian consumers, with Canadians making over 100 million trips annually for holiday, leisure, or recreational purposes prior to the onset of the unprecedented COVID–19 pandemic.^{Footnote 3} In the wake of the COVID–19 pandemic, leisure travel can be expected to take on an even greater importance, as it occupies an increasingly large share of air travel from Canada, and pent–up demand for leisure travel among Canadians drives sector growth.

WestJet and Sunwing operate two of Canada’s four largest integrated tour operators providing vacation offerings to Canadians, including on routes to sun destinations. In addition, Sunwing operates online and brick–and–mortar travel agency SellOffVacations and has close relationships with prominent hotel chains preferred by Canadians, including through its arrangements with affiliate Blue Diamond Hotels and Resorts, which owns or operates properties in 15 destinations in the overlap areas. As a result, the Bureau’s assessment of the Proposed Transaction was very complex, and included the consideration of a broad range of sources of information, including:

• information received from the Parties, competitors, and other market participants;
• information gathered during previous transportation reviews;
• interviews with various participants in the relevant markets as well as comments and submissions received by additional stakeholders, including Canadian consumers; and
• analysis received from the independent empirical economic expert retained by the Bureau.

The Commissioner has determined that the Proposed Transaction is likely to result in substantial competitive effects through the elimination of rivalry between WestJet and Sunwing in the areas of overlap between their networks. In particular, the Proposed Transaction is likely to result in a substantial lessening or prevention of competition in the provision of vacation packages on 31 routes between Canada and Mexico or the Caribbean and represents a merger to monopoly of the only two carriers and integrated tour operators offering vacation packages through direct service on 16 of these routes. The Bureau found that the Proposed Transaction would likely result in a significant reduction of travel by Canadians in the overlap markets.

The Bureau has considerable experience and expertise assessing competition considerations in the airline and travel sectors and has pursued enforcement cases before the Competition Tribunal and the Courts relating to air services under the Competition Act to safeguard competition in these pivotal industries. These include applications under the abuse of dominance provisions (sections 78 and 79), merger provisions (section 92), competitor collaboration provision (section 90.1), and provisions that prohibit cartels (section 45). A summary of key Bureau reviews in the airline sector is provided in Appendix A.

In assessing the impacts of a merger to determine if it is likely to result in a substantial prevention or lessening of competition, the Bureau assesses the likely effects of the merger on price, output, and other dimensions of competition, such as quality, product choice, and service, in accordance with its Merger Enforcement Guidelines^{Footnote 4}, as informed by jurisprudence from the Competition Tribunal and the Courts and accepted approaches in economic theory and practice related to the review of merger transactions.

The Commissioner’s views are based upon a forward–looking analysis using data and information collected for the period up to and including September 2022. The Commissioner notes that the COVID–19 virus pandemic has caused significant disruptions since early 2020. The impact of these events on the Canadian travel industry has been significant. While there are signs of partial industry recovery and a gradual return of travel demand as of the writing of this report, there remains significant uncertainty on the timing and extent of long–term recovery, and this continues to be reflected in many industry participants’ plans. Even so, the impacts of COVID–19 were taken into consideration in developing the Commissioner’s views regarding the likely substantial prevention or lessening of competition related to the Proposed Transaction set out in this report.

Based upon analysis of facts and information collected prior to and during the COVID–19 pandemic, as is discussed in detail below, the Commissioner’s views are the following:

1. The Proposed Transaction will result in one of Canada’s largest integrated tour operators being acquired by one of its primary rivals in the provision of vacation packages;
2. Overall, WestJet and Sunwing account for approximately 37% of non–stop capacity between Canada and sun destinations and 72% of non–stop capacity between Western Canada and sun destinations^{Footnote 5};
3. The Proposed Transaction is likely to result in substantial competitive effects, such as increased prices, reduced choice, decreased service, and a significant reduction in travel by Canadians through the elimination of rivalry between WestJet and Sunwing in the provision of vacation packages in the areas of overlap between their networks, including by:
   • resulting in a merger to monopoly of the only two carriers and integrated tour operators offering vacation packages through direct service on 16 routes between Canada and Mexico or the Caribbean; and
   • lessening or preventing competition for the provision of vacation packages on 31 total routes between Canada and Mexico or the Caribbean.

The following sections describe the Bureau’s analytical framework, provide background information on the relevant vacation packages markets, and summarize the Commissioner’s analysis of concerns regarding competition and the Proposed Transaction.

2. Legislation^{Footnote 6}

Under the Competition Act, the Commissioner has jurisdiction to review merger transactions of any size and in any industry to determine whether they have, or are likely to have, the effect of preventing or lessening competition substantially. During the past three fiscal years, the Commissioner has conducted a review of an average of 230 transactions per year across all industries in Canada. Pursuant to Part IX of the Competition Act, parties to proposed transactions that exceed certain statutory and regulatory thresholds (and are not subject to any exemptions) are required to notify the Bureau and provide prescribed information prior to completing their transaction. After analysing a proposed transaction, the Commissioner may:

1. Decline to apply to the Competition Tribunal in respect of the proposed transaction;
2. Apply to the Competition Tribunal seeking an order to prohibit all or part of a merger or a remedy to address the competition concerns arising from the merger; or
3. Enter into a consensual resolution with the parties to address competition concerns that is registered with the Competition Tribunal and has the force of a Competition Tribunal order.

The CTA requires the Commissioner to report to the Minister and the parties to the transaction on any concerns regarding potential prevention or lessening of competition. The Commissioner assesses the potential competitive effects of a merger transaction by applying the test set out in section 92 of the Competition Act, having regard to the factors identified under section 93 of the Competition Act. As a preliminary phase in modernizing Canada’s competition regime, certain amendments to the Competition Act became law on June 23, 2022.

In reporting to the Minister and the parties on concerns regarding potential prevention or lessening of competition pursuant to subsection 53.2(2) of the CTA, the Bureau has not conducted an efficiencies assessment consistent with section 96 of the Competition Act, as the CTA does not contemplate such an assessment.^{Footnote 7}

Under section 92 of the Competition Act, the Bureau assesses whether a merger or proposed merger prevents or lessens, or is likely to prevent or lessen, competition substantially. A substantial prevention or lessening of competition results only from mergers that are likely to create, maintain, or enhance the ability of the merged entity, unilaterally or in coordination with other firms, to exercise market power. Section 93 includes an assessment of acceptable product substitutes, barriers to entry, effective remaining competition, or any other factor that is relevant to competition in a market. The Bureau’s analytical approach to merger review, including its assessment of the section 93 factors, is set out in its Merger Enforcement Guidelines and informed by jurisprudence from the Competition Tribunal and the Courts and may include the following considerations:

1. Market definition, including definition of both the relevant product and geographic markets. The Bureau defines markets in order to identify the set of products that customers consider to be substitutes for those offered by the merging parties, and the set or sets of buyers that could potentially face increased market power owing to the merger;
2. Calculation of market shares and concentration in the relevant markets. The Commissioner generally is not concerned about the unilateral exercise of market power when the post–merger market share of a merged firm would be less than 35 percent;
3. Analysis of anti–competitive effects based on quantitative techniques and evaluation of various factors including: the effectiveness of remaining competitors, countervailing power held by buyers, whether the business of a party to the proposed merger (or a part thereof) is likely to fail, and the likelihood that the transaction will result in the removal of a vigorous and effective competitor; and
4. Analysis of barriers to entry and of the likelihood that timely entry by potential competitors would occur on a sufficient scale and with sufficient scope to constrain a material price increase (or other exercise of market power) in the relevant market.

Where a proposed transaction involving a transportation undertaking is subject to mandatory pre–merger notification under the Competition Act, the Minister must also be notified under the CTA.^{Footnote 8} If the Minister is of the opinion that the proposed transaction raises issues with respect to the public interest as it relates to national transportation the Minister may direct the Canadian Transportation Agency or another person to examine those issues. Further, subsection 53.2(2) of the CTA requires the Commissioner to report to the Minister and the parties to the transaction on any concerns regarding potential prevention or lessening of competition that may occur as a result of the transaction, within 150 days after the Commissioner is notified of the proposed transaction under the Competition Act. However, pursuant to subsection 53.2(6), the Minister has the authority to grant an extension should extra time be necessary.

After receipt of the Commissioner’s report, the merging parties may propose measures they are prepared to undertake to address the Commissioner’s concerns, if any, and the Commissioner shall provide an assessment of the adequacy of those measures to the Minister. The parties must also confer with the Minister on any measures they are prepared to take to address public interest concerns relating to national transportation.

