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The document summarizes an order by the Competition Commission of India regarding an investigation into alleged anti-competitive practices by Jet Airways and Kingfisher Airlines. It details how Kingfisher failed to provide information requested multiple times by the Director General during the investigation, despite court orders dismissing Kingfisher's petitions. As a result, the Commission imposed a maximum penalty of 1 crore rupees on Kingfisher for non-compliance under Section 43 of the Competition Act. The Competition Appellate Tribunal later set aside the penalty order.
The document summarizes an order by the Competition Commission of India regarding an investigation into alleged anti-competitive practices by Jet Airways and Kingfisher Airlines. It details how Kingfisher failed to provide information requested multiple times by the Director General during the investigation, despite court orders dismissing Kingfisher's petitions. As a result, the Commission imposed a maximum penalty of 1 crore rupees on Kingfisher for non-compliance under Section 43 of the Competition Act. The Competition Appellate Tribunal later set aside the penalty order.
The document summarizes an order by the Competition Commission of India regarding an investigation into alleged anti-competitive practices by Jet Airways and Kingfisher Airlines. It details how Kingfisher failed to provide information requested multiple times by the Director General during the investigation, despite court orders dismissing Kingfisher's petitions. As a result, the Commission imposed a maximum penalty of 1 crore rupees on Kingfisher for non-compliance under Section 43 of the Competition Act. The Competition Appellate Tribunal later set aside the penalty order.
NEW DELHI Case No. Misc. 1/2010 (4/2009) Decided On: 09.01.2012 Appellants: M.P. Mehrotra Vs. Respondent: Jet Airways (India) Limited and Kingfisher Airlines Limited Hon'ble Judges/Coram: Ashok Chawla, Chairperson, H.C. Gupta, Member (G), R. Prasad, Member (R), P.N. Parashar, Member (P), Dr. Geeta Gouri, Member (GG), Anurag Goel, Member (AG), M.L. Tayal, Member (T) and Shiv Narayan Dhingra, Member (D) ORDER 1. This order is being passed in pursuance of COMPAT's order dated 4th May, 2011 passed under section 53B of the Competition Act, 2002 wherein the order of the Commission dated 21.10.2010 passed under section 43 of the Act was set aside by the Hon'ble COMPAT with a direction to pass fresh order keeping in view the factual and legal positions as highlighted in the said order. Factual Background 2 . In this case an information was filed, by the informant Sh. M.P. Mehrotra on 3.8.2009 alleging that the opposite parties, namely, Jet. Airways (India) Ltd. and Kingfisher Airlines Ltd. have entered into an anti competitive agreement involving code sharing, joint fuel management, common ground handling, joint network rationalization etc. It has also been alleged that these Airlines are collectively controlling major share of market and by abusing their dominant position, they are adversely affecting the competition in the market. It has further been alleged that the two airlines mentioned above are acting in concert to fix prices and limiting/controlling the supply through route rationalization in violation-of Sections 5 and 4 of the Act The Informant, therefore, prayed for instituting an enquiry against opposite parties under the provisions of Section 19(1) (a) of the Competition Act, 2002 and also to direct the opposite....parties to discontinue and...not to re-enter in such cartel like agreements. 2.1 The Commission considered this information in its meeting dated 4.8.2009 and after considering the entire material on record and relevant facts and circumstances relating to this matter which were brought to the notice of the. Commission in the meeting, and formed an opinion that there exists a prima facie case and referred the matter to the Director General for conducting investigation into the matter and to submit a report within 45 days of the receipt of the order of the Commission. 2.2 The Director General vide his note dated 21.7.2010 informed the Commission that on receipt of the case from the Commission, notices were sent to two respondents -- Jet Airways India Limited, and Kingfisher Airlines Ltd. on 11.8.2009, under section 36 (2) read with section 41(2) of the Act to furnish the certain information in the office of the DG on 19.08.2009 at 12.30 PM either in person or
