Description
The study is expected to concentrate
upon the concept of the relevant
product and geographic market in
the passenger segment of the air
transport sector and also provide an
assessment of the degree of
competition in the relevant market in
terms of key features such as time
slots, space etc.
COMPETITION ISSUES IN THE
DOMESTIC AIR TRANSPORT
SECTOR IN INDIA
A Presentation
by
Administrative Staff College of India,
Hyderabad
Competition Issues in Air Transport
Sector
Study focuses upon:
-analysis of the nature and degree of competition in the passenger
segment of the domestic air transport sector.
-provides recommendations to CCI for appropriate action to foster
a more competitive environment
Methodology
•Primary data analysis, secondary data analysis, analysis of
information collected from stakeholders
•Competition Assessment Framework used as the basis as far as
possible.
TOR 1
The history of evolution of the
aviation industry in India will
be traced from 1953 onwards.
Also, this section will look at
the growth of the industry in
terms of passengers, number
of flight operators, etc on a
macro level.
1953: Nationalization of Aircraft
Industry
Consequently, assets of 9 existing
companies transferred to two
entities in the aviation sector
controlled by the Government in
a) Indian Airlines, primarily serving
domestic sectors
b) Air India, primarily serving the
international sectors
Implication
•Aviation became a preferred mode
of transport for elite class
•Restricted Growth of Aviation
Industry
1986: Private Sector Players
permitted as Air taxi operators
Players including Jet, Air Sahara,
NEPC, East West, Modiluft,etc
started service
1994: Private Carriers permitted to
operate scheduled services
Six operators granted license
however
only Jet and Air Sahara able to
service
2003: Entry of low cost carriers
Air Deccan, Spice Jet, Go Air,
Indigo
Route Dispersal Guidelines
Government issued Route Dispersal
Guidelines on 1.3.1994
In accordance with Route Dispersal
Guidelines, all routes were divided into
Category I, II, IIA and III
G
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2
0
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0
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1
0
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0
0
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1
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0
0
2
0
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0
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3
0
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0
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4
0
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0
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1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
Players
Air India/ Indian
Jet
Jet Lite
Kingfisher
Deccan
Indigo
Go Air
Paramount
Spice Jet
Airline
2006
(Oct-Dec)
2007
(Oct-Dec)
Jet Airways 27.0 22.8
Jet Lite 8.8 7.7
Air Deccan 19.1 14.8
Spice Jet 7.5 10.4
Paramount Airways 1.1 1.0
Indigo Airlines 3.7 8.8
Go Air 4.1 3.9
Kingfisher 9.7 13.0
Indian / Air India 18.9 17.2
Others 0.1 0.4
Total 100.0 100.0
Dynamics of the market
TOR 2 & 3
The study is expected to concentrate
upon the concept of the relevant
product and geographic market in
the passenger segment of the air
transport sector and also provide an
assessment of the degree of
competition in the relevant market in
terms of key features such as time
slots, space etc.
Relevant Product and Geographic Market
In the air transport sector , relevant market is defined as the
route between city pairs at a particular time on a particular date.
Methodology
Assessment of percentage of traffic in selected routes on
specific dates and time slots.
Share of airlines in above routes.
Computation of concentration ratios.
On the basis of the above, analysis of whether there is evidence
of dominance in certain routes.
Analysis of time slots available to airlines.
Factors governing allocation of time slots
Slot arrangements between merged airlines.
Assessment of degree of competition
Data description
•Monthly passenger wise data for 30 city pairs has been collected
.
•Of these, city pairs chosen for analysis comprise of Delhi,
Mumbai, Bangalore, Hyderabad , Chennai and Kolkata.
•Data analysis shows that index of concentration is high and raise
competition concerns for 17 city pairs out of 30.
•Three city pairs-Delhi- Mumbai, Delhi -Chennai and Bangalore-
Chennai chosen for further analysis
Route: Delhi-Mumbai-2006/07
• Jet has highest market share(26%), followed by Indian (20%)
and Kingfisher (12.7%).
•Index of concentration moderate between 1500 and 1600.
•But post mergers, index of concentration is 2681.3 and raises
competition concerns.
New Delhi to Mumbai
(02.06.2008 - Monday)
0
1
2
3
4
5
6
7
8
9
Time Slots
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Air India
Indian
Deccan
Go Air
IndiGo
Jet Airways
Jetlite
SpiceJet
Kingf isher Airlines
Route: Delhi-Mumbai-Slots in June 2008
•Post merger, Jet controls around 29% of the market, Kingfisher has around
25% and Indian-Air India has 20%.
•Even in the peak hours, of 15 slots, Kingfisher has 5, Jet has 4, Indian has
2, and Jet lite has 1 slot.
•So Jet and Kingfisher have major share of slots even in the peak period.
•Post merger, Jet and Kingfisher have major share of slots. Indian has lost
out.
Route: Delhi-Chennai- 2006/07
• Jet holds 29%, Indian holds 26.4% and Deccan holds 23% of
market. Kingfisher has no share.
•Concentration index is high at 2224.5.
New Delhi to Chennai
(02.06.2008 - Monday)
0
0.5
1
1.5
2
2.5
3
3.5
Time Slots
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Air India
Indian
Deccan
Go Air
IndiGo
Jet Airways
Jetlite
SpiceJet
Kingf isher Airlines
Route: Delhi-Chennai-slots in June 2008
• Post merger,Jet controls 33% of the slots, Indian controls 27% and Kingfisher,
which had no market share earlier, now controls 13.33%.
•In the peak hours, of the nine flights available, Jet has 3 slots, Kingfisher has
one slot and Indian has 1 slot. So major share of slots controlled by three large
players.
•Deccan slots have been taken over by Kingfisher, post merger.
Ai r Sahara, 7.9
Air Deccan, 15.9
Spice Jet, 3.7
Paramount
Airways, 6.4
Kingfisher, 15.4
Indian, 8.6
Jet Airways, 42.1
Air India, 0.1
Passengers Travelled from Bangalore to Chennai during 2006-07
Route: Bangalore-Chennai- 2006/07
•Jet holds 42% of the market, Kingfisher and Deccan each hold
around 15% while Indian holds only around 9%..
•Concentration index is high at 2475
Bangalore to Chennai
(02.06.2008 - Monday)
0
0.5
1
1.5
2
2.5
3
3.5
Time Slots
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Air India
Indian
Deccan
Go Air
IndiGo
Jet Airways
Jetlite
SpiceJet
Kingf isher Airlines
Route: Bangalore-Chennai-slots in June 2008
• Post merger, Jet has 33% , Kingfisher has 55.5% and Indian-Air India does
not own any slots at all.
•Jet and Kingfisher together own 70.9% of the slots on the market. Indian has
lost out.
•Similar picture prevails in the peak hours also.
TOR 4
To provide an assessment of
the significant anti
competitive practices in the
air transport sector on the
lines of India’s Competition
Act 2002
• Horizontal and Vertical issues are examined in the
context of the sector.
•Price Discrimination
-On Delhi-Mumbai route, price of a ticket indicates high degree of
parallelism in Jet and Kingfisher flights that operate in morning
and evening peak hours.-similar trend for Deccan and Jet lite also.