On the recommendation of the Minister, if the Governor in Council is satisfied that it is in the public interest to approve the proposed transaction, taking into account any revisions to it proposed by the parties and any measures they are prepared to undertake, the Governor in Council may approve the transaction and specify any terms and conditions that it considers appropriate. The Governor in Council shall indicate those terms and conditions that relate to potential prevention or lessening of competition and those that relate to the public interest as it relates to national transportation.

Where a transaction has been approved under subsection 53.2(7) of the CTA, the Competition Tribunal cannot make an order under section 92 of the Competition Act in respect of that transaction.

3. Sources of information on which this report is based

The Bureau’s assessment of the Proposed Transaction included review of the following:

• Statutory merger notifications provided by the Parties under the Competition Act;
• Hundreds of thousands of documents provided by the Parties in response to a supplementary information request (“SIR”) issued by the Bureau, including strategic, marketing, and business planning documents relating to pricing, schedules, and other dimensions of competition;
• Submissions, supporting information and expert analysis provided by the Parties, relating both to the Proposed Transaction overall and to key aspects of the Bureau’s competitive analysis;
• Millions of lines of detailed transaction data received from the Parties, competitors, and other market participants, including financial statements, as well as transaction, ticketing, and flight data;
• Strategic documents, business records, and submissions provided by a number of third parties; and
• Interviews with various stakeholders in the relevant markets, including travel agents/distributors, customers, tour operators, airlines, hotels, and airport authorities as well as comments and submissions received from additional stakeholders in the market, including Canadian consumers.

The Bureau also retained an independent empirical economic expert, who provided views and analysis regarding the competitive effects likely to result from the Proposed Transaction.

Information obtained by or provided to the Bureau in the course of its review is protected by section 29 of the Competition Act. The Bureau has the discretion to communicate such information only in limited circumstances as provided in section 29 and, even when permitted, minimizes the extent to which confidential information is communicated. The Bureau recognizes that maintaining the confidentiality of information is essential to its ability to pursue its responsibilities and to its integrity as a law enforcement agency.

3.1 Expert analysis of anti–competitive effects

The empirical economic expert retained by the Bureau conducted an empirical analysis of vacation package booking data in order to quantify the likely anticompetitive effects of the Proposed Transaction. The analysis included an estimation of price and quantity effects for the sale of vacation packages in the relevant overlapping markets in which both Parties operate.

Data analyzed by the Bureau's empirical economic expert included flight, ticketing, and vacation package data, including transaction-level information on pricing, revenues, and product characteristics for vacation packages. The expert's analysis considered millions of lines of detailed transaction and reservation data collected from the Parties to the transaction, as well as directly from competitors. Based on this information, the expert conducted a merger simulation analysis, which included specifying a model of competition among tour operators in the relevant overlapping areas, estimating key parameters of customer demand, and simulating the price and quantity effects of the Proposed Transaction. The expert’s analysis considered key features of the relevant vacation package markets, including substitution among vacation destinations. The expert conducted a hypothetical monopolist test across the overlapping areas to identify the relevant markets for the purposes of the Bureau's analysis, the results of which are discussed in section 7.1 of this report.

The expert concluded that the Proposed Transaction would result in significant competitive effects and material price increases in a number of the overlapping markets. The results of the empirical economic expert's analysis are described in section 7.3 of this report.

4. Parties to the proposed transaction

WestJet is one of the largest air service providers in Canada, and Canada’s second largest airline by seats flown.^{Footnote 9} WestJet’s headquarters are located in Calgary, and it operates hubs in Calgary, Toronto, and Vancouver. Prior to the COVID–19 pandemic, the company served over 100 destinations in North America, Central America, the Caribbean and Europe.

In addition to its mainline service, WestJet provides regional airline services through WestJet Encore. WestJet Encore serves destinations across Canada and in the United States. In 2018, WestJet launched Swoop airlines, an ultra–low–cost carrier that aims to provide affordable airline services to more price–sensitive consumers. Swoop serves destinations across Canada, the United States, and Mexico.

WestJet Vacations (“WVI”) is WestJet’s tour operator business that develops, markets, and distributes vacation packages. WVI packages hotel, car, and excursion packages to Canada, the United States, Mexico, and the Caribbean.

Sunwing Airlines is a vertically-integrated travel company and airline headquartered in Toronto with a regional office in Montreal. Prior to the COVID-19 pandemic, Sunwing Airlines served approximately 45 vacation destinations across the Caribbean, Mexico, Central America and Florida. While Sunwing Airlines operates a year-round fleet of 18 Boeing 737 aircraft, its fleet is highly seasonally variable; Sunwing typically leases a number of aircraft from European leisure airlines for the winter high season, and, in turn, sends certain aircraft to European airlines in the summer.

Sunwing Vacations is the company’s tour operator, which offers vacation packages, air seats, and hotels primarily in the Caribbean, Mexico, and Central America. Vacation Express is the company’s tour operator which offers similar products to customers in the United States. Sunwing’s tour operators sell their vacation packages directly to consumers and through third–party online and brick–and–mortar travel agencies. In addition, Sunwing operates SellOffVacations, an online and brick–and–mortar travel agency that retails vacation packages, cruises, hotels, tours, flights and travel insurance from Sunwing, as well as other suppliers.

5. The proposed transaction

On March 2, 2022, WestJet and Sunwing announced they had reached a definitive agreement under which the WestJet Group of companies will acquire Sunwing Vacations, Sunwing Airlines and Vacation Express (the “Proposed Transaction”). Further to the agreement, Sunwing shareholders will earn an economic interest in the merged entity, and Sunwing CEO Stephen Hunter will be hired to head the combined vacation business.

The Parties submit that the Proposed Transaction will generate significant benefits and efficiencies, including fuel and other non-labour cost savings, the deployment of additional aircraft in Canada in the summer season, and increased connectivity in the winter season through the amalgamation of the Parties’ schedules. The Bureau considered these submissions and supporting analyses, and was unable to conclude that they fully addressed the Commissioner’s concerns regarding a potential prevention or lessening of competition as contemplated by subsection 53.2(2) of the CTA. When reporting to the Minister pursuant to subsection 53.2(2) of the CTA, the Bureau's analysis is limited to concerns regarding competition, and it does not conduct an assessment of other public interest factors.

6. Background: Vacation travel to sun destinations

The Proposed Transaction would combine two of the four primary integrated tour operators providing vacation offerings to Canadians, as well as two of Canada’s largest airlines by seat capacity. The Bureau’s review was focused on WestJet and Sunwing’s offerings of vacation packages to Canadians.^{Footnote 10} The WestJet and Sunwing networks generally overlap with respect to the sale of vacation packages to travelers on routes between Canadian cities and destinations in the Caribbean, the United States, Central America, and Mexico (“sun routes”).

Both WestJet and Sunwing are active at multiple levels of the travel supply chain in Canada, which broadly includes the following:

• Airlines: Airlines earn revenue through sales of flights and ancillary products to tour operators and consumers. Consumers purchase flights directly from airlines through airlines’ call centres and websites or indirectly through third parties such as travel agencies. Airlines typically pay commission to travel agencies for selling their products, and enter into direct contracts with large agencies that establish compensation. In addition, many airlines own and operate their own tour operator companies, while also selling flights to third party tour operators.
  
  WestJet operates Canada’s second largest airline. While Sunwing Airlines, for its part, offers more direct flights to sun destinations than any other leisure airline in Canada, it is focused mainly on internal sales to Sunwing’s tour operator business.
• Tour operators: Tour operators purchase airline seats directly from airlines or through intermediaries and bundle them with other travel components (such as cruises, accommodations, and tours) in order to sell vacation packages or components thereof to consumers directly or through travel agencies. Tour operators also purchase package components from suppliers such as hotels, cruise lines, and destination service providers through intermediaries, or through direct agreements allowing for guaranteed inventory or pricing.
  
  The four largest tour operators in Canada (Air Canada Vacations, Transat Tours Canada, Sunwing Vacations and WestJet Vacations) are vertically integrated and procure substantially all of their airline seats internally. While other tour operators offer vacation products to the areas of overlap between the Parties, they are generally not vertically integrated, and are typically reliant on third–party airlines, such as the Parties, for flight components.
• Travel agencies and distributors: Travel agencies include brick–and–mortar retail travel agencies and Online Travel Agencies (“OTAs”). Travel agencies serve as intermediaries between airlines or tour operators, and customers. These distributors typically do not take on inventory risk and instead earn a commission per sale and additional payments (e.g. year–end commission overrides) from airlines and tour operators. Travel agents may also charge service fees to customers. Airlines and tour operators negotiate specific commission rates and contract terms with large chain travel agencies and may offer higher commissions to “preferred” sellers or agencies with which they have a close marketing or sales partnership.
  
