The Competition Commission of India (CCI) has issued a notice to Air India asking why its proposal to merge Vistara with itself should not be investigated. According to sources, Air India has 30 days time to respond to the queries raised by the fair trade regulator on competition issues.
Analysts and legal experts tracking merger and acquisition related matters, said that the CCI’s move seems to be prompted by concerns of a duopoly emerging in the domestic aviation sector. As a result, Tata Group’s Air India will have to satisfy CCI on the queries raised by it. It is felt that with CCI raising the issue of market dominance, the merger process of the two may get delayed. Air India had planned to complete the merger by March, 2024. It had announced the merger plan in November, 2022.
When contacted, Air India declined to comment on the CCI notice. However, sources said that the airline views the matter as procedural and is confident of getting the regulator’s nod on time.
Low-cost carrier, IndiGo currently has the largest market share in the domestic aviation space. As on May, its market share was 61.4%. Post merger Air India and Vistara, their combined market share will be 18%. However, after adding the market share of AirAsia, the combined market share of Air India will touch 26%. In such a scenario, IndiGo and Air India will have over 85% market share amongst themselves.
Post the acquisition by Tata Group, Air India wants to bring all its airlines under one entity. The merger of Air India Express (the low-cost arm) with AirAsia received CCI’s approval a year back. Once the Air India-Vistara merger takes place, it plans to operate a full service carrier and a low cost one.
Analysts said that CCI may have flagged the issue of duopoly emerging in the aviation sector as recently Go First has filed for voluntary insolvency. A new airline, Akasa has started operations which has a market share of 4.8%. Since aviation is capital intensive business, sustaining viable operations may be difficult for some in future, hence any merger proposal needs to be examined very carefully on competition issues.
However, according to legal experts CCI may not be able to deny the merger of Air India and Vistara on grounds of market dominance. There are two main reasons for the same. One, globally airlines are not considered to have market dominance if they have a market share of up to 40% and Air India post-merger will be far below that. Second, it’s IndiGo whose market share is above 60%, so it’s difficult to hold Air India responsible for any possible market dominance in future.
Analysts also point out that IndiGo’s market share has been above 55% since a long time but it has not led to any monopolistic tendency as yet, so on what basis will CCI deny the merger of Air India and Vistara? Further, the civil aviation ministry reserves the right to impose fare caps any time it sees that they are soaring beyond acceptable limits.
Currently, Tata group owns a 51% stake in Vistara and the rest is with Singapore Airlines. Post-merger, Singapore Airlines will have a 25.1% stake in Air India.