EU regulator to probe Air Canada's proposed takeover of Transat

European regulators are launching an in-depth investigation into Air Canada's deal to buy travel company Transat A.T. amid European Commission concerns the deal may reduce competition and result in higher prices.

A preliminary investigation said Air Canada and Transat have been competing head-to-head for passengers.

The commission is worried the proposed deal could significantly reduce competition on 33 origin and destination city pairs between Europe and Canada.

These include 29 where both companies offer direct services and four where one company flies direct and the other one indirect via one of its hubs.

The commission said in a news release on Monday that it was giving itself until Sept. 30 to decide whether to approve the deal.

"This is a challenging time, especially in markets severely impacted by the coronavirus outbreak, but a return to normal and healthy market conditions must be based on markets that remain competitive," said Margrethe Vestager, the commission's executive vice-president responsible for competition policy.

The commission said even if WestJet expanded its transatlantic operations to Europe, it is unlikely that it would be enough offset the potential loss of competing routes caused by the deal.

Air Canada's deal to buy Transat for $720 million has been agreed to by shareholders, but still requires regulatory approval in Canada and the European Union.

Air Canada spokesperson Peter Fitzpatrick said the commission's announcement is part of the normal, ongoing regulatory review process, and the airline will have to "await the outcome of this process" before it can comment.

The Canadian Competition Bureau warned in March — based on information collected prior to the COVID-19 pandemic — that eliminating the rivalry between the two Montreal-based carriers would discourage competition by prompting higher prices and fewer services, ultimately resulting in less travel by Canadians on a range of competing routes.

The takeover would give Air Canada control of more than 60 per cent of transatlantic air travel from Canada and 45 per cent of passenger capacity to sun destinations, according to the federal agency's report.

Desjardins Securities analyst Benoit Poirier said at the time that he believes the purchase will still be approved "considering the companies' willingness to address the bureau's competition concerns," such as potential dominance of airport slots.

Transat's shares lost 57 cents, or 7.6 per cent, at $6.96 in midday trading on the Toronto Stock Exchange.