The WestJet Group has announced a deal to buy Sunwing Airlines and Sunwing Vacations, bolstering its presence in the holiday tour market as competition among Canadian carriers heats up.
Financial terms of the agreement, which will see Sunwing’s shareholders become equity holders in the WestJet Group, were not disclosed.
Unveiled Wednesday, the deal brings together two highly complementary businesses — “WestJet being a little bit more upmarket and Sunwing being a bit more mass market … Sunwing being more in the eastern part of Canada and WestJet being more in the western part of Canada,” WestJet chief executive Alexis von Hoensbroech said in a joint interview with Sunwing CEO Stephen Hunter.
Under the agreement, WestJet will create a new tour operator unit based in Toronto and headed by Hunter that includes Sunwing Vacations and WestJet Vacations as separate brands.
WestJet will also expand to include Sunwing Airlines, adding capacity as it turns seasonally operated aircraft into year-round jets. Currently, Sunwing meets seasonal demand by leasing the bulk of its fleet through the winter.
Both airlines are privately held. Launched in 2005, Toronto-based Sunwing is controlled by the Hunter family — Germany’s TUI Group owns the other 49 per cent of the airline — and Calgary-based WestJet was purchased by Onex Corp. for $3.5 billion in 2019.
The acquisition would broaden WestJet’s flight footprint to sun destinations and resorts after what has been a tough two years for the travel and tourism industry.
The federal government last month lifted its advisory against international travel and both airlines are hiring. WestJet employs 8,490 workers — down from roughly 14,000 in 2019 — and 180 planes.
Sunwing has fewer than 2,500 on staff and operates 40 aircraft in winter and 10 in summer. It owns 18 of those planes, which are included in the WestJet purchase.
Both CEOs said no layoffs would result from the takeover.
“There will be less aircraft from Europe, which means more aircraft from Canada being staffed with Canadian crews. So this will eventually mean more jobs,” Hoensbroech said.
“We feel strong enough, even more so together, to recover well out of this pandemic and to be more competitive, specifically in a low-cost market,” said the WestJet CEO, who stepped into the role two weeks ago.
“I’m more the messenger than the architect of the transaction.”
Last year Sunwing secured access to up to $375 million through a federal loan program for big companies, as well as up to $100 million in borrowed funds from Ottawa to reimburse customers whose flights were cancelled due to the COVID-19 pandemic. The debts will be repaid when the WestJet deal closes, it said.
WestJet is one of a handful of airlines that has not issued debt or equity during the pandemic or accepted sector-specific government aid, Hunter noted.
Crystal Hill, vice-president of CUPE 4070, the union that represents WestJet flight attendants, attributed that fact in part to the deep pockets of Onex, which boosted net earnings by 48 per cent to $1.4 billion last year.
“This is positive overall,” she said in a phone interview, observing that the deal suggests faith in a travel market rebound. “Onex has the money. It means stability.”
The agreement is expected to close late this year. Transport Canada and the competition commissioner must both review the would-be takeover and report their findings to the transport minister, who has final say.
In April, Air Canada abandoned its attempted acquisition of Transat AT after the European Commission warned the country’s largest airline it would face high regulatory hurdles.
“There are no exclusive routes that we operate on or would operate on as a combined entity. So from our perspective there is there is very, very little concern,” Hunter said.
About 95 per cent of the seats Sunwing sells are part of a vacation package, versus just five per cent for WestJet, Hunter said.
He said he received an acquisition offer early last year from a Montreal-based company he did not identify. Hunter turned it down “mainly because of culture,” he said, stating he preferred a more growth-driven, “entrepreneurial” approach.
Several budget carriers have been beefing up since the summer in preparation for a clash with Air Canada and WestJet — and with each other — particularly for domestic flights and sun destinations.
Flair Airlines has added more than a dozen Boeing 737s to its fleet, as WestJet subsidiary Swoop tacks on routes and Lynx Air — set to make its maiden voyage next month — joins the fray as well.
John Gradek, head of McGill University’s aviation management program, says the combined WestJet/Sunwing operation will be a more formidable competitor to Transat, Flair and Lynx.
And with Porter also growing its fleet, Gradek predicted further consolidation in the coming years.
“There will be airlines ripe for the picking. There’s just too much capacity in the Canadian travel market.”