By Rupin Chopra and Shantam Sharma
In a significant development for the Indian aviation industry, the Competition Commission of India (CCI), vide its order1 dated September 1, 2023, has given its green light to the merger of Tata SIA Airlines into Air India. Though a detailed order by the honourable commission is still awaited, this momentous decision also includes the acquisition of certain shareholdings by Singapore Airlines (SIA) in Air India, subject to the compliance of voluntary commitments offered by the parties involved. This transformative merger is set to reshape the landscape of Indian aviation and potentially position Air India as the nation’s leading international carrier and second-largest domestic airline, trailing only behind IndiGo.
The Merger of Tata SIA Airlines Limited into Air India Limited
The merger involves the consolidation of Tata SIA Airlines Limited, popularly known as Vistara, into Air India Limited, with Air India emerging as the surviving entity. Additionally, Singapore Airlines Limited and Tata Sons Private Limited will acquire shares in the merged entity, further solidifying their commitment to the Indian aviation market. Singapore Airlines, the parent company of the SIA Group, has been actively involved in the Indian aviation sector for several years.
As part of the merger transaction, Singapore Airlines (SIA) will invest a substantial Rs 2,059 crore in Air India’s expanded share capital, securing a 25.1 percent shareholding in the merged entity. This strategic investment solidifies SIA’s commitment to the Indian aviation market, enhancing its presence and influence in this dynamic sector. Aviation research and advisory firm CAPA India sees this merger as a game-changer, predicting that Air India will evolve into a global network carrier within the next six years. With a projected 50 percent market share in international air traffic, Air India is poised to make significant strides in connecting India with the world. But on the flip side it will reduce the Indian aviation market into a duopoly, dominated by the Air India Group and IndiGo.
A Strategic Move by Tata Group
The Tata Group’s re-entry into the airline market in 2013 marked a significant turning point for the Indian aviation industry. Vistara, a joint venture between Tata Sons Private Limited and Singapore Airlines Limited, took flight in 2015, offering travelers a premium flying experience. This endeavor was followed by the acquisition of Air India and Air India Express by the Tata Group in January of the previous year, thereby creating a more comprehensive portfolio of airlines under their banner.
The consolidation of Vistara and Air India is poised to catapult Air India into the position of India’s leading domestic and international carrier. With a combined fleet of 218 aircraft, this merger will make Air India the largest international carrier in India and the second-largest domestic carrier, trailing closely behind IndiGo.
Merging for Success
The merger of Vistara and Air India has been a long-anticipated move that promises to usher in a new era of aviation in India. With the CCI’s approval now in place, the two airlines will commence the process of aligning their schedules, networks, and reservation systems. This consolidation is expected to enhance operational efficiency and customer service in the Indian aviation market. This merger not only strengthens the Tata Group’s presence in the Indian aviation sector but also offers Singapore Airlines a strategic stake in a substantially larger entity. It is expected to enhance SIA’s market presence in India, aligning with their multi-hub strategy and active involvement in the growing Indian aviation market.
Concerns of a Duopoly
While the approval of the merger between Tata SIA Airlines and Air India has generated excitement and optimism within the Indian aviation industry, it has also raised concerns and garnered criticism, primarily revolving around the potential consolidation of power in the hands of a few dominant players. Though the CCI did not find any adverse effect on competition3 in the relevant geographic as well as product market , still the significant criticisms centres on the fear that this merger could lead to India’s aviation market4 becoming a duopoly, with the Air India Group and IndiGo holding the lion’s share of the industry leading to:
- A Diminishing Competitive Landscape
As the merger unfolds, there are growing apprehensions about the reduced diversity in the Indian aviation market. According to data from the Directorate General of Civil Aviation (DGCA) for July5, Vistara currently holds an 8.4 percent market share, while Air India has a market share of 9.9 percent. When combined, these two entities could potentially capture over 30 percent of the Indian aviation market, making them a formidable player in the industry. However, they still trail behind the market leader, IndiGo, which commands a substantial 63 percent market share.
With the Air India Group and IndiGo already holding substantial market shares, the merger could tip the scales further, leaving fewer choices for travelers and potentially leading to higher fares due to reduced competition. A duopoly scenario often results in a lack of incentive for airlines to innovate, improve services, or offer competitive pricing.
- Market Control on Key Routes6
The concern over market dominance extends to specific routes, particularly those considered high-traffic and lucrative. For instance, on the Delhi-Mumbai route, the combined Air India group is poised to control 49 percent of total flights, leaving IndiGo with a smaller share at 31 percent. A similar scenario is anticipated on the Delhi-Bengaluru route, one of the country’s busiest, with the combined Air India group projected to hold a commanding 52 percent share of total flights, while IndiGo retains 35 percent. Such control over critical routes could further exacerbate the lack of competition in these key travel corridors.
- Impact on Consumer Choice
A duopoly in the aviation industry can translate to limited options for passengers, both in terms of routes and fares. With fewer airlines to choose from, travellers may find themselves with less flexibility and fewer alternatives when planning their journeys. This limitation on consumer choice can result in higher prices and a decreased focus on service quality, as airlines may not feel the same competitive pressure to cater to passengers’ needs.
Voluntary Commitments to Ensure Fair Competition7
To address concerns related to market power and potential negative impacts on competition, Air India has offered voluntary commitments as part of the merger approval process. These commitments include divestiture of slots on certain routes with overlapping services, ensuring that capacity remains unaffected on India-Singapore and specific domestic routes, and a pledge to add flights rather than reducing them. These commitments are a testament to the parties’ dedication to fostering fair competition and providing travellers with more choices and better services.
The CCI’s approval of the merger of Tata SIA Airlines into Air India, coupled with Singapore Airlines’ strategic investment, marks a turning point in the Indian aviation industry. This merger not only strengthens the Tata Group’s aviation portfolio but also promises enhanced competition and improved services for travellers. As the aviation landscape transforms, it is essential to strike a balance between fostering growth and maintaining a competitive landscape. It is incumbent upon regulatory bodies, industry stakeholders, and the merged entities themselves to ensure that competition remains vibrant, fares remain affordable, and travellers continue to enjoy a diverse range of choices. The Indian aviation sector’s future success hinges on its ability to navigate these challenges and create a sustainable, consumer-friendly environment.
1 Available at: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1954178
2 Available at: https://www.livemint.com/companies/news/vistaraair-india-merger-gets-cci-approval-check-shareholding-other-details-11693577104184.html
3 3. Anti-competitive agreements. – (1) No enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India.
4 (r) “relevant market” means the market which may be determined by the Commission with reference to the relevant product market or the relevant geographic market or with reference to both the markets;
(s) “relevant geographic market” means a market comprising the area in which the conditions of competition for supply of goods or provision of services or demand of goods or services are distinctly homogeneous and can be distinguished from the conditions prevailing in the neighbouring areas;
[(t) “relevant product market” means a market comprising of all those products or services –
(i) which are regarded as inter-changeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use; or
(ii) the production or supply of, which are regarded as interchangeable or substitutable by the supplier, by reason of the ease of switching production between such products and services and marketing them in the short term without incurring significant additional costs or risks in response to small and permanent changes in relative prices;]
5 Available at: https://www.thehindu.com/business/Industry/domestic-air-passenger-traffic-jumps-25-in-july/article67193981.ece
6 Available at: https://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/cci-approves-merger-of-vistara-into-air-india/articleshow/103289621.cms?from=mdr
7 Available at: https://www.fortuneindia.com/enterprise/cci-gives-green-signal-for-air-india-vistara-merger/113942