-Dominant market shares of Jet and Kingfisher along with price
parallelism may indicate tendency for price collusion. May lead to
overpricing later, given the tendency of concentration on this
market.
Relevance of India’s Competition Act
2002
We look specifically at Section 20(4) on Regulation of
Combinations
Actual and Potential level of Competition through
Imports on the market:
•Increase in concentration index, post merger,for two out of the
three routes selected . There is cause for concern in terms of
actual level of competition in post merger scenario.
•No question of competition through imports since Policy does not
allow foreign airlines to pick up equity in this sector.
Relevance of India’s Competition Act
2002
Degree of countervailing power on the market
•While there are a number of players operating on the three
selected routes, three major players hold large shares. We doubt
that there is a substantial degree of countervailing power on the
market.
•Analysis of other routes also require to be made.
Relevance of India’s Competition Act
2002
Likelihood that the combination would result in the
parties to the combination being able to
significantly increase prices and profit margins.
• Strong likelihood of price rise and price collusion.
•Mergers likely to lead to greater scale economies resulting in
higher profits through higher efficiency levels.
•Replacement of Deccan with Kingfisher flights on Delhi-Chennai
route-price implications.
Relevance of India’s Competition Act
2002
Extent of Effective Competition likely to sustain on
the market
• Three major players.
•Market is oligopolistic-no indication of monopolistic trends.
•Route wise variation in terms of extent of competition and
number of players.
Relevance of India’s Competition Act
2002
Market Share in the relevant market, of the person or
enterprise in a combination, individually and as a
combination.
Analysis indicates that:
-Market shares of Jet and Kingfisher have been strengthened
considerably, post merger.
-The national carrier is steadily losing its share to the above two
private airlines.
Relevance of India’s Competition Act
2002
Likelihood that the combination would result in the
removal of a vigorous and effective competitor/s in
the market.
• Jet and Sahara were vigorous competitors.
•On Delhi -Mumbai route, Jet had 27% while Sahara had 9.5% of
market share pre merger. Post merger, Jet now owns 28% of the
slots, including those of Jet lite(earlier Air Sahara)
•Post merger, Jet now owns all the slots of Sahara.
•Clear instance of removal of a vigorous competitor from the
market.
Relevance of India’s Competition Act
2002
Possibility of a failing business
Due to vigorous price competition, rising price of fuel etc,
most of the airlines have been making losses. Possibility
of a failing business looms very large.
Relevance of India’s Competition Act
2002
Relative Advantage by way of contribution to the
economic development by any combination having
or likely to have appreciable adverse effects on
competition
• Mergers will lead to scale economies, higher efficiency and
improvement of productivity levels in the industry.
•Passengers will benefit from rationalisation of flight timings and
better service quality.
•Overall better utilisation of resources.
Relevance of India’s Competition Act
2002
Whether the benefits of the combination outweigh
the adverse impact of the combination, if any
• Case of Indian Airlines-Air India merger.
•Indian Airlines experiencing losses and inefficiencies
due to to a combination of factors.
•Resultant scale economies as a result of merger may
lead to better performance and better resource
utilisation.
TOR 5
The study is expected to
examine public barriers to
entry in terms of policy
regulations as well as private
barriers to entry in the context
of the three areas in the
Competition Act
Regulatory Barriers: Domestic
Air Transport Policy
• Route Dispersal Guidelines creates barriers to entry for
new entrants.
• Minimum equity and fleet requirements-barriers?
• Foreign equity requirements-no entry for foreign airlines.
• Requirement of domestic flying for five years and a
minimum fleet for flying internationally-favours existing
incumbents-discrimination against smaller players.
• Usage of airport infrastructure consequent to mergers-
slot allocation policy is a major barrier to new entrants.
• In case of mergers, slot allocation policy is encouraging
abuse of dominance.
…Private barriers to entry in the context
of the three areas in the Competition Act
• High capital costs.
•Scale economies particularly in post merger
scenario
•Availability of slots and existing practice of
‘grandfathering’.
TOR 6 & 7
Evaluate the intensity with which most
airlines carriers operate between city-
pairs. Analyze and discuss from the
stand-point of competition among the
carriers.
Evaluate operations at various airports
and the role played by previously
allotted slots in creating competitive
advantage, recognizing that the
previously allotted slots mechanism
itself creates a superior position.
Slot Analysis – Data, Methodology
•6 Metros were analyzed:
–New Delhi, Mumbai, Kolkata, Bangalore, Chennai,
Hyderabad
•9 Air Carriers
–Indian, Jet Airways, Kingfisher, Jetlite, Spice Jet, Deccan,
IndiGo, Go Air, Air India
•April 2006 to March 2007 Passenger Data
•Slots / Flight Departures between the 30 City-Pair
Combinations were studied
•Time slot, by the hour of day, was studied
Slot Analysis
•581 Slots at the 6 Airports
–Mumbai : 141
–New Delhi : 128
–Bangalore : 104
–Hyderabad : 82
–Kolkata : 74
–Chennai : 52
•Slot Segmentation Analysis:
–All 6 Metros collective
–By each Airport individually
Slot Allocation by Air Carrier - 6 Metro Airports
1
1
9
5
1
3
9
1
3
4
6
5
2
6
5
2
8
7
8
20%
9%
7%
23%
11%
4%
9%
15%
1%
0
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Slots Percent Slots Allotted
Jet, Kingfisher and Indian
account for 58% of Slots
at the 6 Metros
Percent Slots During
Peak 4 Hours of the Day
35%
31%
38%
34%
29%
31%
37%
40%
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Kingfisher SpiceJet Jetlite Jet Airways IndiGo
Go Air Deccan Indian Air India
Max Slots and Peak Periods
•Kingfisher was allotted the maximum number of
slots during both the morning and evening peak
hours
•Most Carriers were allotted between 1 and 5
slots during the day.
•Kingfisher, Jet Airways and Indian hold max
slots and most during peak periods.
•Carriers prefer max slots during peaks – 1/3
rd
of
all slots during 4 peak hours of day
Slot Allocation by TIME - 6 Metros
32
2
9
9
2
8
1
4
3
3
0
3
9
8
0
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0
8
6
1
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1%
0%
5%
16%
14%
7%
5%
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14% 14%
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Slots Percent Slots Allotted
Slot Allocation by TIME - 6 Metros
32
2
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2
8
1
4
3
3
03
9
8
0
8
0
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6
1
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Slots Percent Slots Allotted
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1,446,248
1,364,479
1,295,498
1,307,042
1,330,934
1,420,771
1,422,804
1,620,766
1,590,980
1,473,701
1,486,703
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Passenger Share for all 9 Aircarriers
from 6 Metro Airports - 2006-07
1
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6
2
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2
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9.5%
15.9%
7.3%
2.1%
3.6%
11.9%
18.8%
27.4%
3.4%
0
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Passenger Volume Passenger Percent Share
Jet, Kingfisher and Indian
account for 58% of Passenger
Share at the 6 Metros;
Deccan: 16%
Kingfisher, IndiGo,
Spice Jet, Go Air
had more slots allotted
than passengers
carried
(as a percent share)
Percent Slots Allotted vs. Passengers Carried
6 Metros - 2006-07
7
%
9
%
9
%
1
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4
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Slot Allocation Share Passenger Volume Share
Percent Slots Allotted vs. Passengers Carried
Hyderabad - 2006-07
6
%
1
0
%
9
%
1
3
%
5
%
2
4
%
1
5
%
1
7
%
1
%
7
.
