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What is going on with Sunwing? WestJet update

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TORONTO –

Air travel industry observers say federal regulators should watch closely for consumer price impacts as WestJet winds down Sunwing Airlines.

WHAT IS CHANGING?

WestJet completed its acquisition of Sunwing Airlines in May, and news broke this weekend that the larger carrier would shut down Toronto-based Sunwing in a bid to streamline its overall operations.

The development came shortly after WestJet said it would also shut down and fold in operations at budget carrier Swoop.

Calgary-based WestJet confirmed the changes to BNN Bloomberg, noting that travel tour operator Sunwing Vacations will continue to run as part of the WestJet Group.

“While we can confirm the eventual integration of Sunwing Airlines into WestJet, the anticipated timeline to do so has not been determined at this time,” spokesperson Julia Kaiser said in an email. “Our immediate focus remains on the integration of Swoop’s highly successful business model across WestJet’s operations.”

John Gradek, faculty lecturer in aviation management at McGill University, said he sees the possibility of steep price hikes on the horizon, particularly when it comes to Sunwing Vacations as it takes on an even more prominent position in the vacation-booking space.

“This has the potential to be a significant increase in pricing as a result of this consolidation,” he told BNNBloomberg.ca in a phone interview.

BNNBloomberg.ca has reached out to WestJet for further comment.

In the immediate future, the integration will mostly affect branding at the two airlines, Gradek said, “as the Sunwing colours and the Sunwing brand disappear.”

“It really is a way for WestJet to consolidate its operations and its overheads in managing an airline,” he said, noting that the recent contract agreement with WestJet pilots involving significant wage increases may have put pressure on the company to reduce other costs.

Gabor Lukacs, president of advocacy group Air Passenger Rights, said the consolidation is a mere technicality after the federal government approved the airline acquisition in March – a decision he described as a “terrible mistake” that will result in less competition, higher prices and worse service for passengers.

“It is the government’s decision that needs to come under scrutiny,” he said. “From WestJet’s perspective, they’re just doing what is logical and makes sense.”

In Lukacs’ view, the most significant anti-competitive damage to the air travel sector was done at that time of the federal approval, and the most recent news about the business integration was predictable.

“It may have some slight impact in terms of marketing techniques, but in terms of economic processes, in terms of air travel market, it has no bearing on it,” he said. “The moment Sunwing was purchased by WestJet, the competition ceased to exist.”

SUNWING VACATIONS

Sunwing Vacations will continue to operate under its own name, and Gradek said the success of that travel tour operator is likely what attracted WestJet to Sunwing in the first place.

Gradek said he expects WestJet might fold in its WestJet Vacations brand with Sunwing Vacations, as the latter is a more recognizable name that “has done a great job of positioning itself in the Canadian marketplace.”

“Sunwing will have a lot more opportunities to fly to different markets and increase their services, but the consumer will in fact be paying more for those services, because there’s less choice for the type of airplanes that are going to be required to operate those Sunwing Vacations holidays,” he said.

PRICES AND OVERSIGHT

The federal government attached several conditions to the WestJet-Sunwing sale, including rules about maintaining business presence in Toronto and Montreal, keeping up capacity on affected travel routes and protecting Canadian jobs.

Gradek said he is keen to see how the government follows up on a condition that calls for “supplying airfare data on vacation packages for monitoring of post-acquisition price trends.”

He said he sees a risk that Sunwing may aggressively go after Transat, its main competitor in the holiday tour-booking space, and said there needs to be oversight of “how much does the Canadian consumer have to bear in terms of the price increases” that may arise from the consolidation.

“To me, there has to be some statement from the federal government that they will keep an eye out on pricing, particularly for Sunwing Vacations in central Canada,” he said. “I don’t hear any noise coming out of Ottawa that they might want to do that.”

Lukacs would like to see the government acknowledge it “messed up” in approving the sale, and take other measures to improve competition such as allowing foreign airlines to transport more passengers within Canada.

A spokesperson for Transport Minister Omar Alghabra referenced the terms and conditions placed on the sale, and said any violation of those terms “would be a violation of the merger agreement.”

 

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Netflix’s subscriber growth slows as gains from password-sharing crackdown subside

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Netflix on Thursday reported that its subscriber growth slowed dramatically during the summer, a sign the huge gains from the video-streaming service’s crackdown on freeloading viewers is tapering off.

The 5.1 million subscribers that Netflix added during the July-September period represented a 42% decline from the total gained during the same time last year. Even so, the company’s revenue and profit rose at a faster pace than analysts had projected, according to FactSet Research.

Netflix ended September with 282.7 million worldwide subscribers — far more than any other streaming service.

The Los Gatos, California, company earned $2.36 billion, or $5.40 per share, a 41% increase from the same time last year. Revenue climbed 15% from a year ago to $9.82 billion. Netflix management predicted the company’s revenue will rise at the same 15% year-over-year pace during the October-December period, slightly than better than analysts have been expecting.

The strong financial performance in the past quarter coupled with the upbeat forecast eclipsed any worries about slowing subscriber growth. Netflix’s stock price surged nearly 4% in extended trading after the numbers came out, building upon a more than 40% increase in the company’s shares so far this year.

The past quarter’s subscriber gains were the lowest posted in any three-month period since the beginning of last year. That drop-off indicates Netflix is shifting to a new phase after reaping the benefits from a ban on the once-rampant practice of sharing account passwords that enabled an estimated 100 million people watch its popular service without paying for it.

The crackdown, triggered by a rare loss of subscribers coming out of the pandemic in 2022, helped Netflix add 57 million subscribers from June 2022 through this June — an average of more than 7 million per quarter, while many of its industry rivals have been struggling as households curbed their discretionary spending.

Netflix’s gains also were propelled by a low-priced version of its service that included commercials for the first time in its history. The company still is only getting a small fraction of its revenue from the 2-year-old advertising push, but Netflix is intensifying its focus on that segment of its business to help boost its profits.

In a letter to shareholder, Netflix reiterated previous cautionary notes about its expansion into advertising, though the low-priced option including commercials has become its fastest growing segment.

“We have much more work to do improving our offering for advertisers, which will be a priority over the next few years,” Netflix management wrote in the letter.

As part of its evolution, Netflix has been increasingly supplementing its lineup of scripted TV series and movies with live programming, such as a Labor Day spectacle featuring renowned glutton Joey Chestnut setting a world record for gorging on hot dogs in a showdown with his longtime nemesis Takeru Kobayashi.

Netflix will be trying to attract more viewer during the current quarter with a Nov. 15 fight pitting former heavyweight champion Mike Tyson against Jake Paul, a YouTube sensation turned boxer, and two National Football League games on Christmas Day.

The Canadian Press. All rights reserved.

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