Consumer Education & Research Centre

Ref. : Er/Press/’06/mrtp-dg.19

Consumer Education and Research Society (CERS), Ahmedabad, has challenged the proposed merger of Jet Airways (India) Limited, Mumbai, and Air Sahara, Lucknow, by a petition filed before the Monopolies And Restrictive Trade Practices Commission (MRTPC), New Delhi. The petition pleaded for an enquiry into the proposed merger under Section 27 of the Monopolies and Restrictive Trade Practices Act, 1969 and for the grant of a temporary injunction under Section 12-A of the Act. Indian Airlines Ltd. and the Government of India have also been made parties.

The Director General of Investigation and Registration, MRTPC, has already issued notice to Jet Airways and Air Sahara.

The two big, private sector airlines operating in India and abroad, Jet Airways and Air Sahara, have recently announced merger / acquisition and strategic alliance resulting in capturing about 47 per cent of the market share. These two were fiercely competing against each other which resulted in many advantages for the consumers in terms of low fares, more efficient services, removal of restrictive conditions, availability of more flights, opening of new routes, etc.

Prior to the opening of the airline business for the private sector, Indian Airlines, a private sector undertaking, was the only airline operating in India as a public sector enterprise. With the entry of private sector airlines, the competition has emerged and intensified over a period of time, leading to the opening of new routes, easy and convenient availability of air tickets through the Internet, low fares, more efficient and convenient customer services, improvement in on-time performance, etc.

Earlier, CERC (a parent organisation of CERS) had challenged a similar merger of Hindustan Lever Limited (HLL) with Tata Oil Mills Company Limited (TOMCO) before Bombay High Court. Later, a scheme of merger was modified and a committee was set up for overseeing the post-amalgamation working of the HLL-TOMCO. The committee consisting of two representatives each of CERC and HLL is working under the Chairmanship of Hon’ble Mr. Justice Rajinder Sachhar, former Chief Justice of Delhi High Court, even now for last 10 years. The objective of the committee will be to ensure that there will be no adoption of any anti-competitive or restrictive trade practices.

CERS, in its present case challenging the Jet Airways - Air Sahara merger, has referred to and relied upon the order of the Bombay High Court and the resulting arrangement vis-a-vis the HLL-TOMCO merger, requesting the MRTPC to order for such supervisory and monitoring arrangement.

CERS has also relied upon the provisions related to the anti-competition laws prevailing in the U.S., U.K. and Europe. The Department of Justice and the US Federal Trade Commission have brought out guidelines in respect of (1) horizontal merger, and (2) anti-trust guidelines for collaborations among competitors. Detailed provisions are also made in the Fair Trading Act, 1973 of the U.K. in respect of competition which requires investigation when the market share of goods or services exceeds 25 per cent, prima facie case for investigation and to pass appropriate orders to protect competition and consumer interests.

In India, the Competition Act, 2005 provides that if any combination is made possessing assets of value exceeding Rs. 1,000 crore and if it is likely to cause an adverse effect on competition, it shall be void. Against the limit of Rs. 1,000 crore, Jet Airways has an asset base of Rs.11,000 crore.

In the event of the proposed merger, Jet Airways would become the largest airline in India in terms of capital, market share and aircraft, and in operation thereof. Jet Airways would control over 47 per cent of the market share as compared to its next competitor, the Indian Airlines - Alliance Air combine controlling 31 per cent. Other domestic airlines now operating in India, SpiceJet, Kingfisher, Go Air, and Air Deccan are very small airlines and are, more or less, fringe players. They are low-cost airlines, really not competing with Indian Airlines, much less the Jet Airways - Air Sahara combine.

On merger, Jet Airways shall also control a significant share of parking bays and prime landing slots to the disadvantage of other airlines. It is also required to be investigated what the effect would be on the market share on each hub / each route hub-to-hub and whether it would result in the elimination of competition altogether substantially on certain routes or certain sectors.

The proposed merger shall lead to anti-competitive practices and exercise undue influence in the market. It will adversely affect the interest of consumers of domestic air travel in India. The merger is likely to result in abuse of dominance. The merger will lead to increased air fares apart from reduction in incentives and services now offered to air travellers.

CERS has prayed to the MRTP Commission to order an enquiry into the adverse effects on competition consequent on the merger of Jet Airways and Air Sahara after investigating the factors like the numbers of aircraft, flights, seats per day, routes, hub-to-hub dominance, number of employees, passengers per year, annual revenue, etc. CERS also prayed for a temporary injunction restraining the proposed merger and/or similar safeguards as aforesaid.

Date : 20/04/2006 Pritee Shah
Place: Ahmedabad Editor Insight-The Consumer Magazine