Where's the Commission?

The airline business isn't the greatest around. Margins tend to be low, if they exist at all""which is why one American airline after another has sought Chapter 11 protection against creditors. Airlines do well when there is a shortage""of seats, route permits, landing rights, parking bays""or when the market is regulated in such a way that competition is restricted (think bilateral deals of the kind that helped Air-India milk the Gulf routes). When these restrictive factors are not at work, and there is free entry, new players quickly realise that the marginal cost of putting that extra bottom in an empty plane seat is next to nothing. Fares then begin a race to the bottom""as the Indian market has shown in recent times.

Airlines have found three ways to beat the market. One is to develop a premium position, as Singapore Airlines demonstrated, and as Jet Airways has done in India with its successful business class. Another is to re-invent the business model, as low-cost operators like Southwest Airlines in the US and Ryan Air in Europe have done""and as Deccan Aviation has attempted in India. A third is to get into alliances and mergers, so that sheer size works in your interest. This third method too is now in evidence in India, with Jet acquiring Sahara in order to grab a 50 per cent share of the market even as it announced a sharp drop in its latest quarterly profit numbers. In other words, the Indian aviation market is alive and well.

That is why no one should worry, at least not at this stage, about Jet's acquisition of Sahara, even if it creates a combined operation that accounts for the bulk of the rights in key metro airports and on the creamiest routes. So long as airport authorities offer landing rights and parking bays to other players as India's airport infrastructure expands, and rival airlines like Indian and Kingfisher (as also new ones like IndiGo) get a fair chance to serve passengers, Jet's short-term dominance will not come in the way of passenger choice. Deccan, after all, has grown to a fleet of 24 aircraft in 24 months, and there is no reason to believe that it will not grow to the size of Indian, as should Kingfisher and (presumably) IndiGo. Four or five large players in a growing market should be able to generate enough competition. Indeed, there is a good argument in favour of allowing the largest Indian carrier to grow in size, since the international aviation market is dominated by a few giant airlines, and because it is doubtful if Air-India will ever get the operational freedom to grow rapidly.

Nevertheless, the absence of a functioning Competition Commission has been felt yet again. Although legislation for setting up the Commission was passed a long time ago, sundry disputes and bureaucratic delays have meant that the Commission cannot get going. As more and more of India's markets mature and tend to become oligopolies, with a few dominant players in each segment, the danger grows of anti-competitive tendencies gaining ground. There is no reason why a functioning Commission should not have had a chance to examine whether the Jet-Sahara deal does in fact carry risks for the consumer, listen to arguments from both sides, and recommend safeguards if it felt these were needed. The government should move on this quickly, because it remains a key element in ensuring competitive market structures.