  Sunwing owns and operates an OTA and a network of 33 retail travel agency locations under the brand name SellOffVacations.
• Suppliers of travel components: Tour operators’ primary suppliers in the relevant markets are hotels, which provide inventory through intermediaries or, more commonly, pursuant to direct supply agreements. Hotels may offer rooms on a “risk” basis, whereby tour operators commit to pay for a room in exchange for specific pricing, or via a simple allotment, in which case rooms are held for a certain period at a specified price, and returned to the hotel if not sold by a given date.
  
  The Parties’ hotel inventory in various sun destinations is concentrated in hotel chains of key partners, with operations across multiple destinations. These relationships may provide advantages in room rates and inventory, marketing funds, and differentiated package offerings. In certain cases, hotels may agree with an airline or tour operator to provide them exclusive rights to market a property in a specific region, such as Canada.
  
  Sunwing in particular has close relationships with hotel partners, often involving partial or full exclusivity. This includes arrangements with its affiliate Blue Diamond Hotels and Resorts, which owns or operates properties in 15 destinations in the overlap areas.

The Bureau considered the vertically–integrated nature of the Parties’ businesses in its review, and reviewed evidence and information concerning the Parties’ relationships with intermediaries and suppliers at each level of the supply chain.

6.1 Network overlap

6.1.1 Parties’ networks

As Canada’s second-largest network carrier, WestJet offered extensive domestic and international air travel options for consumers from approximately 36 origins in Canada pre-pandemic, including its hubs in Calgary, Toronto and Vancouver. Prior to the COVID-19 pandemic, WestJet operated to 97 different destinations from Canadian cities, including 35 sun destinations in Mexico, Central America and the Caribbean. WestJet’s tour operator, WestJet Vacations, offers vacation packages on the sun routes operated by WestJet’s airline entities.

The COVID–19 pandemic has had significant effects on WestJet’s operations, including its flights to sun destinations. As of the Winter 2022/2023 season, WestJet has re–established a sun travel offering approaching its pre–pandemic capacity.^{Footnote 11}

Sunwing operates an extensive network linking 29 origin cities in Canada with sun destinations in the United States, Mexico, Central America and the Caribbean, primarily via a point–to–point model. Sunwing also offers a limited domestic service, primarily in the summer.^{Footnote 12} As a vacation–focused carrier, Sunwing’s business is highly seasonal; through seasonal leasing arrangements, Sunwing typically operates up to four times the aircraft in winter that it does in the summer season. Pre–pandemic, Sunwing served 67 winter destinations from flights originating in Canada, of which 41 are sun destinations in Florida, Mexico, Central America and the Caribbean.

At time of writing, Sunwing’s internal plans called for a sun travel offering in Winter 2022/2023 comparable to pre–pandemic capacities.

6.1.2 Overlapping sun routes

The Parties primarily overlap with respect to the provision of vacation packages to sun destinations to Canadians.

As the Bureau noted in its prior report concerning sun vacation markets, travel to sun destinations is of significant importance to Canadian vacationers. In Winter 2019/2020, close to six million seats were offered between Canadian airports and sun destinations including Florida, Mexico, Central America and the Caribbean. As of the Winter 2022/2023 season, despite the ongoing effects of the COVID–19 pandemic, as many as five million seats were scheduled on these same routes at time of writing. Furthermore, the Bureau found that travel to sun destinations (and leisure travel overall) was widely expected to lead the continued recovery in demand following the COVID–19 pandemic.

Prior to the pandemic, around 13% of winter seats to sun destinations were bound for Cuba, 42% for Mexico and the Dominican Republic, 27% for Florida and 18% for other Caribbean or Central American destinations. Travel to sun destinations is highly seasonal with the majority of travel taking place during winter months.

Capacity to sun destinations is dominated by four major airlines and tour operators – Air Canada, Transat, WestJet and Sunwing – who together accounted for approximately 90% of seats on sun routes between Canada and Florida, Mexico, Central America and the Caribbean in Winter 2019/2020. The Parties represented approximately 37% of total nonstop capacity on these sun routes from Canada in the winter months. In Western Canada, the Parties accounted for as much as 72% of non–stop capacity to these sun destinations.

The table below summarizes the sun routes on which both WestJet and Sunwing provide direct service in peak season, and offer vacation packages or airline tickets to Canadians.

6.2 Impacts of the COVID–19 pandemic

The COVID–19 pandemic began to affect North America shortly before the publication of the Commissioner’s 2020 report to the Minister of Transport regarding the proposed acquisition by Air Canada of Transat. In that case, the Commissioner’s views were based on a forward–looking analysis using data and information collected prior to the onset of the pandemic. The Commissioner was unable at that time to fully analyze the impact of COVID–19 on the airline industry.

In the present case, the Commissioner once again took note of the significant and ongoing disruptions caused by the COVID–19 virus pandemic. Since early 2020, the impact of these events on the Canadian airline industry has been significant and the pandemic continues to result in disruption in the relevant markets. In the winter 2021/2022 season, industry seat capacity from Canada to sun destinations was only 54% of that offered in the Winter 2019/2020 season.^{Footnote 14} However, there are signs of recovery in upcoming seasons. Industry projections suggest that overall international traveler numbers can be expected to reach 90% that of pre–pandemic levels by 2024 and to exceed pre–pandemic levels by 2025.^{Footnote 15} Leisure travel (including travel to sun destinations) is generally expected to lead the recovery, and published schedules suggest winter seat capacity between Canada and sun destinations may exceed 85% of pre–pandemic levels by Winter 2022/2023 at time of writing. Despite this anticipated recovery, the impacts of COVID–19 were considered extensively when developing the Commissioner’s views on any concerns regarding potential prevention or lessening of competition that may occur as a result of the Proposed Transaction as set out in this report.

The Bureau considered evidence and information prior to and during the COVID–19 pandemic in its review of the Proposed Transaction. In order to assess likely competitive effects during a period of industry recovery, the Bureau initially examined competition between the Parties’ pre–pandemic networks. This approach is consistent with documentary evidence, for example, which indicated that airlines used pre–pandemic information as a guide in planning and re–establishing their networks, and as the industry’s expectation of future competition. This was also the approach adopted by the Parties when assessing competition in their submissions and analyses presented to the Bureau. In addition to this analysis, the Bureau also considered any evidence of lasting changes to competitors’ networks during and following the pandemic, and of any significant changes to conditions in the relevant markets as a result of the health crisis.

The Bureau spoke with various market participants and reviewed documentary evidence and public information in order to determine how COVID–19 has impacted core aspects of the travel industry, and assess its effects on the likelihood of a substantial prevention or lessening of competition related to the Proposed Transaction. The Bureau found that the COVID–19 pandemic’s largest impact on air travel in the short term was directly related to government–mandated restrictions. Documentary evidence and stakeholder views confirmed that government restrictions on travel, such as border closures, quarantine requirements, and hotel occupancy restrictions were a key determinant of airlines’ willingness or ability to fly to sun destinations. Although restrictions have lessened significantly since the onset of the pandemic, evidence suggested that competitors accounted for a continued risk of travel restrictions, should future variants arise, in their planning.

More broadly, the Bureau reviewed evidence regarding any changes to consumer demand as a result of the COVID–19 pandemic. The Bureau found that, while many consumers chose not to travel internationally in the immediate aftermath of the pandemic, there is generally a view in the market that leisure travel, including to sun destinations, will lead any recovery in travel demand. The Bureau reviewed all available information, including documentary evidence and stakeholder views, regarding the effects of this on airport and infrastructure availability, competitors’ network plans and likely competitive effects, among other aspects of its analysis.

7. Competitive analysis

7.1 Relevant markets

The Bureau defines markets in order to identify the set of products that customers consider to be close substitutes for those offered by the merging parties. Defining markets allows the Bureau to identify participants in a relevant market to determine market shares and concentration levels. Where the Bureau finds that a merger may raise competition concerns, it will typically identify one or more relevant markets in which competition is likely to be prevented or lessened.

