Monday, May 27, 2024

Air India & Vistara Assure CCI: Merged Entity Won’t Disturb Competitive Skyways

By Staff Correspondent

The ongoing scrutiny of a potential merger between Air India and Vistara, overseen by the Competition Commission of India (CCI), has elicited assurances from the airlines involved. They maintain that the proposed amalgamation will not be detrimental to the competitive arena, citing that the joint entity will face considerable competition across most operational routes.

While the CCI’s inquiry may introduce a delay in the merger process, inside sources have assured that this should not have a significant impact on the businesses involved. Previously, the regulatory authority had queried the airlines, asking for justification as to why an impact study of the merger should not be commissioned.

If given the green light, the merger would propel Air India into the position of the country’s premier international carrier and the second-largest domestic airline. Tata Group took over the helm of Air India in the previous year and is keen on modernising the airline’s fleet, operating systems, and revenue management strategies.

Tata Group’s endeavour to streamline their airlines and unify their operations has drawn the attention of the regulators. As a result, the airlines haven’t secured the fast-track approvals they were seeking. Furthermore, the CCI has posed questions about why an evaluation of the merger’s potential effect on the industry shouldn’t be undertaken.

Insiders say that “Global anti-trust regulators assess competitive impact through an origin and destination (O&D) method to identify the pertinent market… If we examine the busiest markets, the joint body of Air India, Air India Express and Vistara will encounter enough competition to limit market dominance.”

According to data from Cirium, the joint Air India entity would command 49% of the flights on the Delhi-Mumbai route, with market frontrunner IndiGo operating 31%. For the Delhi-Bengaluru route, the nation’s second busiest, the Air India group would possess a 52% share, juxtaposed with IndiGo’s 35%.

In making their case to the CCI, the Air India group emphasised the minimal cost disparity between full-service and low-fare carriers, as both operate from the same airports and shoulder similar operational expenses. They proposed that the CCI’s in-depth analysis would act as a safeguard against any challenges after the merger’s conclusion.

The proposed merger involves Tata Group merging Vistara with Air India to form a single, full-service airline. Singapore Airlines will hold a 25.1% stake in the newly formed entity. Concurrently, AirAsia India is advancing its merger with Air India Express to create a singular, low-cost offshoot of Air India.

The CCI, guided by competition law, can initiate an investigation preceding the approval of a merger or acquisition if there are suspicions of potential anti-competitive behaviour. Past experiences have shown that merger parties have offered remedial measures to dispel anti-competitive concerns, leading to the CCI granting conditional approvals.

In a precedent from November 2013, the CCI greenlit a proposal by Gulf carrier Etihad to buy a 24% stake in the now-inoperative Jet Airways. They pointed to the insignificant rise in market share on India-UAE routes as one of the factors for the approval.

Full-service airlines generally allocate more attention to their network of routes, while low-cost carriers zero in on the profitability of individual routes. For instance, a full-service airline like British Airways might persist in operating on a route with sparse passenger traffic, considering it as a feeder route for the wider network. Conversely, low-cost carriers often discontinue services that don’t yield sufficient profit, frequently operating homogenous aircraft to streamline maintenance and crew training.

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