The Competition Commission of India (CCI) greenlighted the Air India-Vistara merger after the newly-formed Air India Limited (AIL) committed to maintaining minimum capacities on specific domestic and international routes. These voluntary commitments were made by AIL and Singapore Airlines to address CCI’s concerns about potential reductions in flight availability, leading to rise in fares for air travellers.
On seven domestic routes—Bhubaneswar-Delhi, Bengaluru-Guwahati, Delhi-Cochin, Delhi-Thiruvananthapuram, Amritsar-Delhi, Bhubaneswar-Mumbai, and Bengaluru-Delhi—AIL pledged to maintain passenger transport capacity at IATA S23 levels for a period of four years.
Additionally, AIL committed to preserving capacity on four international routes: Delhi-Paris, Delhi-Melbourne, Delhi-Frankfurt, and Delhi-Sydney. Both AIL and Singapore Airlines also voluntarily committed to address CCI’s concerns on Singapore routes, including Delhi-Singapore, Mumbai-Singapore, Singapore-Chennai, and Singapore-Tiruchirappalli for a period of four years respectively.
AIL allays CCI apprehensions on potential competition concerns
After reviewing these commitments and other responses from the parties involved, CCI concluded on September 1 that the Air India-Vistara merger wouldn’t substantially harm competition in India. The CCI order stated that the voluntary capacity commitments addressed potential competition concerns, leading to the merger’s approval.
CCI’s primary concern was the potential for reduced capacity on overlapping routes, which could result in higher prices for consumers. Capacity commitments are a common way for regulators to mitigate such concerns. With AIL and Singapore Airlines offering these commitments, CCI gave its approval for the merger, which included Vistara Airlines merging into Air India.
The Commission notes that the voluntary capacity commitments offered by the Parties seem to address the likely competition concerns that could otherwise result from the Proposed Combination and thus decided not to proceed further with the investigation in the matter”, said the CCI merger approval order.
It maybe recalled that the parties to the combination had on April 18 given notice to CCI about the transactions and sought the regulator’s nod. The CCI had on June 13 formed a prima facie opinion that the proposed combination is likely to cause an AAEC in relevant markets in India. A show cause notice was issued by the regulator and the parties to the combination responded.
AIL says merger to help air connectivity of tier-2 cities
To address such concerns, regulatory authorities usually accept capacity commitments as a safeguard against reduced competition. The company has also stated that with the merger of these companies, it would be possible to expand the network, even to tier-2 cities which wouldn’t have been possible earlier.
In its order, CCI also noted that the Business Class services segment represented only a small portion of domestic air passenger transportation, making a separate competition assessment unnecessary. Additionally, CCI found no appreciable adverse effect on competition in the charter flight services and air cargo transportation services segments.
The other concern that the CCI had was regarding an increase in airfares. The commission has said: “It is plausible that the Proposed Combination will generate significant synergies for the Merged Entity in terms of network efficiencies and cost savings. Additionally, the Parties to the Combination plan to introduce substantial capacity into the Indian market as is evident from their order books. Both these factors may lead to price competition. The likely impact of the Proposed Combination on airfares (for a given demand) in domestic market may be insignificant, keeping in view competition from LCCs with much lower cost bases.”