Aviation Competition Law in India

Conclusion Competition Law is a complex mixture of a country’s law, economics and administrative action intended to favour competition in the economy. Since competition is seen as critical to economic development, competition law seeks to protect this competitiveness in the economy. The underlying theory behind competition law is the positive effect of competition in an economy’s market, acting as a safeguard against misuse of economic power. The operation of competition law by prevention of anti-competitive agreements, prohibiting abuse of dominant position by firms and regulation of combinations which might adversely affect competition in the economy, is crucial for India. It is therefore keeping that in mind that the Indian Parliament enacted the Competition Act, 2002. The preamble and the statement of objects and reasons of the Act, also evidence that the broad economic development objectives were a consideration to adopting the Act. The Indian Competition Act, 2002 (The Act) prohibits those agreements which can have an appreciable adverse effect on the competition. The Act recognizes positive synergies that emanate from agreements between the enterprises. If an agreement does not have an appreciable adverse effect on competition, then it will remain out of the purview of the provision of the Competition Act, 2002. The Indian aviation sector has witnessed tremendous growth in the recent years driven by a combination of macroeconomic; demographic; government reforms and market lead dynamics. Ever since 2003, growth had witnessed tremendous increase post arrival of Low Cost Carrier’s. Hence if the current growth trajectory is to be preserved, it is very important that competitive forces must continue to operate in the system. The year 2007 was the year of M&A in the Indian Skies. Post consolidation Indian Airlines-Air India; Jet-Sahara; Kingfisher-Deccan, these top three players had pocketed 80% of the Market Share. While many favoured these mergers as it was believed that these mergers would benefit the bleeding industry. It was believed that the consolidation would help in bringing some rationalization in the routes and help carriers focus on other routes. All three mergers came under the lens of Competition Commission of India. The merger between Indian Airlines and Air India did not pose much problem to the competition in the market as Air India mainly operated in International routes and Indian Airlines in Domestic routes. However the airline had the exclusive right to fly to Gulf, which was unfair for other domestic carriers as it was depriving them of important revenue. The Jet-Sahara Deal materialized in 2007 when Jet signed and agreed to take over 100% stakes in its arch rival. With the takeover of Sahara by Jet, some important issues over competitive concerns need to be addressed. Jet and Sahara had peak slots available on all major metropolitan airports at peak timings. There were talks that DGCA should redistribute Air Sahara’s slots to all the airlines to prevent Jet Airways from attaining a dominant position in the market. Another important issue that cropped was that post Jet-Sahara Deal and Indian Airlines–Air India deal, the number of players serving the International Routes had reduced to half as no other domestic player was eligible for flying internationally as per the current regulatory framework. The Kingfisher-Deccan Deal was plagued with a lot of hue and cry coming from various industry groups post consolidation as the consumers felt vulnerable and expected that fares may rise in future. Kingfisher and Deccan had over lapping route networks they essentially catered to different set of consumers. There are certain provisions in India’s Civil Aviation Sector regulatory framework which limit the competition within the industry. The minimum fleet and equity requirements, with respect to air carrier service provider could be a way of assessing the firm’s viability in the market but such regulation limit not only the number of new market entrants, but also the size of firms that enter, as they should possess enough capital to fulfill these requirements. Developed countries like US, Australia and also the European Union have a minimum fleet requirement of just one aircraft and there is no equity requirement. Having such high civil aviation requirement will give the few players in the market to dictate terms and prices and the passenger is prejudiced having no choice to choose from. The Route Dispersal Guidelines issued by the Government of India forces the airlines to take planes to those routes which experience light passenger traffic. As a result the aircrafts flying to these routes may not be able to recover their cost of operations. Though this regulation was brought in to meet the social needs but it was a big disadvantage for the domestic service providers. Unlike the European Union and the United States, who provide subsidies to commuter airlines which provide carrier services to rural destinations, the Indian Government do not provide any incentive to the airlines. The Slot Allocation guidelines issued by the Airport Authority of India allows a carrier service provider to retain a group of slots allocated by the slot coordinator if they have been utilized least 80% of the time in the preceding season. The underutilized slots tend to be at odd times and not peak hours. This creates a barrier for new entrants in the market. There are natural barriers to entry owing to the high level of investments and liquidity required to cover startup and high operational costs that limit entry and protect the functioning of a cartel. Furthermore, regulations relating to fleet and financial requirements, and slot allocations further prevent entry and could increase the likelihood of cartel behavior. Price transparency in the system of fare declaration is both a boon as well as a bane. A bane as it enhances chances of cartelization. Parties entering a cartel find it easy to ensure cooperation as the follower will implement the price increase only after seeing the leader make the agreed changes. Suggestions

  1. There is a need to create a single civil aviation policy. This civil aviation policy should aim to reduce artificial barriers to entry such as fleet and equity requirements. It should have clear delineation between regulatory authorities that oversee activities in this sector, which would result in clear and predictable regulatory outcomes. Additionally, this policy should aim to create a more level competitive field between India‘s private, national and foreign carriers. It should also aim to introduce market mechanisms and incentives into the distribution of slots and dispersion of routes.
  1. India should follow the UK, US and the Australian model where new carrier have to disclose assets, liabilities, past and ongoing litigation, and operational insurance. Instead of having fleet and equity requirement, the new service provider can submit their financial information and illustrates how they plan on succeeding within civil aviation sector. This will enable the enable the more players to enter the market and give competition to the existing carrier service providers.
  1. The Government should consider phasing out compulsory government regulated route dispersal and put out a call for input from stakeholders for different incentive programs that will help create more air carrier traffic to smaller airports. The Indian Government can take the United States experience of de- regulation as a model of how all the routes can receive adequate services without too much of government involvement. The Essential Air Service Program provides subsidies to air carrier service providers that agree to fly to underserviced airports. Another model that the Government can consider is that of the European Union, which also provides incentives to attract carriers to routes to underserviced airports. The European Union Public Service Obligation regulation, limits the time that incentives will be provided to a participating carrier. The Indian Government should consider applying one of the models to the Indian Civil Aviation Sector as it can have significant positive social impact for the people living in the underserved areas.
  1. While no perfect government or market-based solution for an efficient slot allocation system exists, introducing a variety of market mechanisms into the process has yielded more efficient results in the United States, United Kingdom and the European Union. India’s civil aviation regulator should consider at UK model for slot allocation. Using the UK model would create more efficient outcomes for slot allocation, while keeping the grandfather and use it or lose it rules in accordance with the IATA slot allotment framework. Furthermore, the regulator may consider allowing the trading and auctions of underutilized slots through an independent coordinating agency. While auctions in the UK are still closed to new entrants, auctioning will spur competition between incumbent carriers, resulting in efficiency gains. India should also consider opening up funds from slot auctions to provide airport developers with partial recoup on investment in airport infrastructure, thus incentivizing operators to invest in further expanding airport infrastructure. This would lead to increased carrier service, decreased airport congestion, and growth of the civil aviation industry.
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