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through an authorized representative under section 35 of the Act. In the said notice, the opposite parties were also informed that in case the required information is not submitted they may be liable to pay a fine as per provisions of Section 43 of the Act. 3 . The opposite party No. 1, namely, Jet Airways India Limited filed details on 25.8.2009. However, Kingfisher Airlines did not furnish the requisite information and sought an extension of time till 25.8.2009. The required extension was granted vide DG's letter dated 18.8.2009. 4 . However, as per record, the Kingfisher Airlines Ltd. did not furnish the required information and instead vide its letter dated 25.8.2009. took the plea that as the said agreement was entered into in October 2008 i.e. prior to coming into force of the provisions of Section. 3. & 4 of the Act. and therefore Commission has no jurisdiction. 5. The record further shows that as the Kingfisher Airlines Ltd. did not comply with the directions of the DG for furnishing the required information it was again requested to furnish the required information/documents vide DG's letters dated 26.8.2009, 10.9.2009, 15.4.2010, 6.5.2010, 19.5.2010, 3.6.2010 and 12.7.2010. But again under pretext of filing a Writ Petition No. 1785/2009 in the Hon'ble High Court of Bombay, the Kingfisher Airlines Ltd. did not furnish the required information though there was no stay of the proceedings by the Hon'ble High Court. 6 . The Hon'ble High Court of Bombay vide its order dated 31.3.2010 dismissed the Writ Petition filed by the Kingfisher Airlines Ltd and thereafter again Office of the DG issued letters to Kingfisher Airlines Ltd. on 15.4.2010, 6.5.2010 and 19.5.2010 to furnish details in compliance to the notice dated 11.8.2009. However, Kingfisher Airlines Ltd. instead of complying with the directions of the DG and cooperating in the investigation, took the plea that it has filed a Special Leave Petition in the Supreme Court against the order of the Hon'ble High Court of Bombay though no stay of the proceedings had been ordered by the Hon'ble Supreme Court. 7. Due to non-furnishing of the required information as per directions of the DG. the investigation was delayed. 8. As the Kingfisher Airlines Ltd despite repeated notices issued to it by the office of the Director General as referred to above did not furnish the required information/document and investigation was not making any progress; DG recommended.....initiation of proceedings...against it under section 43 of the Act. 9 . The Commission in its meeting held on 24.08.2010 considered the matter and after carefully examining the facts and circumstances of the case, took a view that prima facie there has been non compliance, without any reasonable cause, of the directions given to Kingfisher Airlines Ltd. by the DG. Accordingly, a notice dated 16.09.2010 was issued to the Kingfisher Airlines Ltd. under section 43 of the Act to show cause within 15 days from the date of receipt of the notice as to why penalty for the above mentioned violation should not be imposed upon it with effect from 26.08.2009. Kingfisher Airlines was also given an opportunity of oral hearing on 12.10.2010. 1 0 . The Kingfisher Airlines Ltd. did not avail the opportunity of oral hearing but submitted its reply on 4.10.2010 in response to the notice of the Commission stated as above. It was submitted that Kingfisher Airlines Ltd. had filed a Writ Petition No. 1785 of 2009 in the Bombay High Court challenging, inter alia, the order passed by
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the Commission on 04.08.2009 directing the DG to cause an investigation to be made in Case No. 4/2009 which was eventually dismissed by the High Court by its order dated 31.03.2010. However, during the pendency of the Writ Petition the Competition Commission as well as the Director General did not proceed with the matter till the order was pronounced by the High Court of Bombay. 1 1 . Further, the said order of the Bombay High Court was challenged by the Kingfisher Airlines Ltd. before the Hon'ble Supreme Court of India by way of Special Leave Petition (Civil) No. 16877 of 2010 which was subsequently withdrawn by it on... 24.09.2010. During the pendency of the Special Leave Petition, Kingfisher Airlines Ltd. had requested the Additional Director General not to proceed with the matter until the decision of the Supreme Court as it had challenged the jurisdiction of the Competition Commission to investigate into the matter and once the SLP was withdrawn, the Kingfisher Airlines Ltd. filed a detailed reply before the Commission on 27.09.2010. Additionally, it has also complied with the notice dated 11.08.2009 issued by the Additional Director General and has furnished relevant documents/information available with it to the ADG, Competition Commission of India vide its letter dated 28.09.2010. 1 2 . The Commission duly considered the replies filed by the Kingfisher Airlines. However, not being convinced with their submission, the Commission imposed on Kingfisher Airlines Ltd. vide its order dated 21.10.2010 a fine of rupees one crore the maximum penalty provided under section 43 of the Act for the aforesaid violation, being "rupees one lakh per clay for each day during which such failure continues subject to a maximum of rupees one crore". 