In the present review, the Bureau considered that the relevant markets for its review were the provision of vacation packages on origin–destination pairs operated by the Parties^{Footnote 16} As in past cases, the Bureau also assessed whether consideration of geographic markets broader than origin–destination pairs or the inclusion of connecting itineraries would impact its conclusions.

For the purposes of this analysis, a relevant market is defined as the smallest group of products, including at least one product of the merging parties, and the smallest geographic area, in which a sole profit–maximizing seller (a “hypothetical monopolist”) would impose and sustain a small but significant and non–transitory increase in price. In most cases, the Bureau considers a five percent price increase to be significant and a one–year period to be non–transitory. Identifying the smallest set of products in which a hypothetical monopolist would impose and sustain such a price increase, without buyers switching their purchases to other products in sufficient quantity to render the price increase unprofitable, is often referred to as the “hypothetical monopolist test.” The hypothetical monopolist test may be conducted empirically where the data allows. The Bureau may also consider other evidence relevant to defining markets, including information on the views, strategies, and behaviour of buyers and documents prepared by the merging parties in the ordinary course of business.

WestJet and Sunwing are Canadian–based carriers and tour operators with networks that overlap primarily in travel between Canada and sun destinations. In this overlap area, WestJet and Sunwing both offer vacation packages.

The Bureau has typically defined relevant geographic markets in transportation industries according to origin–destination pairs, and considered different modes of transportation to belong to separate product markets. In the Bureau’s recent analysis of the airline industry during its review of Air Canada/Transat, the Bureau arrived at a number of conclusions regarding market definition: that air passenger service for leisure and business passengers likely constituted separate markets; that services from US border airports were unlikely to be in the same market as services from Canadian airports; that vacation packages and independent vacations were not close substitutes and likely constituted separate relevant markets; and that the origin–destination pair approach remained appropriate for travel to sun destinations, though the Bureau considered broader market scenarios informed by qualitative information regarding consumer preferences.

In this case, the Bureau’s analysis focused on two aspects of market definition relevant to its assessment of the Proposed Transaction:

1. Substitutability among sun destinations; and
2. Substitutability between non–stop and one–stop flights.

In defining the relevant markets, the Bureau relied on its conclusions in past reviews and reviewed a wide variety of additional information including analyses of sales data, internal strategic and business documents produced by the Parties and competitors, and interviews with market participants. The Bureau also considered assessments of the relevant markets provided by the empirical economic expert, including an empirical assessment of the hypothetical monopolist test.

7.1.1 Destination substitution on sun routes

The Bureau has typically defined relevant geographic markets in transportation industries according to origin–destination pairs, as service to an alternative origin–destination pair has generally not been considered an adequate substitute. In its review of the proposed acquisition of Transat by Air Canada, the Bureau found that Canadians purchasing sun vacation packages for leisure purposes were more willing to substitute between destinations based on relative prices than other travelers because their priority, particularly in the winter, was to experience a warm climate. Even so, the totality of the evidence in that case, including quantitative analysis, led the Bureau to conclude that the origin–destination pair approach remained appropriate for travel to the overlapping sun destinations. The Bureau also considered broader market scenarios informed by qualitative information regarding consumer preferences and found that this would not significantly change its conclusions regarding whether the Proposed Transaction would likely result in a substantial lessening of competition.

In this review, the Bureau examined additional evidence, including party documents, regarding whether certain leisure travelers purchasing vacation packages would substitute between destination cities in response to a price increase, such that different destination cities may be in the same relevant market.

The Bureau assessed information relating to both consumer behaviour and suppliers’ competitive strategies, with particular focus on internal documents discussing travelers’ purchasing patterns and resulting vacation package pricing practices.

Stakeholders have previously indicated to the Bureau that leisure travelers likely consider a subset of comparable sun destinations when booking vacation travel, and that substitution may be limited to specific alternatives. The documentary evidence reviewed by the Bureau also included individual reports of customer switching among comparable destinations. Certain internal documents were consistent with a view that, for example, Cuban resorts are typically significantly less expensive and may not be substitutable with most other sun destinations; Canadian travelers show some willingness to switch between popular sun destinations such as those in the Dominican Republic and/or Mexico; and a set of more premium Caribbean destinations such as St. Lucia, Aruba, Antigua and others are significantly more expensive and differentiated from budget vacations.

The Bureau examined whether the Parties’ competitive and pricing strategies were consistent with destination substitution, and reviewed the Parties’ and competitors’ strategic documents in order to identify any competitive responses across destinations. Documents often tracked competitors and market shares on an origin–destination pair basis. Furthermore, promotions, sales, and pricing adjustments more broadly often occurred at the destination or resort level, and the Bureau did not find direct evidence of cross–destination pricing or monitoring strategies. In some cases, the Bureau found that destinations were grouped for the purposes of pricing promotions or other initiatives. Ultimately, the Bureau did not find direct evidence that the Parties’ capacity or pricing decisions were routinely constrained by service to alternative destinations.

In order to further assess the potential for destination substitution, the Bureau also considered the views of its empirical economic expert, who developed a model of competition on each relevant origin-destination pair where the Parties overlap. The expert conducted a hypothetical monopolist test for sales of vacation packages in a given month on the relevant routes using the extensive historical data on sales to Canadians collected from the Parties and other stakeholders. On the basis of this analysis, the expert concluded that, for the purpose of analyzing the potential competitive effects of the Proposed Transaction, the appropriate relevant markets are the sale of vacation packages within a given month, at the level of the origin-destination pair.

As a result, based on the totality of the evidence, the Bureau concluded that an assessment of origin–destination pairs remains appropriate for travel to the overlapping sun destinations. As in past reviews, in light of qualitative information regarding consumer preferences, the Bureau considered broader market scenarios informed by the evidence, and found that this would not significantly change its conclusions regarding whether the Proposed Transaction would likely result in a substantial lessening of competition. This analysis is further discussed in section 7.3.1.1 below.

7.1.2 Connecting and Non–Stop Flights

In previous reviews of airline markets, the Bureau has determined that connecting itineraries involving one or more stops are not a close substitute for non–stop flights. In its most recent review of sun vacation markets, the Bureau concluded that leisure travelers on sun routes generally prefer non–stop flights, and did not find evidence that connecting itineraries offered a significant competitive constraint to direct services to sun destinations. Stakeholders have previously suggested that, particularly in the winter, Canadians prefer to fly directly from their origin city to their chosen sun destination.

In the course of the present review, the Bureau assessed any additional available documentary evidence regarding the constraint imposed by connecting flights. The Bureau did not find evidence of significant competition between one–stop and non–stop options. The Bureau found that non–stop itineraries are preferred by leisure customers, particularly from major origins where direct flights are often available. Therefore, the Bureau concludes that it remains the case that connecting itineraries involving one or more stops are not a close substitute for non–stop flights. Nonetheless, the Bureau notes that vacation packages including connecting flights remain of significant importance in certain markets, in particular for routes from Canadian cities with limited or no direct capacity to sun destinations.

7.2 Removal of a vigorous and effective competitor

In determining whether a proposed transaction is likely to substantially lessen competition, the Bureau may assess the closeness of competition between the merging firms’ products, and evaluates whether the merger would likely result in the removal of a vigorous and effective competitor. The Parties submit that WestJet and Sunwing are not close competitors for each other given differences in their business models, customer focuses and pricing practices. In support of their view that rivalry between their respective tour operator divisions is limited, the Parties cite data regarding their average vacation package pricing and sales quantities over time (i.e. each firm’s typical “booking curve” prior to a flight departure) in the overlap areas. The Bureau reviewed a variety of evidence, including this booking data, strategic and business documents, economic analyses, and interviews conducted with market participants, in order to confirm the extent to which WestJet and Sunwing closely compete in the overlap areas.

The Bureau found that evidence did support a degree of differentiation between the WestJet and Sunwing business models. While WestJet is a full–service network carrier which also operates a tour operator division, Sunwing is primarily a vacation provider, with its airline almost exclusively focused on internal sales to its tour operator affiliate. The Bureau determined that a significant proportion of WestJet sales in the overlap areas consisted of air passenger travel (and not vacation package sales), while Sunwing capacity was almost entirely devoted to vacation packages. Documentary evidence suggested that, in practice, this resulted in differences in the means through which WestJet Vacations and Sunwing Vacations secured seat inventory, and certain limitations in the pricing (and capacity) which WestJet Vacations historically offered in the overlap markets. The Bureau also found that WestJet’s network planning and pricing decisions were more likely to be influenced by its airline division (and thus air passenger sales) than those of Sunwing.