9
%
1
6
.
5
%
1
0
.
5
%
4
.
6
%
4
.
3
%
1
3
.
4
%
2
0
.
5
%
2
0
.
0
%
2
.
4
%
0%
40%
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Slot Allocation Share Passenger Volume Share
Percent Slots Allotted vs. Passengers Carried
Mumbai - 2006-07
7
%
7
%
8
%
8
%
9
%
1
8
%
1
6
%
2
6
%
1
%
7
.
5
%
1
2
.
5
%
5
.
4
%
0
.
4
%4
.
2
%
1
2
.
8
%
1
8
.
8
%
3
1
.
5
%
6
.
7
%
0%
40%
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Slot Allocation Share Passenger Volume Share
Percent Slots Allotted vs. Passengers Carried
Kolkata - 2006-07
6
%
1
0
%
1
2
%
1
7
%
0
%
1
7
%
1
3
%
2
5
%
0
%
1
0
.
8
%
1
8
.
3
%
8
.
3
%
4
.
9
%
0
.
9
%
1
0
.
2
%
1
6
.
9
%
2
9
.
4
%
0
.
3
%
0%
40%
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Slot Allocation Share Passenger Volume Share
Percent Slots Allotted vs. Passengers Carried
New Delhi - 2006-07
9
%
4
%
1
0
%
1
2
%
6
%
2
0
%
1
7
%2
0
%
2
%
1
2
.
5
%
1
5
.
1
%
8
.
0
%
2
.
8
%
4
.
3
%
1
0
.
5
%
2
0
.
0
%
2
3
.
4
%
3
.
3
%
0%
40%
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Slot Allocation Share Passenger Volume Share
Percent Slots Allotted vs. Passengers Carried
Chennai - 2006-07
4
%
1
4
%
7
%
1
1
%
0
%
2
0
%
1
6
%
2
7
%
1
%
3
.
7
%
2
0
.
0
%
7
.
1
%
2
.
6
%
3
.
9
%
6
.
3
%
2
1
.
4
%
3
2
.
8
%
2
.
3
%
0%
45%
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Slot Allocation Share Passenger Volume Share
Percent Slots Allotted vs. Passengers Carried
Bangalore - 2006-07
7
%
1
3
%
9
%
1
1
%
2
%
2
4
%
1
1
%
2
3
%
1
%
1
1
.
0
%
1
5
.
7
%
7
.
1
%
1
.
1
%
3
.
1
%
1
7
.
0
%
1
5
.
1
%
2
8
.
4
%
1
.
6
%
0%
40%
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Slot Allocation Share Passenger Volume Share
Jetlite:
Slot Share Advantage over Passenger Carried
-2.8%
-1.8%
-3.9%
-0.5%
0.4%
-5.0%
-4.2%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
6 Metros Hyderabad New Delhi Mumbai Chennai Kolkata Bangalore
Slots Share MINUS Passenger Share
Spice Jet:
Slot Share Advantage over Passenger Carried
1.5%
-1.9%
2.2%
2.4%
-0.4%
3.2%
1.6%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6 Metros Hyderabad New Delhi Mumbai Chennai Kolkata Bangalore
Slots Share MINUS Passenger Share
Deccan:
Slot Share Advantage over Passenger Carried
-6.9%
-6.7%
-11.2%
-5.4%
-6.5%
-8.7%
-2.2%
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
6 Metros Hyderabad New Delhi Mumbai Chennai Kolkata Bangalore
Slots Share MINUS Passenger Share
IndiGo:
Slot Share Advantage over Passenger Carried
9.1%
8.8%
9.0%
7.4%
8.2%
12.5%
9.5%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
6 Metros Hyderabad New Delhi Mumbai Chennai Kolkata Bangalore
Slots Share MINUS Passenger Share
Go Air:
Slot Share Advantage over Passenger Carried
0.8%
0.6%
1.9%
4.3%
-3.9%
-0.9%
-1.2%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
6 Metros Hyderabad New Delhi Mumbai Chennai Kolkata Bangalore
Slots Share MINUS Passenger Share
Indian:
Slot Share Advantage over Passenger Carried
-3.9%
-5.9%
-2.8%
-2.5%
-5.2%
-3.4%
-4.6%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
6 Metros Hyderabad New Delhi Mumbai Chennai Kolkata Bangalore
Slots Share MINUS Passenger Share
Kingfisher:
Slot Share Advantage over Passenger Carried
8.6%
11.0%
9.0%
4.9%
14.0%
7.1% 7.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
6 Metros Hyderabad New Delhi Mumbai Chennai Kolkata Bangalore
Slots Share MINUS Passenger Share
Jet Airways:
Slot Share Advantage over Passenger Carried
-4.4%
-2.9%
-3.0%
-5.3%
-5.8%
-4.4%
-5.3%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
6
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Slots Share MINUS Passenger Share
Air India:
Slot Share Advantage over Passenger Carried
-2.0%
-1.2%
-1.0%
-5.3%
-0.9%
-0.3%
-0.6%
-6.0%
-4.0%
-2.0%
0.0%
6
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Slots Share MINUS Passenger Share
Slots PER Million Passengers
- 6 Metro Airports
2
4
1
9
4
1
1
7
8
4
2
5
8
2
7
2
9
1
4
0
50
100
150
200
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Conclusions
•Slot allocation at the 6 metros combined showed that Jet,
Kingfisher and Indian were allotted 58% of all the slots.
•Kingfisher and Jet were the dominant operators during the
morning and evening peak periods with about 12 to 18 slots
followed by Indian with about 8 to 10 slots.
•Statistical analysis showed a correlation of 0.88 indicating
that a strong and positive relationship exists between the
slots and passenger share.
•It is understandable as to why air carriers make use of any
and all slots while trying to obtain more.
•Kingfisher, IndiGo, Go Air, and Spice Jet had more slots
allotted than passengers carried while Indian, Jet, and
Deccan were at a disadvantage in this regard.
TOR 8
Study issues relating to cartels. In
this context, cases of cartels in
countries like US and the UK will
be studied
Cartelization ?
Theoretically, markets with the following
characteristics are more likely to support
the successful operation of a cartel.
Fewer Firms and Higher Market Concentration
Barriers to Entry
Homogeneous Goods
Firms with Similar Cost Structures or Operating
Efficiencies and Market Shares
Market Transparency
Depressed Conditions or Low Innovation Rate
Does the Indian Market show
evidence?
The airline industry in India, which had 12
scheduled operators, after the mergers has only 9
operators. This implies that cartelization infact has
become easier.
Major barriers to entry
High capital requirements
Slots
Two dominant players in the market – Jet and
Kingfisher – both have a stake in low cost airline
also. Therefore, the homogeneity of ownership
may make collusion easier.
Literature suggests that the firms in this
industry operate with similar cost structures
and efficiencies.
All players in the market can monitor the
price of the ticket on offer
Increasing prices of ATF – increasing
losses
Federation of Indian Airlines
Sl.
No.
