Background

On September 1, 2023, CCI approved the transaction consisting of the following (‘Proposed Combination’): ^[1]

i.    Merger of TATA SIA Airlines (‘TSAL/ Vistara’) into Air India (‘Air India’ / ‘Merged Entity’) with AIL being the surviving entity;

ii.   In consideration of the merger – acquisition of shares in the Merged Entity by Singapore Airlines Limited (‘SIA’) and Tata Sons Private Limited (‘TSPL’); and

iii.  Acquisition of additional shares in the Merged Entity by SIA pursuant to a preferential allotment.

Parties to Combination

TSPL: TSPL is an investment holding company, which is registered as a core investment company with the Reserve Bank of India and classified as a ‘Systemically Important Non-Deposit Taking Core Investment Company’. TSPL (through Talace Private Limited) completed the acquisition of AIL on January 27, 2022.

AIL: Air India (including its wholly owned subsidiaries Air India Express Ltd. and AIX Connect Private Limited), is engaged in the business of providing (i) domestic scheduled air passenger transport service; (ii) international scheduled air passenger transport service; (iii) air cargo transport services; and (iv) charter flight services.

TSAL/ Vistara: TSAL is a joint venture between TSPL and SIA, with TSPL and SIA holding 51% and 49% of the total shareholding, respectively. TSAL operates under the brand name ‘Vistara’. TSAL is engaged in the business of providing the same services as Air India.

SIA: SIA is the parent entity for the SIA group of companies (‘SIA Group’). SIA is engaged in the business of passenger and cargo air transportation, and the principal activities of the SIA Group consist of passenger and cargo air transportation, engineering services, training of pilots, air charters, tour activities, sale of merchandise and related activities.

Relevant Markets and Overlaps

Horizontal Markets

The CCI observed that the activities of Air India and its subsidiaries and Vistara on the other hand overlap in the following horizontal segments, being:

i.    Market for domestic passenger air transport services in India (‘Horizontal Market 1’);

ii.   Market for international passenger air transport services in India (‘Horizontal Market 2’);

iii.  Market for provision of air cargo transport services in India (‘Horizontal Market 3’); and

iv.   Market for provision of charter flight services in India (‘Horizontal Market 4’).

Vertical Relationships/ Complementary Linkages

The CCI observed that there were Vertical/Complementary relationships between Air India and its subsidiaries, and Vistara in the following segments:

i.    Ground Handling Services, used as an input by Passenger Air Transportation Service providers; and

ii.   In-Flight Catering Services, used as an input by Passenger Air Transportation Service providers.

Competitive Assessment

Horizontal Markets 1 and 2: The CCI defined Horizontal Markets 1 and 2 in the context of Origin & Destination Pairs (‘O&D Pairs’). The Parties submitted that there were overlaps in the market for domestic passenger air transport services in India in 48 O&D Pairs and overlaps in 24 O&D pairs in the market for international passenger air transport services in India.

CCI’s Analysis: The CCI’s prima facie competition concerns were that the proposed combination: (i) will result in a duopoly in the Indian Airlines market with respect to certain domestic and international O&D Pairs, and near monopoly in some routes from India to Singapore; and (ii) could grant the Merged Entity with the power to increase prices in such O&D pairs and routes; and (iii) 36 O&D Pairs in the domestic market will get concentrated, and in the business class services, since the Parties are the only two players in the market, it will result in a near monopoly. Accordingly, in this regard a Show Cause Notice (‘SCN’) was sent to the Parties in order to elaborate on their views as to why a phase II extended investigation should not be launched by the CCI into the Proposed Combination.  Ultimately, inter alia based on the Voluntary Commitments (as detailed below) offered by the Parties, the CCI observed the following:

i.    With regards to the concentration in some domestic O&D Pairs, the CCI noted that it was only in 7 out of the 36 O&D Pairs identified by the CCI in the SCN that the Parties will have a market share of 50% or more. The Parties Voluntary Commitments in this regard, assuage the concerns of the CCI;

ii.   Considering 15 other routes where the market shares of the Merged Entity exceed 40% in FY 23: (i) there is only one route on which the Parties are ranked first and second; (ii) in 9 routes, the Parties occupy second and third position as Indigo is the market leader in all these routes; and (iii) in the remaining five routes, the Parties are distant competitors in the pre-merger scenario;

iii.  On the domestic overlap routes where the total passenger traffic exceeds one million passengers per year, Akasa has entered several of these markets;

iv.   In 28 out of the 36 overlapping domestic O&D pairs identified in the SCN, SpiceJet and Akasa hold more than 5% market share in 23 routes and 5 routes respectively;

v.    In the international air passenger transportation services, out of the 15 international direct flight overlapping routes identified, the combined market share of Parties is less than 40% on seven routes, which is less than that of the largest player;

vi.   The CCI also recognised: (i) the presence of numerous competitors to the Merged Entity in Horizontal Markets 1 and 2; and (ii) that new players have entered/are planning to enter the airlines market in India; and

vii.  The CCI observed that the Merged Entity: (i) will be able to add more routes to its operations which will not be possible without the Proposed Combination, and network effects will allow the Merged Entity to re-allocate O&D Pairs and respond to changing competition ensuring contestability and competition; and (ii) will generate significant synergies in terms of network efficiencies and cost saving.

Horizontal Market 3: The CCI observed that neither of the parties have dedicated capacity for air cargo transportation unlike other competitors such as Indigo, Bluedart, SpiceJet etc. Given the nature of the services and the competition in the market, CCI concluded that there will be no appreciable adverse effect on competition (‘AAEC’) in this market in India.

Horizontal Market 4: The parties submitted that every airline operating in the market for domestic passenger air transportation services is a potential competitor to airlines operating in the charter flight services market. Moreover, it was submitted that major portion of passenger traffic on charter flight services arises from Government of India (‘GOI’)I  tenders. CCI took the arguments made by the parties into account and also stated that the market shares of AIL and Vistara are miniscule in the charter flight services market. The CCI concluded that there appears to be no appreciable adverse effect on competition in India in this market as well.

Conclusively, the CCI noted that inter alia in light of the Voluntary Commitments, the Proposed Combination is not likely to cause appreciable adverse effect on competition in India and thus approved the Proposed Combination. However, the CCI also clarified/ directed the following:

i.    The Merged Entity and SIA should appoint at their own cost an independent auditor within three months from the date of approval of the Proposed Combination to monitor the implementation voluntary commitments;

ii.   The ex-ante approval does not imply immunity to the parties with respect to any conduct post the Proposed Combination;

iii.  The CCI may, at any point, ask for information from the Parties that is necessary for effective implementation of the order; and

iv.    If the parties fail to abide by the voluntary commitments, it will be assumed that the Proposed Combination has caused appreciable adverse effect on competition in India and parties will be exposed to proceedings under the Competition Act.

[1] Tata Sons Private Limited/Singapore Airlines Limited (Combination Registration No. C-2023/04/1022).