Wednesday, May 29, 2024

CCI Questions Air India-Vistara Merger, Sparks Duopoly Debate In Indian Aviation Sector

By Staff Correspondent

In a surprising turn of events, India’s Competition Commission (CCI) has queried Air India, now under Tata Group’s management, about the potential anti-competitive consequences of its plan to merge with Vistara. The regulator has granted a month for the national carrier to respond to its concerns.

Legal specialists and market observers suggest that the regulator’s intervention is spurred by apprehensions about a prospective duopoly within India’s domestic aviation landscape. Consequently, Tata Group’s Air India must now answer the regulator’s queries satisfactorily.

The regulator’s attention to the issue of market dominance might slow down the unification of the two airlines, initially set for completion by March 2024. The merger scheme was publicly declared in November 2022.

While Air India refrained from commenting on the CCI’s notice, insiders suggest that the carrier regards the inquiry as a routine process and is optimistic about obtaining regulatory approval on schedule.

IndiGo, a budget airline, currently holds the largest portion of the domestic market with a 61.4% share as of May. If the proposed merger of Air India and Vistara is successful, the combined entity will control 18% of the market. However, when including AirAsia’s market share, Air India’s total market share will rise to 26%. This development would result in IndiGo and Air India controlling over 85% of the market.

Following Tata Group’s acquisition, Air India aims to consolidate all its airlines into a single organisation. It successfully received CCI’s endorsement for the merger of Air India Express, its budget subsidiary, with AirAsia a year ago. Upon the merger with Vistara, the group intends to run both a full-service and a budget carrier.

Industry analysts argue that the CCI’s concerns about a potential aviation duopoly arise in the wake of Go First’s voluntary insolvency application and the emergence of a new airline, Akasa, which holds a 4.8% market share. As the aviation sector demands substantial capital, maintaining profitable operations may be challenging for some, necessitating close scrutiny of any proposed mergers.

Despite these concerns, legal experts maintain that it would be difficult for the CCI to obstruct the merger based on grounds of market dominance. These experts argue that globally, airlines are not considered dominant if their market share is under 40% – a mark Air India will not surpass post-merger. Additionally, IndiGo’s market share is currently above 60%, making it hard to attribute potential future market dominance to Air India.

They also highlight that IndiGo’s market share has exceeded 55% for some time, yet this has not resulted in monopolistic behaviour. Consequently, they question the basis on which the CCI might obstruct the Air India-Vistara merger. Furthermore, they stress that the civil aviation ministry has the authority to implement fare limits if prices escalate beyond acceptable thresholds.

At present, Tata group holds a majority 51% stake in Vistara, with the remainder owned by Singapore Airlines. Following the merger, Singapore Airlines will own a 25.1% share in Air India.

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