Airlines
Net Profit /
Loss
(2005-06)
(in million)
1 Air India 26.0
2 Indian Airlines 57.2
4 Jet Airways 4520.4
5 Sahara -1380.5
6 Air Deccan -3405.5
7 Paramount -194.5
8 Spicejet -575.48
9 Kingfisher -2395.9
10 Go Air -583.8
Price Parallelism
Data
Case Studies on cartels:
Brazil: The Rio de Janeiro – São
Paulo Airline Case
TOR 9
To Study the issue of Competition
in Airports
Complementarity of inputs between airlines
and airports
Relevant Product and Geographic
market
Demand for airport services is a derived
demand—it is derived from the demand for
air craft (flight) services.
Directly
Indirectly
the relevant service or the geographic market is
airport itself.
Extent to which capacity constraint
limits competition
How is the capacity of airport defined?
Capacity of an airport is defined as the minimum of the
parameters such as terminal capacity, runway, baggage
belts, etc.
Depending on Capacity Slots are
allocated
Slots and their impact on competition
Indian policy on slot allocation
airport runway slots are allocated twice a
year
‘Grandfather Rights’
Why Grandfathering?
Issues:
Market for slots
Second Airport
Delhi / Noida
Right of first Refusal
Expand the existing airport/ Build a new
green field airport – concession or lease
agreements
The main competition issues raised by concessions
are:
a) The allocation and agreement of a concession
contract.
b) competition during the term of the concession.
Case Study- Concession agreement at HIA and
BIAL
a) Slots
b)Exclusivity
TOR 10
Analyse the implications of this
study for Competition Policy and
Law. Appropriate
recommendations to be provided
•Analysis of regulation in relation to competition.
•Issue to be discussed is whether existing regulations result in
creation of barriers to new entrants on the market.
•The above has already been discussed in detail.
•We refer to Sections 19(3) , 19(4) and 20(4) of the Competition
Act .
•Majority of factors referred to in the above sections,that may have
an adverse effect on competition are present on this market.
•These factors also have a direct relevance to the Domestic Air
Transport Policy.
•Need to modify policy to take note of emerging market scenario.
TOR 11
Examine issues relating to
advocacy for CCI . Provide
suggestions and
recommendations
• In accordance with section 49(1) of the Competition Act,
following suggestions may be given to the Government :
-Route Dispersal guidelines, while they are meant to ensure
equity,
may create entry barriers.
-Equity requirements,requirements for flying internationally are
entry barriers and favour incumbent players.
-Slot allotment policy requires examination. In the post merger
scenario, this has assumed special importance.
In accordance with Article 49(3), CCI is expected to take
suitable measures for promotion of competition advocacy,
creating awareness and imparting training about competition
issues.
CCI can create awareness among consumers through
workshops on issues relating to pricing structures among
different airlines.
Training Programmes may be conducted for potential
investors concentrating upon entry requirements, state of the
market, government regulations, etc.
To promote general public awareness about this sector,
specific training programmes can be designed on the state of the
market, number of players, routes being served, pricing, post
Conclusions
Major Conclusions
• Concentration as shown by the HHI is increasing on relevant
markets, post merger.
•In terms of slots, post merger, Jet and Kingfisher are controlling a
major share.
•Indian is losing out to these two players.
•Large number of airlines flying on selected routes. However,
there is an obvious control of major slots, especially in the peak
period , by Jet and Kingfisher.
•Consumer therefore has limited choice in the peak period.
• High degree of price parallelism –especially between Jet and
Kingfisher –may lead to price collusion given the dominance of
these two airlines on selected routes. May also lead to
overpricing.
Major Conclusions
•On the basis of a comprehensive analysis with regard to
slots allotted to 9 air carriers at 6 metropolitan airports, the
following are noted:
-Slot allocation at airports showed that Jet airways, Kingfisher and
Indian were allotted 58% of all slots allocated.
-Kingfisher, Jet Airways and Indian were also the predominant
carriers that operate from Hyderabad, Mumbai, New Delhi,
Chennai and Kolkata
During peak periods also, Jet Airways and Kingfisher were the
dominant operators in terms of slots, followed by Indian.
-a correlation analysis conducted showed that there is a strong
and positive relationship between number of available slots and
passengers carried. This shows the link between slots and market
share.
Recommendations
Recommendations
Factors to be taken note of by the CCI in accordance with
Section 20(4) of the Competition Act
• Post merger, concentration is evidently increasing on all three
selected routes.
•The market is oligopolistic. Large number players exist –
however, three players control a major share. Issue of
concentration, post merger, may be taken note of by CCI.
•Some evidence of price parallelism. May not be termed as price
collusion. However CCI may monitor pricing of dominant
airlines, in particular.
•Share of Jet and Kingfisher in the number of slots are
increasing post merger. Indian is losing share to these two.
Recommendations
• Mergers show indication of removal of a vigorous competitor
from the market, e.g. Jet and Sahara on Delhi-Mumbai and
Delhi- Chennai routes. Critical factor in limiting competition.
•Possibility of a failing business looms large due to rising fuel
prices and intense price competition. CCI may like to monitor
this.
•Some mergers have benefits in terms of increased efficiency,
scale economies etc. Particularly relevant in case of the public
sector owned airlines.
Recommendations
In the context of advocacy, following
recommendations may be made to CCI:
Opinion to the Government:
In the context of the Domestic Air Transport Policy, as already
discussed earlier, CCI may point out issues relating to the route
dispersal guidelines, equity and fleet requirements, entry into
international routes and slot allocation policy and mergers.
Measures for promoting competition advocacy etc:
conducting workshops on pricing for consumers.
Training programmes for potential investors
Training programmes for promoting public awareness about
the sector.
Thank You
doc_789202000.pdf
The study is expected to concentrate
upon the concept of the relevant
product and geographic market in
the passenger segment of the air
transport sector and also provide an
assessment of the degree of
competition in the relevant market in
terms of key features such as time
slots, space etc.
COMPETITION ISSUES IN THE
DOMESTIC AIR TRANSPORT
SECTOR IN INDIA
A Presentation
by
Administrative Staff College of India,
Hyderabad
Competition Issues in Air Transport
Sector
Study focuses upon:
-analysis of the nature and degree of competition in the passenger
segment of the domestic air transport sector.
-provides recommendations to CCI for appropriate action to foster
a more competitive environment
Methodology
•Primary data analysis, secondary data analysis, analysis of
information collected from stakeholders
•Competition Assessment Framework used as the basis as far as
possible.
TOR 1
The history of evolution of the
aviation industry in India will
be traced from 1953 onwards.
Also, this section will look at
the growth of the industry in
terms of passengers, number
of flight operators, etc on a
macro level.