The Bureau also considered evidence regarding the Parties’ interactions with their external suppliers. The Bureau found that Sunwing more frequently provides volume commitments to its hotel suppliers, and that such arrangements may result in lower costs and, in certain circumstances, short term incentives to liquidate inventory at prices below those of WestJet Vacations. Analysis of data on the sale of WestJet and Sunwing vacation packages in the time prior to flight departure (each firm’s “booking curve”) confirmed that WestJet Vacations customers typically purchased further in advance, and that Sunwing offered somewhat lower prices than WestJet late in the booking curve (i.e. Sunwing engages in a “sell–off” of discounted vacations in the days prior to departure). Nonetheless, the Bureau found that the ultimate distinctions between the Parties’ pricing practices were relatively small, with their average package prices generally differing by no more than 10% throughout the majority of the booking curve.

The Bureau further found that there is significant rivalry between WestJet Vacations and Sunwing Vacations. The Bureau examined documentary evidence relating to vacation package pricing on the relevant routes, as well as to strategic, network and capacity planning relating to the overlap markets. In many cases, the Parties offer closely comparable vacation products on the overlap routes. Documentary evidence suggested that the Parties monitor each others’ pricing and network decisions, and frequently report on one another’s schedule changes when tracking key competitors. The Bureau also found that, in certain instances, the Parties described one another’s exit from overlap routes as a competitive opportunity, and viewed efforts by the other Party to begin selling a key hotel property as a significant threat.

While the Bureau found some evidence of distinctions between WestJet and Sunwing pricing practices (e.g. in the case of customers booking just prior to departure), documents and data generally supported that the Parties closely competed to attract the majority of potential sun vacation travelers. Sunwing reports, for example, cited aggressive WestJet pricing as a factor in sales results on a number of routes. The Bureau also found evidence that WestJet had implemented certain pricing initiatives to improve performance for late–booking customers in particular, and reported a positive impact on sales. WestJet Vacations also noted Sunwing prices as an explanation for lagging sales in certain major markets.

The Parties’ own documents characterize their tour operators divisions, for example, as the two largest suppliers of sun vacation packages in Western Canada. In particular, the Proposed Transaction would combine the two largest sun operators in gateways such as Edmonton, Kelowna, Regina and Saskatoon, as well as at WestJet’s Calgary hub. The Bureau also considered available evidence regarding potential changes to the Parties’ operations following the pandemic, but did not find indications that these would likely reduce rivalry between the Parties. The Bureau notes, for example, that WestJet’s most recent strategic plans (announced on June 16, 2022) prioritize further growth in sun flying, consistent with industry expectations of demand recovery in this sector. These plans can be expected to increase (or at least maintain) the rivalry between WestJet and Sunwing in the overlap areas, absent the transaction.

The Bureau’s empirical economic expert also estimated demands and performed a merger simulation in order to evaluate the competitive effects of the Proposed Transaction in each relevant market. The expert found that the Proposed Transaction would likely lead to significant competitive effects and material price increases for purchasers of vacation packages in the relevant markets. Ultimately, the expert concluded the Proposed Transaction would likely lead to significant competitive effects in the markets of concern. The Bureau does not base its conclusions regarding whether a transaction is likely to result in a substantial lessening of competition on a specific numerical threshold for price increases, but considers such analyses together with its assessment of factors likely to constrain increases in price post transaction.

7.3 Competitive effects

7.3.1 Competition on sun routes

WestJet and Sunwing are two of the four major integrated airlines and tour operators that offer vacation packages from Canada to sun destinations. The Parties are the two largest integrated tour operators in Western Canada, offering 72% of winter sun capacity.

The Parties primarily face competition from Air Canada and Transat in the overlap areas. While Air Canada offers vacation packages from a variety of cities in Canada, its offering in the overlap areas in Western Canada is more limited. Air Canada has not, for example, historically offered any non–stop sun service from Edmonton^{Footnote 17}, Regina or Saskatoon, and has operated few routes from Winnipeg and Calgary. While Transat has historically offered vacation packages from a number of Western Canadian cities, the Bureau found that it began a rationalization of its Western sun operations in the years prior to the pandemic. This coincided, for example, with the discontinuation of sun flying from Regina, Saskatoon, and Kelowna, and a significant reduction in the number of non–stop routes and overall capacity in Calgary and Edmonton. The Bureau took note that in its most recent strategic plan (released June 2021), Transat emphasizes further refocusing its network on Montreal and Eastern Canada. The result is that the competitive constraint imposed by Air Canada and Transat on the Parties is generally most robust in Eastern Canada, including, for example, for operations originating at Toronto–Pearson and Montréal–Trudeau airports.

The Bureau reviewed a variety of documentary evidence regarding the effectiveness of remaining competitors on the overlap routes. The Bureau found that, where they operated significant non–stop capacity, Air Canada and Transat were generally close competitors to the Parties. The Bureau found evidence of instances of price matching of Air Canada or Transat offers, and frequent references to the effects of aggressive Air Canada or Transat pricing. Documentary evidence indicated that the Parties closely monitored Air Canada and Transat’s capacity and network decisions, and identified their exit from a particular origin–destination pair as a competitive opportunity. Overall, the Bureau found evidence that Air Canada and Transat significantly impacted the Parties’ pricing and capacity strategies in areas where they had significant operations.

The Bureau also reviewed any available evidence, including documentary evidence, regarding the few additional competitors operating in the overlap areas, which include U.S.–based carriers (particularly for routes to Florida), and certain Canadian carriers (such as Flair Airlines). The Bureau did not uncover evidence indicating these were close competitors in the offer of vacation packages on routes identified in Table 3. The Bureau also considered evidence regarding the operations of non–integrated competitors such as Online Travel Agencies (e.g. Expedia) and generally did not find they significantly constrained the Parties.

Ultimately, the Bureau evaluated each of these competitors, and their ability to constrain an exercise of market power by the Parties, at the level of each origin–destination pair, based on documentary and other evidence.

7.3.1.1 Overlapping origin–Destination pairs

The Bureau performed a detailed assessment of over 150 origin–destination pairs on which WestJet and Sunwing both had sales of vacation packages, including routes originating in Toronto, Ottawa, Calgary, Edmonton, Kelowna, Regina, Vancouver, Saskatoon, Victoria, Winnipeg, Halifax, Montreal, Sudbury, Thunder Bay, Moncton, Fredericton, London, Abbotsford, Quebec City, and Charlottetown. In each case, the Bureau evaluated the level of concentration on the route, assessed the effectiveness of remaining competition, and examined factors such as concentration in destination hotel markets, based on documentary and other evidence. In each market, the Bureau's empirical economic expert performed a merger simulation in order to estimate the effects of the Proposed Transaction in the relevant markets.

Ultimately, the Bureau determined that the Proposed Transaction would likely result in a substantial lessening or prevention of competition in 31 markets, presented in Table 3 below. This includes 16 routes on which the Proposed Transaction represents a merger of the only carriers offering non–stop service.

Note that the Bureau found that one or both of the Parties had not made plans to resume non-stop service on Calgary-Huatulco, Calgary-Ixtapa/Zihuatanejo, Toronto-Nassau, Vancouver-Huatulco, Victoria-San Jose del Cabo and Winnipeg-Montego Bay in Winter 2022/2023.

The markets presented in Table 3 include 29 origin–destinations pairs for which both Parties offer non–stop service. In the remaining two markets of concern, namely Saskatoon–San Jose del Cabo and Thunder Bay–Cancun, the Bureau found that there was no non–stop offering and that the Parties sold significant numbers of vacation packages using indirect itineraries. In each of these cases, the Bureau found that the Parties faced no, or limited, competition from other carriers’ indirect offerings.

In each of the markets presented in Table 3, the Bureau's empirical economic expert found that the Proposed Transaction would likely lead to significant anticompetitive effects, including material price increases, for purchasers of vacation packages.

As described in section 7.1.1, the Bureau concludes, based on the preponderance of the evidence, that the appropriate relevant market for leisure travel to sun destinations is origin–destination pairs. However, in light of documentary evidence indicating a willingness on the part of some travelers to substitute between specific sun destinations, the Bureau considered whether the effects of the Proposed Transaction would change significantly if a broader market definition was adopted.

