A K Bhattacharya: Who's afraid of the Jet-Sahara deal?

NEWS DELHI DIARY

If media reports are to be believed, an alliance of sorts between Jet Airways and Air Sahara is on the cards. Initial reports suggested that Jet Airways might take over the latter in a buy-out deal. This was denied by both Jet Airways and Air Sahara. Subsequently, however, both the airlines clarified that a strategic tie-up between the two airlines was a possibility. No one precisely knows what shape the alliance will take. But statements from Civil Aviation Minister Praful Patel and a senior Left leader on the proposed deal have added a new twist to the drama.

Mr Patel seemed to suggest that a likely consolidation in the airlines sector was not an unexpected development and there should be no fear about the consequences if indeed the Naresh Goyal-promoted Jet Airways were to take over Subroto Roy's Air Sahara. But Abani Roy, a Left leader belonging to the Revolutionary Socialist Party, has issued a long note on how he fears the Jet-Sahara deal may create a dominant player and harm the interests of air travellers. This view is endorsed by some civil aviation industry experts also who argue that the deal may give the consolidated entity sufficient market power to indulge in predatory pricing and create entry barriers unhealthy for the growth of a competitive airlines market.

The numbers cited by these experts are interesting. If the Jet-Sahara deal were to be finalised, the total market share of the combined entity would be around 53 per cent. The deal would also allow the two airlines to control almost two-thirds of the parking bays available in the airports of Mumbai and Delhi, in addition to accounting for about 55-60 per cent of the peak hour air traffic connecting the two cities. The question is, will this create dominance strong enough to harm the interests of consumers?

It is true the Competition Commission of India (CCI) is still not fully functional and is yet to get a full-fledged chairman to steer its operations. But as far as laying down the norms for basic anti-competitive issues like market dominance are concerned, the Commission has made some headway. It is a pity that neither the Left leaders nor the experts assailing the likely deal have bothered to ascertain the validity of their assertions in the context of these CCI norms.

Consider what the Commission has to say about market dominance and its misuse: "Dominance refers to a position of strength which enables a dominant firm to operate independently of competitive forces or to affect its competitors or consumers or the market in its favour. Abuse of dominant position impedes fair competition between firms, exploits consumers and makes it difficult for the other players to compete with the dominant undertaking on merit. Abuse of dominant position includes imposing unfair conditions or price, predatory pricing, limiting production/market, creating barriers to entry and applying dissimilar conditions to similar transactions."

So, dominance is not about a merged entity enjoying a certain market share. The old definitions of determining dominance just on the basis of enjoying the market share are obsolete and have been rejected by most regulatory bodies. Dominance is created when an entity enjoys a position of strength by which it can hinder competition. The market structure is an important consideration. The question, therefore, is whether Jet Airways will be able to dictate the airlines market to the detriment of consumers' interest after it acquires Air Sahara and its 13 per cent more market share.

In this context, the role of the state-owned Indian Airlines has been completely ignored by those who fear that the Jet-Sahara deal will mean an assault on consumers' interest. The fact is that Indian Airlines continues to enjoy more than one-third market share. In the past five years, it has given sufficient indication of its ability to respond to competition in spite of having to face a major constraint because the government delayed taking a decision on the acquisition of new aircraft. It is not often recognised that the much-talked-about flexible fare scheme, which brought down air fares across sectors, was launched by none other than Indian Airlines. Jet Airways and Air Sahara quickly responded to that and in that euphoria of falling air fares, it was simply forgotten that it was a public sector airline that injected the first dose of competition in a market that till then was marked by a cartelised fare fixation system.

With Indian Airlines continuing to maintain its position as one of the largest players and several other small airlines operating in different price segments of this growing market, the airlines market structure is far from becoming prone to the ill-effects of the dominance of any single entity. It is also unlikely that the Jet-Sahara deal can either pose any threat to consumer interest or can create entry barriers for new players.

The real fear does not arise from the Jet-Sahara deal. It can arise only if the Union civil aviation ministry creates artificial barriers for new players intending to enter the airlines business, or if it does not allow the Indian Airlines management to respond to competition by imposing on it policy fetters. In fact, it is possible that the opposition to the Jet-Sahara deal is fuelled by one of those entities whose proposed entry into the airlines business in India has been thwarted by policy hurdles created by the ministry. Who knows?