1953: Nationalization of Aircraft
Industry
Consequently, assets of 9 existing
companies transferred to two
entities in the aviation sector
controlled by the Government in
a) Indian Airlines, primarily serving
domestic sectors
b) Air India, primarily serving the
international sectors
Implication
•Aviation became a preferred mode
of transport for elite class
•Restricted Growth of Aviation
Industry
1986: Private Sector Players
permitted as Air taxi operators
Players including Jet, Air Sahara,
NEPC, East West, Modiluft,etc
started service
1994: Private Carriers permitted to
operate scheduled services
Six operators granted license
however
only Jet and Air Sahara able to
service
2003: Entry of low cost carriers
Air Deccan, Spice Jet, Go Air,
Indigo
Route Dispersal Guidelines
Government issued Route Dispersal
Guidelines on 1.3.1994
In accordance with Route Dispersal
Guidelines, all routes were divided into
Category I, II, IIA and III
G
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2
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1
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0
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2
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1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
Players
Air India/ Indian
Jet
Jet Lite
Kingfisher
Deccan
Indigo
Go Air
Paramount
Spice Jet
Airline
2006
(Oct-Dec)
2007
(Oct-Dec)
Jet Airways 27.0 22.8
Jet Lite 8.8 7.7
Air Deccan 19.1 14.8
Spice Jet 7.5 10.4
Paramount Airways 1.1 1.0
Indigo Airlines 3.7 8.8
Go Air 4.1 3.9
Kingfisher 9.7 13.0
Indian / Air India 18.9 17.2
Others 0.1 0.4
Total 100.0 100.0
Dynamics of the market
TOR 2 & 3
The study is expected to concentrate
upon the concept of the relevant
product and geographic market in
the passenger segment of the air
transport sector and also provide an
assessment of the degree of
competition in the relevant market in
terms of key features such as time
slots, space etc.
Relevant Product and Geographic Market
In the air transport sector , relevant market is defined as the
route between city pairs at a particular time on a particular date.
Methodology
Assessment of percentage of traffic in selected routes on
specific dates and time slots.
Share of airlines in above routes.
Computation of concentration ratios.
On the basis of the above, analysis of whether there is evidence
of dominance in certain routes.
Analysis of time slots available to airlines.
Factors governing allocation of time slots
Slot arrangements between merged airlines.
Assessment of degree of competition
Data description
•Monthly passenger wise data for 30 city pairs has been collected
.
•Of these, city pairs chosen for analysis comprise of Delhi,
Mumbai, Bangalore, Hyderabad , Chennai and Kolkata.
•Data analysis shows that index of concentration is high and raise
competition concerns for 17 city pairs out of 30.
•Three city pairs-Delhi- Mumbai, Delhi -Chennai and Bangalore-
Chennai chosen for further analysis
Route: Delhi-Mumbai-2006/07
• Jet has highest market share(26%), followed by Indian (20%)
and Kingfisher (12.7%).
•Index of concentration moderate between 1500 and 1600.
•But post mergers, index of concentration is 2681.3 and raises
competition concerns.
New Delhi to Mumbai
(02.06.2008 - Monday)
0
1
2
3
4
5
6
7
8
9
Time Slots
N
o
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o
f
F
l
i
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h
t
s
Air India
Indian
Deccan
Go Air
IndiGo
Jet Airways
Jetlite
SpiceJet
Kingf isher Airlines
Route: Delhi-Mumbai-Slots in June 2008
•Post merger, Jet controls around 29% of the market, Kingfisher has around
25% and Indian-Air India has 20%.
•Even in the peak hours, of 15 slots, Kingfisher has 5, Jet has 4, Indian has
2, and Jet lite has 1 slot.
•So Jet and Kingfisher have major share of slots even in the peak period.
•Post merger, Jet and Kingfisher have major share of slots. Indian has lost
out.
Route: Delhi-Chennai- 2006/07
• Jet holds 29%, Indian holds 26.4% and Deccan holds 23% of
market. Kingfisher has no share.
•Concentration index is high at 2224.5.
New Delhi to Chennai
(02.06.2008 - Monday)
0
0.5
1
1.5
2
2.5
3
3.5
Time Slots
N
o
.
o
f
F
l
i
g
h
t
s
Air India
Indian
Deccan
Go Air
IndiGo
Jet Airways
Jetlite
SpiceJet
Kingf isher Airlines
Route: Delhi-Chennai-slots in June 2008
• Post merger,Jet controls 33% of the slots, Indian controls 27% and Kingfisher,
which had no market share earlier, now controls 13.33%.
•In the peak hours, of the nine flights available, Jet has 3 slots, Kingfisher has
one slot and Indian has 1 slot. So major share of slots controlled by three large
players.
•Deccan slots have been taken over by Kingfisher, post merger.
Ai r Sahara, 7.9
Air Deccan, 15.9
Spice Jet, 3.7
Paramount
Airways, 6.4
Kingfisher, 15.4
Indian, 8.6
Jet Airways, 42.1
Air India, 0.1
Passengers Travelled from Bangalore to Chennai during 2006-07
Route: Bangalore-Chennai- 2006/07
•Jet holds 42% of the market, Kingfisher and Deccan each hold
around 15% while Indian holds only around 9%..
•Concentration index is high at 2475
Bangalore to Chennai
(02.06.2008 - Monday)
0
0.5
1
1.5
2
2.5
3
3.5
Time Slots
N
o
.
o
f
F
l
i
g
h
t
s
Air India
Indian
Deccan
Go Air
IndiGo
Jet Airways
Jetlite
SpiceJet
Kingf isher Airlines
Route: Bangalore-Chennai-slots in June 2008
• Post merger, Jet has 33% , Kingfisher has 55.5% and Indian-Air India does
not own any slots at all.
•Jet and Kingfisher together own 70.9% of the slots on the market. Indian has
lost out.
•Similar picture prevails in the peak hours also.
TOR 4
To provide an assessment of
the significant anti
competitive practices in the
air transport sector on the
lines of India’s Competition
Act 2002
• Horizontal and Vertical issues are examined in the
context of the sector.
•Price Discrimination
-On Delhi-Mumbai route, price of a ticket indicates high degree of
parallelism in Jet and Kingfisher flights that operate in morning
and evening peak hours.-similar trend for Deccan and Jet lite also.
-Dominant market shares of Jet and Kingfisher along with price
parallelism may indicate tendency for price collusion. May lead to
overpricing later, given the tendency of concentration on this
market.
Relevance of India’s Competition Act
2002
We look specifically at Section 20(4) on Regulation of
Combinations
Actual and Potential level of Competition through
Imports on the market:
•Increase in concentration index, post merger,for two out of the
three routes selected . There is cause for concern in terms of
actual level of competition in post merger scenario.
•No question of competition through imports since Policy does not
allow foreign airlines to pick up equity in this sector.
Relevance of India’s Competition Act
2002
Degree of countervailing power on the market
•While there are a number of players operating on the three
selected routes, three major players hold large shares. We doubt
that there is a substantial degree of countervailing power on the
market.
•Analysis of other routes also require to be made.
Relevance of India’s Competition Act
2002
Likelihood that the combination would result in the
parties to the combination being able to
significantly increase prices and profit margins.
• Strong likelihood of price rise and price collusion.
•Mergers likely to lead to greater scale economies resulting in
higher profits through higher efficiency levels.
•Replacement of Deccan with Kingfisher flights on Delhi-Chennai
route-price implications.
Relevance of India’s Competition Act
2002
Extent of Effective Competition likely to sustain on
the market
• Three major players.
•Market is oligopolistic-no indication of monopolistic trends.
•Route wise variation in terms of extent of competition and
number of players.
Relevance of India’s Competition Act
2002
Market Share in the relevant market, of the person or
enterprise in a combination, individually and as a
combination.
Analysis indicates that:
-Market shares of Jet and Kingfisher have been strengthened
considerably, post merger.
-The national carrier is steadily losing its share to the above two
private airlines.