13. M/s Kingfisher Airlines filed appeal before the COMPAT against the above penalty order. The COMPAT, after due consideration of the rival submission, set-aside the impugned order on the ground that the relevant aspects and materials have not been considered in the proper perspective and the 'reasonable cause' aspect has also not been considered by the CCI in the proper perspective. It held that the imposition of penalty cannot be a matter of routine. The statute itself has provided for imposition of penalty when the- failure is "without reasonable cause'". The CCI also failed to: distinguish the conceptual difference between "failure to comply" and "belated compliance". In the former case, it is non- compliance and in the latter case, it is belated compliance. 14. The COMPAT finally remitted the matter to the CCI to pass fresh order keeping in view the factual and legal position as highlighted in its order. To avoid unnecessary delay it also directed the parties to appear before the CCI without further notice on 18.05.2011, for detailed examination of the issues involved afresh. So, this order is being passed afresh in pursuance of the COMPATs order dated 4th of May, 2011, 1 5 . Accordingly, the matter was listed for hearing before, the Commission on 03.08.2011. However, the counsel of M/s Kingfisher Airlines expressed its inability to appear on the said date and requested the Commission to allow them to appear on 24.8.2011. The Commission re fixed the matter for hearing on 24.8.2011. M/s Kingfisher Airlines appeared before the Commission on 24.8.2011 and submitted oral arguments in support of their earlier contention. The matter was adjourned till 22.9.2011 for further hearing. Meanwhile on 26th of August, 2011 a letter was received in the. Commission from Kingfisher Airlines stating therein that "pursuant to the hearing on 24th August. 2011 in the above mentioned matter, it is most humbly submitted that the Hon'ble Commission treat all the pleadings in the Appeal No. 10 of
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2010 and our response dated 4th October, 2010 to the show cause notice dated 16th September, 2010 as part of our submissions made on 24th August. 2011." 16. Thus, it is clear from the reply of M/s Kingfisher Airlines that they have nothing to add in the fresh proceedings except whatever has been reiterated by them in the earlier proceedings. They have already taken the stand that since the matter was pending before Bombay High Court and Supreme Court, they were not obliged to file replies before the DG. Now, the issue in question is whether mere filing of Writ petition or for that matter SLP challenging the jurisdiction of the Commission entitles the party not to file replies in a pending proceeding and can it be treated as reasonable cause for non- compliance? Merely filing of a SLP does not mean that a person would not comply to Summons issued under the Act. It shows scant disregard to a valid Summons and cannot be a reasonable cause for non-compliance. 1 7 . Coming to the COMPAT's finding that relevant materials of the case have not been considered by the Commission in proper perspective; the Commission examined this aspect: afresh. In this regard, the DG's Report filed on 11.05.2010 which gives the chronological sequence of events in the case was considered by the Commission. The details are given as under:- S.N. Date of Due Date ofDate of Reply Nature of Notice Compliance Response 1 11.08.200919.08.2009 17.08.2009 Time of four weeks sought 2 18.08.200925.08.2009 25.08.2009 Letter received challenging jurisdiction 3 26.08.2009 Request to No compliance comply with notice dated. 11.08.2009 4 10.09.2009 Reminder to Writ Petition No compliance submit f i l e d on information by 08.09.2009. Investigation kept in abeyance till Judgment or Mumbai High Court known on 31.03.2010. Investigation resumed after the decision of writ petition before the Mumbai High Court. 5. 15.04.201005.05.2010 05.05.2010 No information filed on the grounds of SLP. 6. 06.05.201019.05.2010 18.05.2010 Do 7. 19.05.201026.05.2010 26.05.2010 Do 8. 03.06.201016.06.2010 16.06.2010 Do 9. 12.07.201016.07.2010 16.07.2010 Do 10. 06.08.201017.08.2010 19.08.2010 DO 11 26.08.201006.09.2010 03.09.2010 Do
12. 10.09.201017.09.2010 21.09.2010 Do
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12. 10.09.201017.09.2010 21.09.2010 Do 13. 21.09.201028 or 28.09.2010 Details Filed 27.09.2010 18. The Commission has noted the reasons recorded by Hon'ble COMPAT for setting aside order dated 21.10.2010 of the Commission and remitting the matter to the CCI to pass fresh orders. The three key issues that relate to the observations of the Hon'ble COMPAT are that i) reminders issued by DG should have been duly factored in, (ii) the "reasonable cause" aspect not been considered by the CCI in the proper perspective, and (iii) CCI has failed to distinguish the conceptual difference between ''failure to comply" and "belated compliance", 1 9 . One of the issues to be considered is as to whether the subsequent notices issued by the DG / Addl. DG. amount to an extension of time. If a person does not comply then what can the D.G. do? If he issues a reminder or letter subsequently does if amount to extension of time or a fresh notice? In our view sending of a subsequent letter does not amount to extension of time...or waiver of the...earlier....violation. It is only an effort to get the relevant information and till the time the information is given, violation continues. Otherwise, the only option left before the DG will be to stop the investigation and start proceeding, under Section 43 for non compliance. This will unduly delay the investigation. Thus the Commission is of the view that merely because of sending reminders by the DG, the violation does not get condoned. 