The Bureau found that its conclusions regarding a substantial lessening or prevention of competition would not significantly change even under broader market definitions informed by the evidence. As shown in Table 4 below, the Parties hold significant market shares from a number of Canadian origins within regional scenarios informed by the evidence, or when considering travel to all sun destinations. The Bureau’s empirical economic expert also found that estimated price effects would not likely be lower even if assuming a degree of customer substitution among destinations. Based on this analysis, the Bureau determined that adopting a broader market definition with respect to leisure travel to sun destinations was unlikely to significantly change its conclusions regarding the potential substantial lessening or prevention of competition resulting from the Proposed Transaction.

The Bureau also identified several domestic routes on which both Parties offer nonstop service. When evaluating these markets, the Bureau considered the level of market concentration, documentary evidence of rivalry between the Parties, and the remaining competition. Based on this analysis, the Bureau concluded that the Proposed Transaction would not likely lead to a substantial lessening or prevention of competition on domestic routes.

7.3.1.2 Analysis of destination hotel markets

Tour operators’ primary suppliers in vacation package markets are hotels, which often provide room inventory pursuant to direct supply agreements. Prior to the Proposed Transaction, Sunwing was affiliated, through common ownership, with the Blue Diamond Resorts hotel chain. Blue Diamond owns or operates 45 hotels throughout Mexico and the Caribbean, including many in destinations served by WestJet. Beyond Blue Diamond, Sunwing’s primary hotel suppliers include major chains and resorts with which it holds Canadian–exclusive supply arrangements. Both Blue Diamond and these exclusive partners operate resort brands which are among those most recognizable to, and popular with, Canadian travelers.

The Bureau assessed the impact of these hotel supply relationships using various data, documentary evidence, and information from industry stakeholders. In particular, the Bureau reviewed documentary evidence which indicated that these hotel relationships were a primary consideration in negotiating the Proposed Transaction, that a degree of integration between the merged entity and key hotels would likely continue post–transaction, and that the degree of exclusivity with these hotel partners could be expected to increase after the merger.

The Bureau examined whether these relationships with hotel suppliers would likely exacerbate any concerns regarding potential prevention or lessening of competition in the relevant markets, either by providing incentives for the merged entity to foreclose competitors at key hotels, or by otherwise increasing barriers to entry. This analysis included an evaluation of competing properties in each destination hotel market (including those with a substantial presence in vacation package sales to Canadians), an assessment of competition and incentives to foreclose on each relevant origin–destination pair, and a determination whether a substantial lessening of competition could be expected in each relevant market. The Bureau found that Blue Diamond hotels, or other properties with which the merged entity would likely hold exclusive or preferential relationships, had a significant market presence (and represented a substantial share of sales to Canadians) in a number of the destinations to which WestJet operates. Ultimately, the Bureau did not identify any markets in which these relationships (or hotel foreclosure) alone would likely result in a substantial lessening of competition. The Bureau did find, however, that in a subset of the markets identified in Table 3, these relationships would contribute to competition concerns by providing incentives to exclude competitors, or otherwise increasing barriers to entry.

7.4 Entry and expansion in the relevant markets

The Bureau examined barriers to entry in the relevant markets, in order to assess whether timely entry or expansion would likely be sufficient to constrain a potential post–merger exercise of market power. The Bureau also sought to identify any potential poised entrant, airline or tour operator positioned to expand its operations in the overlap areas. The Bureau conducted a detailed assessment of the likelihood of each potential entrant competing in each relevant market before arriving at its conclusions.

In conducting this analysis of entry in the relevant markets, the Bureau relied on a variety of information including stakeholder interviews, information relating to infrastructure availability, documentary evidence regarding carriers’ plans and capabilities, and documents relating to market participants’ expectations regarding entry conditions in the overlap areas.

Based on this analysis and the evidence available to the Bureau, given the barriers to entry and expansion in the relevant markets, the Bureau found that no single carrier or combination of competitors is poised to replace Sunwing’s overall presence in the relevant markets or its offerings to Canadian travelers. The Bureau did not conclude that entry would be timely, likely and sufficient in scale and scope to constrain an exercise in market power on the routes listed in Table 3.

7.4.1 Barriers to entry and expansion

In a previous review of Canadian travel to sun destinations, the Bureau concluded that barriers to entry or expansion in sun vacation package markets are generally high.^{Footnote 22} These included sunk costs and other barriers to entry common to all operations within the airline industry, as well as considerations specific to the sun routes at issue. The Bureau’s present analysis has confirmed that this finding applies to the markets listed in Table 3.

New air carriers in Canada continue to face significant barriers to entry, including a variety of regulatory and licensing requirements, branding and reputational barriers, and the need to secure substantial capital. New carriers must incur significant sunk costs to, for example, establish a base at an airport and achieve the economies of scale required for efficient airline operations. New non–integrated tour operators also face a number of these challenges, such as branding and reputational barriers, and are generally reliant on integrated airline competitors such as the Parties for air travel to sun destinations, which may undermine their effectiveness as a competitive constraint.

Established domestic or international carriers, as well as integrated tour operators, wishing to enter the relevant routes must also overcome a number of barriers to entry:

• Constraints at Canadian airports: The Bureau conducted an analysis of the availability of slots and infrastructure such as gates, loading bridges, ground handling services and baggage handling systems at airports across Canada, including in light of the COVID–19 pandemic. While Canadian airports experienced a number of capacity issues as air travel demand returned in the summer 2022, including constraints related to baggage handling, security and overall staffing, the Bureau did not find evidence that there would be long–term capacity constraints at the majority of Canadian airports, including many in Western Canada. The Bureau did, however, continue to find evidence of certain constraints relating to infrastructure or takeoff and landing slots at Toronto Pearson International Airport and Montreal–Trudeau International Airport.
  
  Toronto Pearson Airport (“YYZ”), which is an IATA Level 3 airport, is likely to continue to be congested in the near term, such that obtaining access to slots and key airport infrastructure may constitute a barrier to entry or expansion. Documentary evidence indicated, for example, that an early morning departure and early evening return would be required to effectively compete on a number of key sun routes at the airport; these commercially acceptable times include some of the most congested hours at YYZ. In internal discussions, the Parties themselves report slot availability as a potential challenge for entrants. The Bureau also found that airlines seeking to establish a new base of operations at YYZ may face certain challenges related, for example, to securing sufficient hangar space.
  
  The Bureau did not identify significant barriers to entry associated with slot or runway constraints at Montreal Trudeau Airport (“YUL”). Evidence did indicate, however, that access to key infrastructure such as interior boarding gates and baggage handling services may be limited, and that entrants may be competitively disadvantaged as a result of the assignment of remote boarding gates, or relegation to less commercially attractive flight times, due to limited airport capacity.
• Constraints at destination airports: The Bureau assessed the availability of slots and infrastructure such as gates, loading bridges, ground handling services, customs processing, and baggage handling systems at airports in the relevant destinations. The Bureau generally did not identify significant capacity constraints at most destination airports, but did find evidence suggesting that, upon a return of leisure demand, there may be increased congestion at certain larger airports.
• Access to Canadian point–of–sale customers: In the majority of the relevant markets, customer demand is primarily driven by round trip passengers originating in Canada. The Bureau found that foreign–based airlines may face significant costs and obstacles in attracting Canadian customers, including those associated with branding and reputation and establishing effective distribution channels. In particular, as vacation packages represent a major purchase for many Canadian consumers, reputation is an important factor affecting a consumer’s choice of operator. The Bureau found that significant investments would be required by potential entrants to establish a reputation and effective distribution presence in Canada.
• Air transport agreements: In a previous review of sun destination travel^{Footnote 23}, the Bureau found that, in keeping with Canada’s Blue Sky Policy, Canada has adopted agreements with most sun destination countries that do not pose a significant constraint to competitors. In a very limited number of destinations, namely for travel to Colombia and Panama, evidence then suggested that air transport agreements may remain an impediment to entry by limiting the availability of air traffic rights for Canadian competitors. The Bureau did not uncover additional evidence of constraints relating to air transport agreements which would affect the markets in which WestJet and Sunwing operate.
• Hotel inventory: As in its previous review of vacation package markets, the Bureau considered whether securing competitive hotel offerings (or products from other destination suppliers) would likely represent a barrier to entry. The Bureau found that competitors may require sufficient scale across the relevant markets in order to secure competitive hotel relationships with major suppliers. The Bureau particularly assessed Sunwing’s relationships with its hotel suppliers, including the 45 hotels belonging to the Blue Diamond Resort chain. The Bureau found that Sunwing held Canadian–exclusive relationships with resorts in a number of the overlap markets, and that the Proposed Transaction would likely result in increased exclusivity. Documentary evidence indicated that WestJet viewed accessing these Sunwing hotel relationships as a significant benefit of the Proposed Transaction. The Bureau examined the market presence of the relevant exclusive hotels and found that, in certain destinations, they represented a significant proportion of sales to Canadians, and included the most recognized resort brands in Canada. The Bureau concluded that, in certain destinations, these hotel relationships may represent a barrier to entry to prospective entrants. Even where the Parties do not hold exclusive hotel relationships, the evidence confirmed the importance of relationships with hotel chains, and that effective competitors may seek to leverage volume to:
  1. secure exclusive properties;
  2. secure room blocks at advantageous prices;
  3. obtain marketing contributions and promotional deals; and
  4. offer differentiated or semi–exclusive product offerings.

