The Competition Commission of India (CCI) approved Air India’s merger with Vistara after the newly formed Air India Limited (AIL) committed to maintaining minimum capacity on selected domestic and international routes. AIL and Singapore Airlines have made these voluntary commitments to address CCI’s concerns about the potential reduction in flight supply, resulting in higher air passenger fares.
On 7 domestic routes-Bhubaneswar-Delhi, Bangalore-Guwahati, Delhi-Cochin, Delhi-Thruvananthapuram, Amritsar-Delhi, Bhubaneswar- Mumbai and Bengaluru-Delhi – AIL has committed to maintaining passenger capacity at IATA S23 levels within four years.
Additionally, AIL has committed to retaining capacity on four international routes: Delhi-Paris, Delhi-Melbourne, Delhi-Frankfurt and Delhi-Sydney. AIL and Singapore Airlines have also voluntarily committed to address the CCI’s concerns on Singapore routes, including Delhi-Singapore, Mumbai-Singapore, Singapore-Chennai and Singapore-Tiruchirappalli, within four years respectively.
Also read: Wilson: CCI’s approval of Air India-Vestara merger is important move
AIL allays CCI’s concerns over potential competition issues
After reviewing these undertakings and other responses from relevant parties, the CCI on September 1 concluded that Air India’s merger with Vistara would not seriously harm competition in India. The CCI order said the voluntary capacity commitments addressed underlying competition concerns, leading to the merger being approved.
CCI’s main concern is the potential reduction in capacity on overlapping routes, which could lead to higher prices for consumers. Capacity commitments are a common method used by regulators to alleviate such concerns. Following these commitments by AIL and Singapore Airlines, the CCI approved the merger, which included the merger of Vistara Airways into Air India.
Also read: Vistara conducts employee testing, culture survey ahead of merger with Air India
The Commission noted that the voluntary capacity commitments provided by the parties appeared to address the competition concerns that may arise from the proposed merger and therefore decided not to conduct further investigation into the matter,” the CCI merger approval order said.
It may be recalled that the merging parties had issued a notification to the CCI on April 18 regarding the transaction and sought regulatory approval. The CCI formed a preliminary opinion on June 13 that the proposed merger may result in the emergence of AAEC in the relevant Indian market. The regulator issued a show-cause notice and the merging parties responded.
AIL says merger will help air connectivity in tier-II cities
To address these issues, regulators often accept capacity commitments as safeguards against reduced competition. The company also said that through the merger of these companies, it will be possible to expand the network and even expand into second-tier cities, which was not possible before.
The CCI, in its order, also noted that the business class service segment accounts for only a small portion of domestic air passenger traffic and therefore there is no need for a separate competition assessment. Furthermore, the CCI found no significant adverse effects from competition in charter services and air cargo services.
Another concern for the CCI is the rise in air ticket prices. The committee said: “The proposed merger is likely to generate significant synergies for the merged entity in terms of network efficiencies and cost savings. Furthermore, it is evident from the order book that the merging parties plan to introduce significant capacity into the Indian market. Both factors are likely to lead to price competition. The impact of the proposed merger on domestic market ticket prices (for specific demand) is likely to be insignificant given competition from LCCs with a much lower cost base.”