Relevance of India’s Competition Act
2002
Likelihood that the combination would result in the
removal of a vigorous and effective competitor/s in
the market.
• Jet and Sahara were vigorous competitors.
•On Delhi -Mumbai route, Jet had 27% while Sahara had 9.5% of
market share pre merger. Post merger, Jet now owns 28% of the
slots, including those of Jet lite(earlier Air Sahara)
•Post merger, Jet now owns all the slots of Sahara.
•Clear instance of removal of a vigorous competitor from the
market.
Relevance of India’s Competition Act
2002
Possibility of a failing business
Due to vigorous price competition, rising price of fuel etc,
most of the airlines have been making losses. Possibility
of a failing business looms very large.
Relevance of India’s Competition Act
2002
Relative Advantage by way of contribution to the
economic development by any combination having
or likely to have appreciable adverse effects on
competition
• Mergers will lead to scale economies, higher efficiency and
improvement of productivity levels in the industry.
•Passengers will benefit from rationalisation of flight timings and
better service quality.
•Overall better utilisation of resources.
Relevance of India’s Competition Act
2002
Whether the benefits of the combination outweigh
the adverse impact of the combination, if any
• Case of Indian Airlines-Air India merger.
•Indian Airlines experiencing losses and inefficiencies
due to to a combination of factors.
•Resultant scale economies as a result of merger may
lead to better performance and better resource
utilisation.
TOR 5
The study is expected to
examine public barriers to
entry in terms of policy
regulations as well as private
barriers to entry in the context
of the three areas in the
Competition Act
Regulatory Barriers: Domestic
Air Transport Policy
• Route Dispersal Guidelines creates barriers to entry for
new entrants.
• Minimum equity and fleet requirements-barriers?
• Foreign equity requirements-no entry for foreign airlines.
• Requirement of domestic flying for five years and a
minimum fleet for flying internationally-favours existing
incumbents-discrimination against smaller players.
• Usage of airport infrastructure consequent to mergers-
slot allocation policy is a major barrier to new entrants.
• In case of mergers, slot allocation policy is encouraging
abuse of dominance.
…Private barriers to entry in the context
of the three areas in the Competition Act
• High capital costs.
•Scale economies particularly in post merger
scenario
•Availability of slots and existing practice of
‘grandfathering’.
TOR 6 & 7
Evaluate the intensity with which most
airlines carriers operate between city-
pairs. Analyze and discuss from the
stand-point of competition among the
carriers.
Evaluate operations at various airports
and the role played by previously
allotted slots in creating competitive
advantage, recognizing that the
previously allotted slots mechanism
itself creates a superior position.
Slot Analysis – Data, Methodology
•6 Metros were analyzed:
–New Delhi, Mumbai, Kolkata, Bangalore, Chennai,
Hyderabad
•9 Air Carriers
–Indian, Jet Airways, Kingfisher, Jetlite, Spice Jet, Deccan,
IndiGo, Go Air, Air India
•April 2006 to March 2007 Passenger Data
•Slots / Flight Departures between the 30 City-Pair
Combinations were studied
•Time slot, by the hour of day, was studied
Slot Analysis
•581 Slots at the 6 Airports
–Mumbai : 141
–New Delhi : 128
–Bangalore : 104
–Hyderabad : 82
–Kolkata : 74
–Chennai : 52
•Slot Segmentation Analysis:
–All 6 Metros collective
–By each Airport individually
Slot Allocation by Air Carrier - 6 Metro Airports
1
1
9
5
1
3
9
1
3
4
6
5
2
6
5
2
8
7
8
20%
9%
7%
23%
11%
4%
9%
15%
1%
0
150
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0%
25%
Slots Percent Slots Allotted
Jet, Kingfisher and Indian
account for 58% of Slots
at the 6 Metros
Percent Slots During
Peak 4 Hours of the Day
35%
31%
38%
34%
29%
31%
37%
40%
50%
0%
60%
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Slot Allocation by Air Carrier and Time of Day
0
2
4
6
8
10
12
14
16
18
20
0
0
.
0
0
-
2
.
5
9
3
.
0
0
-
3
.
5
9
4
.
0
0
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4
.
5
9
5
.
0
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5
.
5
9
6
.
0
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6
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5
9
7
.
0
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7
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5
9
8
.
0
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8
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5
9
9
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0
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9
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1
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1
0
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9
1
1
.
0
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1
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9
1
2
.
0
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1
2
.
5
9
1
3
.
0
0
-
1
3
.
5
9
1
4
.
0
0
-
1
4
.
5
9
1
5
.
0
0
-
1
5
.
5
9
1
6
.
0
0
-
1
6
.
5
9
1
7
.
0
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1
7
.
5
9
1
8
.
0
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1
8
.
5
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1
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.
0
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-
1
9
.
5
9
2
0
.
0
0
-
2
0
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5
9
2
1
.
0
0
-
2
1
.
5
9
2
2
.
0
0
-
2
2
.
5
9
2
3
.
0
0
-
2
3
.
5
9
Kingfisher SpiceJet Jetlite Jet Airways IndiGo
Go Air Deccan Indian Air India
Max Slots and Peak Periods
•Kingfisher was allotted the maximum number of
slots during both the morning and evening peak
hours
•Most Carriers were allotted between 1 and 5
slots during the day.
•Kingfisher, Jet Airways and Indian hold max
slots and most during peak periods.
•Carriers prefer max slots during peaks – 1/3
rd
of
all slots during 4 peak hours of day
Slot Allocation by TIME - 6 Metros
32
2
9
9
2
8
1
4
3
3
0
3
9
8
0
8
0
8
6
1
6
1%
0%
5%
16%
14%
7%
5%
7%
14% 14%
15%
3%
0
10
20
30
40
50
60
70
80
90
100
0
0
.
0
0
-
2
.
5
9
3
.
0
0
-
3
.
5
9
4
:
0
0
-
5
:
5
9
6
:
0
0
-
7
:
5
9
8
:
0
0
-
9
:
5
9
1
0
:
0
0
-
1
1
:
5
9
1
2
:
0
0
-
1
3
:
5
9
1
4
:
0
0
-
1
5
:
5
9
1
6
:
0
0
-
1
7
:
5
9
1
8
:
0
0
-
1
9
:
5
9
2
0
:
0
0
-
2
1
:
5
9
2
2
:
0
0
-
2
3
:
5
9
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s
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Slots Percent Slots Allotted
Slot Allocation by TIME - 6 Metros
32
2
9
9
2
8
1
4
3
3
03
9
8
0
8
0
8
6
1
6
1%
0%
5%
16%
14%
7%
5%
7%
14% 14%
15%
3%
0
10
20
30
40
50
60
70
80
90
100
0
0
.
0
0
-
2
.
5
9
3
.
0
0
-
3
.