The Bureau considered each of these potential barriers to entry in determining whether entry or expansion was likely to constrain an exercise of market power in the relevant markets.

7.4.2 Likelihood of timely and sufficient entry or expansion

The Bureau conducted an extensive analysis of potential poised entrants, in order to determine whether entry into the relevant markets was likely to occur in the case of a post–transaction exercise of market power. Documentary evidence indicated that, in the context of a gradual return of demand following the onset of the COVID–19 pandemic, industry participants expect leisure travel (including travel to sun destinations) to lead the recovery. The Bureau found that this has resulted in a number of carriers considering entry and expansion into leisure markets, including sun routes, or the redeployment of capacity previously reserved for other non–leisure routes. Each of Flair Airlines and Porter Airlines, for example, have publicly announced fleet expansions with intentions to deploy capacity into leisure markets. Jetlines, which began operations in Fall 2022, has also publicly indicated its intention to serve leisure destinations.

The Bureau evaluated the plans and capabilities of all prospective entrants based on a review of network planning and strategic documents from the Parties and third parties, stakeholder interviews and other information. Ultimately, the Bureau conducted a detailed analysis of the likelihood of timely and sufficient entry at the level of each relevant market, for each potential entrant. In assessing the likelihood of entry, the Bureau considered competing airlines or tour operators with a current or planned base of operations in the relevant origin or destination cities as the most likely candidates for entry given the economies of scale involved in airline operations. In its previous review involving sun destination travel, the Bureau found that successful entry events had generally historically been limited to operations by Canadian carriers with a significant reputation and established domestic distribution, such as the Parties, Air Canada and Transat.

Given that the Commissioner’s concerns relate to the sale of vacation packages, the Bureau also closely considered the likelihood that a prospective entrant would operate a competitive tour operator within a timely period. The Bureau’s review found that potential entrants may face additional challenges associated with securing adequate hotel inventory and would likely require sufficient scale to secure competitive hotel relationships.

Ultimately, in conjunction with competitors’ network plans, the Bureau considered a variety of entry factors at the route level, as informed by documentary evidence. These included the following considerations, among others:

• Competitors’ fleet plans and available capacity;
• Competitors’ strategic plans and network priorities as demonstrated by documentary evidence;
• Demand characteristics in the relevant markets (e.g. demand growth, importance of all–inclusive travel, indirect travel);
• Route performance (e.g. load factors, profitability); and
• Features of destination hotel markets.

Ultimately, based on all these factors, the Bureau did conclude that entry would be timely, likely and sufficient in scale and scope to constrain an exercise in market power on a number of origin–destination pairs on which the Parties overlap; however, the Bureau did not uncover evidence indicating that entry or expansion of this type would constrain a potential exercise of market power on the routes listed in Table 3.

8. Findings regarding lessening and prevention of competition

The Commissioner of Competition has conducted an assessment of the Proposed Transaction between WestJet and Sunwing, in order to report to the Minister and the Parties on any concerns regarding a potential prevention or lessening of competition as contemplated by subsection 53.2(2) of the CTA.

Based on the analysis above, the Commissioner has determined that the Proposed Transaction is likely to result in substantial anti–competitive effects through the elimination of rivalry between WestJet and Sunwing in the areas of overlap. In particular, the Proposed Transaction is likely to result in the following if it proceeds in its current contemplated form:

1. a substantial lessening or prevention of competition in the provision of vacation packages on 31 routes between Canada and Mexico or the Caribbean;
2. a merger of the only two carriers offering non–stop service on 16 of these 31 routes; and
3. a significant reduction in leisure travel by Canadians in the overlap markets.

The Bureau has attempted to fully explain the basis for its concerns in the foregoing report, while taking into account the confidentiality provisions in the Competition Act, and the Commissioner's mandate under the CTA. The Commissioner's concerns are the result of an assessment consistent with that conducted when applying section 92 of the Competition Act to transportation undertakings.

The Parties may propose certain measures they are prepared to undertake to address these concerns pursuant to subsection 53.2(5) of the CTA. In addition to providing his report, the Commissioner shall provide the Minister with his assessment of the adequacy of any such undertakings to address competition concerns, pursuant to subsection 53.2(6) of the CTA.

Appendix A: Competition Bureau matters in the airline industry

Over several decades, the Bureau has performed numerous reviews relating to air services, including several resulting in applications to the Competition Tribunal under multiple sections of the Competition Act. These include applications under the abuse of dominance provisions regarding unilateral conduct (sections 78 and 79), merger provisions (section 92), and competitor collaboration provisions (section 90.1). In addition, the Bureau has investigated and prosecuted criminal price–fixing conspiracies under section 45 of the Competition Act. The Bureau has also provided two previous reports to the Minister of Transport pursuant to 53.2(2) of the CTA, regarding the proposed mergers of Bradley Air Services Limited and Canadian North Inc and Air Canada and Transat A.T., Inc.

Select examples of the Bureau's reviews in this sector are summarized below.

Air Canada/Transat – Merger

In June, 2019, Air Canada and Transat announced a definitive Arrangement Agreement that provided for Air Canada’s acquisition of all the issued and outstanding shares of Transat and its combination with Air Canada. That Arrangement Agreement was amended in August, 2019. On August 26, 2019, the Minister of Transport initiated a public interest review of the transaction pursuant to subsection 53.1(5) of the CTA. After a thorough investigation, the Bureau determined that the transaction was likely to result in a substantial lessening of competition in the provision of passenger travel or vacation packages on 83 routes between Canada and Europe, Mexico, Central America, the Caribbean, Florida and South America. The Commissioner submitted a report to the Minister of Transport on March 27, 2020, pursuant to subsection 53.2(2) of the CTA, in which he outlined his concerns.

First Air/Canadian North – Merger

In September 2018, Makivik Corporation and the Inuvialuit Corporate Group signed a definitive agreement to merge First Air and Canadian North, the primary airlines offering services in the Northwest Territories and Nunavut. On November 13, 2018, the Minister of Transport directed a public interest review of the transaction pursuant to subsection 53.1(5) of the CTA. Following a thorough investigation, the Bureau determined that the transaction was likely to result in a substantial lessening of competition in the provision of passenger travel and cargo service on a number of routes in Nunavut and the Northwest Territories, including reductions in passenger and cargo capacity, increases in price, and reductions in flight schedules. The Commissioner outlined his concerns in a report provided to the Minister on February 25, 2019, pursuant to subsection 53.2(2) of the CTA.

Northern Airline Investigations

In 2017, the Bureau completed investigations relating to air passenger and cargo services in Northern Canada under the merger, abuse of dominance and civil competitor collaboration sections of the Competition Act. This included investigations of:

• a merger between First Air and Calm Air relating to air passenger and cargo services in central Nunavut;
• a codeshare agreement between First Air and Canadian North relating to air passenger and cargo services on 16 Northern routes, including the Iqaluit–Ottawa route; and
• allegations of predatory pricing against First Air and Canadian North on the Iqaluit–Ottawa route.

During the course of the Bureau's investigation, First Air and Canadian North terminated their codeshare agreement, resolving concerns regarding its potential impact on competition.

With respect to the merger between First Air and Calm Air and the investigation into allegations of predatory pricing by First Air and Canadian North, following a detailed investigation and analysis, the Bureau did not find that there was sufficient evidence to challenge the airlines' actions under the Competition Act.

