February 09, 2006, New Delhi, Press Release

CUTS International has urged DGCA to redistribute Air Sahara’s rights to all airlines in order to prevent Jet Airways from attaining a dominant position in slots as this would restrain growth of competition.

Air Sahara’s aviation rights should not automatically accrue to Jet; the latter should instead be required to re-apply for securing additional rights. The DGCA, as the competent authority should use this window to re-distribute Air Sahara’s rights to all airlines. Had Air Sahara continued and given the inevitability of its closure, its rights would have anyway got released for distribution to others, and not available only to Jet. The DGCA must take into account these factors, CUTS-International has said in a representation Submitted to DGCA.

Citing the example of British Airways/American Airlines alliance wherein the European Commission required the merging airlines to give up some of their slots to competitors, CUTS International has submitted a representation to DGCA stating that given the current shortage of aviation infrastructure, there is need to impose similar conditions before approving the merger.

Acquisition of Air Sahara will help Jet rationalise and consolidate its operations. However, given the emergence of Jet as a dominant enterprise controlling almost 50% of the domestic market share, there is a fear that it can exert considerable market power to the detriment of consumer welfare if it also gets all the parking bays and landing slots, domestic and international flying routes, technical staff and other ground handling facilities.

The dominance of Jet would be more in prime routes such as Mumbai and Delhi that account for over 30% of the country’s air traffic revenue. This is apparent from the dominance of the two airlines in peak hour traffic. With increasing traffic and inability of airports to expand their infrastructure facilities in the near future, slots become a valuable resource and the combined entity would enjoy considerable advantage on this front. With limited access to slots, other airlines will face difficulty in providing a competition to Jet. This places the combined entity in a position to exercise its market power and is a competition concern worth considering, CUTS International representation states.

With resulting dominance of Jet in peak hour traffic, it may hike fares during peak hours to cross-subsidise those in non-peak hours and out compete other airlines. Jet is already doing this in certain routes. Further, with limited competition, Jet may have little incentive to pass on the benefits of consolidation to customers in the form of lower fares.

Prima facie this merger would have come under CCI’s lens, given Jet and Air Sahara’s combined turnover of over Rs.7000 crore, which exceeds the threshold of Rs.3000 crore provided in the Competition Act. Though the CCI is in a limbo, the provisions relating to combinations regulation in the Act provide an appropriate framework to analyse the merger from the competition angle, CUTS International has stated.