5
9
4
:
0
0
-
5
:
5
9
6
:
0
0
-
7
:
5
9
8
:
0
0
-
9
:
5
9
1
0
:
0
0
-
1
1
:
5
9
1
2
:
0
0
-
1
3
:
5
9
1
4
:
0
0
-
1
5
:
5
9
1
6
:
0
0
-
1
7
:
5
9
1
8
:
0
0
-
1
9
:
5
9
2
0
:
0
0
-
2
1
:
5
9
2
2
:
0
0
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2
3
:
5
9
N
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f
S
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s
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Slots Percent Slots Allotted
M
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0
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-
0
7
1,359,649
1,446,248
1,364,479
1,295,498
1,307,042
1,330,934
1,420,771
1,422,804
1,620,766
1,590,980
1,473,701
1,486,703
A
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2,003,281
4,220,041
4,407,028
2,173,382
2,033,182
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Passenger Share for all 9 Aircarriers
from 6 Metro Airports - 2006-07
1
,
6
2
6
2
,
7
1
8
1
,
2
4
3
3
6
5
6
2
3
2
,
0
3
9
3
,
2
2
5
4
,
6
9
6
5
8
5
9.5%
15.9%
7.3%
2.1%
3.6%
11.9%
18.8%
27.4%
3.4%
0
3,000
6,000
J
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(
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0
0
0
)
0%
40%
Passenger Volume Passenger Percent Share
Jet, Kingfisher and Indian
account for 58% of Passenger
Share at the 6 Metros;
Deccan: 16%
Kingfisher, IndiGo,
Spice Jet, Go Air
had more slots allotted
than passengers
carried
(as a percent share)
Percent Slots Allotted vs. Passengers Carried
6 Metros - 2006-07
7
%
9
%
9
%
1
1
%
4
%
2
0
%
1
5
%
2
3
%
1
%
9
.
5
%
1
5
.
9
%
7
.
3
%
2
.
1
%
3
.
6
%
1
1
.
9
%
1
8
.
8
%
2
7
.
4
%
3
.
4
%
0%
40%
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Slot Allocation Share Passenger Volume Share
Percent Slots Allotted vs. Passengers Carried
Hyderabad - 2006-07
6
%
1
0
%
9
%
1
3
%
5
%
2
4
%
1
5
%
1
7
%
1
%
7
.
9
%
1
6
.
5
%
1
0
.
5
%
4
.
6
%
4
.
3
%
1
3
.
4
%
2
0
.
5
%
2
0
.
0
%
2
.
4
%
0%
40%
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Slot Allocation Share Passenger Volume Share
Percent Slots Allotted vs. Passengers Carried
Mumbai - 2006-07
7
%
7
%
8
%
8
%
9
%
1
8
%
1
6
%
2
6
%
1
%
7
.
5
%
1
2
.
5
%
5
.
4
%
0
.
4
%4
.
2
%
1
2
.
8
%
1
8
.
8
%
3
1
.
5
%
6
.
7
%
0%
40%
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ia
Slot Allocation Share Passenger Volume Share
Percent Slots Allotted vs. Passengers Carried
Kolkata - 2006-07
6
%
1
0
%
1
2
%
1
7
%
0
%
1
7
%
1
3
%
2
5
%
0
%
1
0
.
8
%
1
8
.
3
%
8
.
3
%
4
.
9
%
0
.
9
%
1
0
.
2
%
1
6
.
9
%
2
9
.
4
%
0
.
3
%
0%
40%
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A
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Slot Allocation Share Passenger Volume Share
Percent Slots Allotted vs. Passengers Carried
New Delhi - 2006-07
9
%
4
%
1
0
%
1
2
%
6
%
2
0
%
1
7
%2
0
%
2
%
1
2
.
5
%
1
5
.
1
%
8
.
0
%
2
.
8
%
4
.
3
%
1
0
.
5
%
2
0
.
0
%
2
3
.
4
%
3
.
3
%
0%
40%
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Slot Allocation Share Passenger Volume Share
Percent Slots Allotted vs. Passengers Carried
Chennai - 2006-07
4
%
1
4
%
7
%
1
1
%
0
%
2
0
%
1
6
%
2
7
%
1
%
3
.
7
%
2
0
.
0
%
7
.
1
%
2
.
6
%
3
.
9
%
6
.
3
%
2
1
.
4
%
3
2
.
8
%
2
.
3
%
0%
45%
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Slot Allocation Share Passenger Volume Share
Percent Slots Allotted vs. Passengers Carried
Bangalore - 2006-07
7
%
1
3
%
9
%
1
1
%
2
%
2
4
%
1
1
%
2
3
%
1
%
1
1
.
0
%
1
5
.
7
%
7
.
1
%
1
.
1
%
3
.
1
%
1
7
.
0
%
1
5
.
1
%
2
8
.
4
%
1
.
6
%
0%
40%
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Slot Allocation Share Passenger Volume Share
Jetlite:
Slot Share Advantage over Passenger Carried
-2.8%
-1.8%
-3.9%
-0.5%
0.4%
-5.0%
-4.2%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
6 Metros Hyderabad New Delhi Mumbai Chennai Kolkata Bangalore
Slots Share MINUS Passenger Share
Spice Jet:
Slot Share Advantage over Passenger Carried
1.5%
-1.9%
2.2%
2.4%
-0.4%
3.2%
1.6%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6 Metros Hyderabad New Delhi Mumbai Chennai Kolkata Bangalore
Slots Share MINUS Passenger Share
Deccan:
Slot Share Advantage over Passenger Carried
-6.9%
-6.7%
-11.2%
-5.4%
-6.5%
-8.7%
-2.2%
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
6 Metros Hyderabad New Delhi Mumbai Chennai Kolkata Bangalore
Slots Share MINUS Passenger Share
IndiGo:
Slot Share Advantage over Passenger Carried
9.1%
8.8%
9.0%
7.4%
8.2%
12.5%
9.5%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
6 Metros Hyderabad New Delhi Mumbai Chennai Kolkata Bangalore
Slots Share MINUS Passenger Share
Go Air:
Slot Share Advantage over Passenger Carried
0.8%
0.6%
1.9%
4.3%
-3.9%
-0.9%
-1.2%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
6 Metros Hyderabad New Delhi Mumbai Chennai Kolkata Bangalore
Slots Share MINUS Passenger Share
Indian:
Slot Share Advantage over Passenger Carried
-3.9%
-5.9%
-2.8%
-2.5%
-5.2%
-3.4%
-4.6%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
6 Metros Hyderabad New Delhi Mumbai Chennai Kolkata Bangalore
Slots Share MINUS Passenger Share
Kingfisher:
Slot Share Advantage over Passenger Carried
8.6%
11.0%
9.0%
4.9%
14.0%
7.1% 7.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
6 Metros Hyderabad New Delhi Mumbai Chennai Kolkata Bangalore
Slots Share MINUS Passenger Share
Jet Airways:
Slot Share Advantage over Passenger Carried
-4.4%
-2.9%
-3.0%
-5.3%
-5.8%
-4.4%
-5.3%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
6
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Slots Share MINUS Passenger Share
Air India:
Slot Share Advantage over Passenger Carried
-2.0%
-1.2%
-1.0%
-5.3%
-0.9%
-0.3%
-0.6%
-6.0%
-4.0%
-2.0%
0.0%
6
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Slots Share MINUS Passenger Share
Slots PER Million Passengers
- 6 Metro Airports
2
4
1
9
4
1
1
7
8
4
2
5
8
2
7
2
9
1
4
0
50
100
150
200
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Conclusions
•Slot allocation at the 6 metros combined showed that Jet,
Kingfisher and Indian were allotted 58% of all the slots.