Air Canada/United–Continental Holdings – Merger and Strategic Alliance

In October 2010, Air Canada and United Continental Holdings announced their intention to enter into a joint venture that would have resulted in a merger of their operations on transborder routes between Canada and the United States. The Bureau reviewed the joint venture as well as three preexisting coordination agreements. It concluded that the joint venture would lead to a monopoly on ten transborder routes, and substantially reduce competition on several others. The Bureau filed an application with the Tribunal in June 2011 challenging the proposed joint venture under the merger provisions of the Competition Act seeking to unwind the three prior coordination agreements under section 90.1 of the Competition Act (which allows the Commissioner to challenge anti–competitive agreements—whether existing or proposed—between competitors). In October 2012, a Consent Agreement was reached, pursuant to which the parties are prohibited from implementing their joint venture agreement, or coordinating pursuant to their prior agreements, with respect to 14 high–demand trans–border routes.

Air Cargo Conspiracy Investigation

In 2006, the Bureau began an investigation under section 45 of the Competition Act into a conspiracy among international air cargo carriers in relation to international air cargo transportation on routes to and from Canada and elsewhere. This investigation into the fixing of fuel and other surcharges resulted in over $25 million in criminal fines by the end of 2013, with nine companies convicted:

• Air France,
• KLM,
• Martinair,
• Qantas,
• British Airways,
• Cargolux, Korean Air
• Cathay Pacific and
• LATAM Airlines Group

Air Canada – Investigation regarding predatory conduct

In March 2001, the Bureau filed an application with the Tribunal seeking an order prohibiting Air Canada from operating flights on certain routes in eastern Canada at fares that did not cover their avoidable costs. The case was divided in two parts: phase one dealt with the application of the avoidable cost test and phase two would have determined if Air Canada had engaged in an abuse of dominant position under section 79 of the Competition Act. The Tribunal's decision in the first part of the case clarified the application of an avoidable cost test to assess predatory pricing in the airline industry, while the second part of the case was ultimately not pursued due to significant changes within the industry after the application was filed.

Canadian Airlines Corporation/Air Canada Merger

In December of 1999, one of Canada's major airlines, Canadian Airlines, had become insolvent and Air Canada proposed to acquire it. To gain regulatory approval and address the Bureau's concerns regarding this merger, Air Canada made certain binding undertakings to the Minister of Transport and the Commissioner. A number of these undertakings were aimed at fostering entry. For example, Air Canada was required to relinquish takeoff and landing times at slot congested airports and to refrain from operating a discount carrier in eastern Canada for a period of time.

Having determined that Canadian Airlines was facing imminent insolvency, the Commissioner of Competition decided that the merger, with undertakings, was more competitively preferable to a liquidation through bankruptcy proceedings.

Appendix B: Relevant provisions of the Competition Act and Canada Transportation Act

Canada Transportation Act (S.C. 1996, c. 10)

Review of Mergers and Acquisitions

Notice

53.1 (1) Every person who is required to notify the Commissioner of Competition under subsection 114(1) of the Competition Act of a proposed transaction that involves a transportation undertaking shall, at the same time as the Commissioner is notified and, in any event, not later than the date by which the person is required to notify the Commissioner,

Information

(2) A notice given to the Minister or to the Agency shall, subject to the regulations, contain the information required under subsection 114(1) of the Competition Act. The notice shall also contain any information with respect to the public interest as it relates to national transportation that is required under any guidelines that shall be issued and published by the Minister. After receipt of a notice, the Minister may require the person who has given the notice to provide further information.

Guidelines

(2.1) The guidelines referred to in subsection (2) shall be elaborated in consultation with the Competition Bureau and shall include factors that may be considered to determine whether a proposed transaction raises issues with respect to the public interest as it relates to national transportation.

Not statutory instruments

(3) The guidelines referred to in subsection (2) are not statutory instruments within the meaning of the Statutory Instruments Act.

No public interest issues

(4) If the Minister is of the opinion that the proposed transaction does not raise issues with respect to the public interest as it relates to national transportation, the Minister shall, within 42 days after a person gives notice under subsection (1), give notice of the opinion to that person, in which case sections 53.2 and 53.3 do not apply in respect of that transaction.

Public interest issues

(5) If the Minister is of the opinion that the proposed transaction raises issues with respect to the public interest as it relates to national transportation, the Minister may direct the Agency to examine those issues under section 49 or appoint and direct any person to examine those issues under section 7.1 of the Department of Transport Act.

Report

(6) The Agency or person, as the case may be, shall report to the Minister within 150 days after being directed under subsection (5), or within any longer period that the Minister may allow.

Prohibition

53.2 (1) No person shall complete a proposed transaction referred to in subsection 53.1(1) unless the transaction is approved by the Governor in Council and, in the case of a transaction that involves an air transportation undertaking, the Agency determines that the transaction would result in an undertaking that is Canadian as defined in subsection 55(1).

Commissioner's report

(2) The Commissioner of Competition shall within 150 days after the Commissioner is notified of the proposed transaction under subsection 114(1) of the Competition Act, or within any longer period that the Minister may allow, report to the Minister and the parties to the transaction on any concerns regarding potential prevention or lessening of competition that may occur as a result of the transaction.

Report to be made public

(3) The report shall be made public immediately after its receipt by the Minister.

Concerns relating to public interest and competition

(4) After receipt of the Commissioner's report and any report given under subsection 53.1(6), but before the Minister makes a recommendation for the purposes of subsection (7), the Minister shall

1. consult with the Commissioner regarding any overlap between any concerns that the Minister has in respect of the proposed transaction with regard to the public interest as it relates to national transportation and any concerns in respect of the transaction that are raised in the Commissioner's report; and
2. request the parties to the transaction to address
   1. with the Minister any concerns that the Minister has in respect of the transaction with regard to the public interest as it relates to national transportation, and
   2. with the Commissioner any concerns that the Commissioner has regarding potential prevention or lessening of competition that may occur as a result of the transaction.

Measures to address concerns

(5) The parties to the transaction shall

The parties may propose revisions to the transaction.

Preconditions to recommendation

(6) Before making a recommendation for the purposes of subsection (7), the Minister shall obtain the Commissioner's assessment of the adequacy of any undertaking proposed by the parties to address the concerns that have been identified under subparagraph (4)(b)(ii) and the effects of any proposed revisions to the transaction on those concerns.

Approval of Governor in Council

(7) If the Governor in Council is satisfied that it is in the public interest to approve the proposed transaction, taking into account any revisions to it proposed by the parties and any measures they are prepared to undertake, the Governor in Council may, on the recommendation of the Minister, approve the transaction and specify any terms and conditions that the Governor in Council considers appropriate. The Governor in Council shall indicate those terms and conditions that relate to potential prevention or lessening of competition and those that relate to the public interest as it relates to national transportation.

Variation of terms and conditions

(8) On application by a person who is subject to terms and conditions specified under subsection (7), the Governor in Council may, on the recommendation of the Minister, vary or rescind the terms and conditions. If the terms and conditions to be varied or rescinded affect competition, the Minister shall consult with the Commissioner before making the recommendation.

Commissioner's representations

(9) If the Minister directs the Agency under section 49 to inquire into any matter or thing to assist the Minister in making a recommendation under subsection (7) or (8), the Agency shall give notice of the inquiry to the Commissioner and allow the Commissioner to make representations to the Agency.

Compliance with terms and conditions

(10) Every person who is subject to terms and conditions shall comply with them.

Competition Act (R.S.C., 1985, c. C–34)

Order

92 (1) Where, on application by the Commissioner, the Tribunal finds that a merger or proposed merger prevents or lessens, or is likely to prevent or lessen, competition substantially

the Tribunal may, subject to sections 94 to 96,

Evidence

(2) For the purpose of this section, the Tribunal shall not find that a merger or proposed merger prevents or lessens, or is likely to prevent or lessen, competition substantially solely on the basis of evidence of concentration or market share.

Factors to be considered regarding prevention or lessening of competition

93 In determining, for the purpose of section 92, whether or not a merger or proposed merger prevents or lessens, or is likely to prevent or lessen, competition substantially, the Tribunal may have regard to the following factors:

Exception

94 The Tribunal shall not make an order under section 92 in respect of

Exception where gains in efficiency

96 (1) The Tribunal shall not make an order under section 92 if it finds that the merger or proposed merger in respect of which the application is made has brought about or is likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition that will result or is likely to result from the merger or proposed merger and that the gains in efficiency would not likely be attained if the order were made.

Factors to be considered

(2) In considering whether a merger or proposed merger is likely to bring about gains in efficiency described in subsection (1), the Tribunal shall consider whether such gains will result in

Restriction

(3) For the purposes of this section, the Tribunal shall not find that a merger or proposed merger has brought about or is likely to bring about gains in efficiency by reason only of a redistribution of income between two or more persons.