•Kingfisher and Jet were the dominant operators during the
morning and evening peak periods with about 12 to 18 slots
followed by Indian with about 8 to 10 slots.
•Statistical analysis showed a correlation of 0.88 indicating
that a strong and positive relationship exists between the
slots and passenger share.
•It is understandable as to why air carriers make use of any
and all slots while trying to obtain more.
•Kingfisher, IndiGo, Go Air, and Spice Jet had more slots
allotted than passengers carried while Indian, Jet, and
Deccan were at a disadvantage in this regard.
TOR 8
Study issues relating to cartels. In
this context, cases of cartels in
countries like US and the UK will
be studied
Cartelization ?
Theoretically, markets with the following
characteristics are more likely to support
the successful operation of a cartel.
Fewer Firms and Higher Market Concentration
Barriers to Entry
Homogeneous Goods
Firms with Similar Cost Structures or Operating
Efficiencies and Market Shares
Market Transparency
Depressed Conditions or Low Innovation Rate
Does the Indian Market show
evidence?
The airline industry in India, which had 12
scheduled operators, after the mergers has only 9
operators. This implies that cartelization infact has
become easier.
Major barriers to entry
High capital requirements
Slots
Two dominant players in the market – Jet and
Kingfisher – both have a stake in low cost airline
also. Therefore, the homogeneity of ownership
may make collusion easier.
Literature suggests that the firms in this
industry operate with similar cost structures
and efficiencies.
All players in the market can monitor the
price of the ticket on offer
Increasing prices of ATF – increasing
losses
Federation of Indian Airlines
Sl.
No.
Airlines
Net Profit /
Loss
(2005-06)
(in million)
1 Air India 26.0
2 Indian Airlines 57.2
4 Jet Airways 4520.4
5 Sahara -1380.5
6 Air Deccan -3405.5
7 Paramount -194.5
8 Spicejet -575.48
9 Kingfisher -2395.9
10 Go Air -583.8
Price Parallelism
Data
Case Studies on cartels:
Brazil: The Rio de Janeiro – São
Paulo Airline Case
TOR 9
To Study the issue of Competition
in Airports
Complementarity of inputs between airlines
and airports
Relevant Product and Geographic
market
Demand for airport services is a derived
demand—it is derived from the demand for
air craft (flight) services.
Directly
Indirectly
the relevant service or the geographic market is
airport itself.
Extent to which capacity constraint
limits competition
How is the capacity of airport defined?
Capacity of an airport is defined as the minimum of the
parameters such as terminal capacity, runway, baggage
belts, etc.
Depending on Capacity Slots are
allocated
Slots and their impact on competition
Indian policy on slot allocation
airport runway slots are allocated twice a
year
‘Grandfather Rights’
Why Grandfathering?
Issues:
Market for slots
Second Airport
Delhi / Noida
Right of first Refusal
Expand the existing airport/ Build a new
green field airport – concession or lease
agreements
The main competition issues raised by concessions
are:
a) The allocation and agreement of a concession
contract.
b) competition during the term of the concession.
Case Study- Concession agreement at HIA and
BIAL
a) Slots
b)Exclusivity
TOR 10
Analyse the implications of this
study for Competition Policy and
Law. Appropriate
recommendations to be provided
•Analysis of regulation in relation to competition.
•Issue to be discussed is whether existing regulations result in
creation of barriers to new entrants on the market.
•The above has already been discussed in detail.
•We refer to Sections 19(3) , 19(4) and 20(4) of the Competition
Act .
•Majority of factors referred to in the above sections,that may have
an adverse effect on competition are present on this market.
•These factors also have a direct relevance to the Domestic Air
Transport Policy.
•Need to modify policy to take note of emerging market scenario.
TOR 11
Examine issues relating to
advocacy for CCI . Provide
suggestions and
recommendations
• In accordance with section 49(1) of the Competition Act,
following suggestions may be given to the Government :
-Route Dispersal guidelines, while they are meant to ensure
equity,
may create entry barriers.
-Equity requirements,requirements for flying internationally are
entry barriers and favour incumbent players.
-Slot allotment policy requires examination. In the post merger
scenario, this has assumed special importance.
In accordance with Article 49(3), CCI is expected to take
suitable measures for promotion of competition advocacy,
creating awareness and imparting training about competition
issues.
CCI can create awareness among consumers through
workshops on issues relating to pricing structures among
different airlines.
Training Programmes may be conducted for potential
investors concentrating upon entry requirements, state of the
market, government regulations, etc.
To promote general public awareness about this sector,
specific training programmes can be designed on the state of the
market, number of players, routes being served, pricing, post
Conclusions
Major Conclusions
• Concentration as shown by the HHI is increasing on relevant
markets, post merger.
•In terms of slots, post merger, Jet and Kingfisher are controlling a
major share.
•Indian is losing out to these two players.
•Large number of airlines flying on selected routes. However,
there is an obvious control of major slots, especially in the peak
period , by Jet and Kingfisher.
•Consumer therefore has limited choice in the peak period.
• High degree of price parallelism –especially between Jet and
Kingfisher –may lead to price collusion given the dominance of
these two airlines on selected routes. May also lead to
overpricing.
Major Conclusions
•On the basis of a comprehensive analysis with regard to
slots allotted to 9 air carriers at 6 metropolitan airports, the
following are noted:
-Slot allocation at airports showed that Jet airways, Kingfisher and
Indian were allotted 58% of all slots allocated.
-Kingfisher, Jet Airways and Indian were also the predominant
carriers that operate from Hyderabad, Mumbai, New Delhi,
Chennai and Kolkata
During peak periods also, Jet Airways and Kingfisher were the
dominant operators in terms of slots, followed by Indian.
-a correlation analysis conducted showed that there is a strong
and positive relationship between number of available slots and
passengers carried. This shows the link between slots and market
share.
Recommendations
Recommendations
Factors to be taken note of by the CCI in accordance with
Section 20(4) of the Competition Act
• Post merger, concentration is evidently increasing on all three
selected routes.
•The market is oligopolistic. Large number players exist –
however, three players control a major share. Issue of
concentration, post merger, may be taken note of by CCI.
•Some evidence of price parallelism. May not be termed as price
collusion. However CCI may monitor pricing of dominant
airlines, in particular.
•Share of Jet and Kingfisher in the number of slots are
increasing post merger. Indian is losing share to these two.
Recommendations
• Mergers show indication of removal of a vigorous competitor
from the market, e.g. Jet and Sahara on Delhi-Mumbai and
Delhi- Chennai routes. Critical factor in limiting competition.
•Possibility of a failing business looms large due to rising fuel
prices and intense price competition. CCI may like to monitor
this.
•Some mergers have benefits in terms of increased efficiency,
scale economies etc. Particularly relevant in case of the public
sector owned airlines.
Recommendations
In the context of advocacy, following
recommendations may be made to CCI:
Opinion to the Government:
In the context of the Domestic Air Transport Policy, as already
discussed earlier, CCI may point out issues relating to the route
dispersal guidelines, equity and fleet requirements, entry into
international routes and slot allocation policy and mergers.
Measures for promoting competition advocacy etc:
conducting workshops on pricing for consumers.
Training programmes for potential investors
Training programmes for promoting public awareness about
the sector.
Thank You
doc_789202000.pdf