20. The Commission has once again considered the provisions of section 43 of the Act, which is reproduced below, in the context of the observations of the Hon'ble COMPAT: Penalty for failure to comply with directions of Commission and Director General [43. If any person fails to comply, without reasonable cause, with a direction given by - (a) the Commission under sub-sections (2) and (4) of section 36; or (b) the Director General while exercising powers referred to in subsection (2) of section 41 such person shall be punishable with fine which may extend to rupees one lakh for each day during which such failure continues subject to a maximum of rupees one crore, as may be determined by the Commission] 21. The above provision provides for penalty "for each day during which such failure continues''. This construction of the said provision indicates that the Act also recognizes the fact that the concerned party may comply with the directions of the Commission after the last date by which compliance is due, which in other words could be called "belated compliance", Having recognized this, the section then provides for penalty for each day during which such failure continues, which means that this period is treated as the period for which there is "failure to comply'"' on the part of the party. As such, the period of non-compliance and the delay in compliance both amount to the same thing as far as computation of period for levying penalty for each day is concerned. 22. The next important issue is whether the party had a reasonable cause for non- compliance, and how the acts of commission and omission of the party are to be
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interpreted for arriving at the date from which noncompliance commences. The entire period of non-compliance, as mentioned in Commission's order dated 21.10.2010 may be divided in two parts in the light of the tabular statement given in para 17 above:- (A) The Period from 18.8.2009 to 14.4.2010, and (B) The Period from 15.4.2010 to 28.9.2010 (A) The Period from 18.8.2009 to 14.4.2010 As seen from the para 17, the party (Kingfisher Airlines) had been originally asked by DG vide notice dated 11.8.2009 to furnish the information by 17.8.2009. However, instead of complying with the directions, the party first chose in response to challenge the CCTs jurisdiction and then went in writ petition on 8.9.2009 before the Hon'ble High Court, Bombay. At that time CCI, decided to keep the investigation in abeyance till the judgement of Hon'ble High Court. After the dismissal of writ petition on 31.3.2010. the DG issued" another notice on 15.4.2010 to the party to furnish the requisite information. A "reasonable cause" as required under section 43 of the Act implies that there are causes which actually incapacitate the concerned party from furnishing the requisite information, because of circumstances beyond its control. Such a cause is to be submitted by the party before the Commission and demonstrated to be palpably reasonable. The Commission can take a view about such a cause being reasonable only on receiving a specific submission, and cannot presume it on the basis of some general statements. In this case, the only submission made by the party was initially that CCI had no jurisdiction, and later that they had filed a writ petition before the Hon'ble High Court, Bombay and the matter was subjudice. It was not claimed that the Hon'ble High Court had issued a stay order, nor was any interim order issued in fact. As such, the party failed to satisfy the "reasonable cause" requirement laid down under Section 43. However, there is one additional factor which caused certain ambiguity in the situation. As pointed out in para 17, CCI did decide to keep investigation in abeyance till the judgement of Hon'ble High Court., Bombay was received. This decision could have reasonably, even though unintentionally, caused the party to think that the Commission had indeed kept the DG notices in abeyance, and it was not required to furnish the information till the judgement in the writ petition. Since this judgement was delivered only on 31.3.2013 and no notice was issued by the DG till 14.4.2010, and keeping in view the observations of Hon'ble COMPAT. the Commission gives the benefit of doubt to the party and does not treat the period from 18.8.2009 to 14.4.2010 as a period of non-compliance. (B) The period from 15.4.2010 to 28.9.2010 The DG issued a notice on 15.4.2010 to the party to furnish the information by 5.5.2010. However, the party stated that it had filed a SLP before the Hon'ble Supreme Court and, therefore, it would not comply with the requirements of the notice. Subsequently, the DG issued 7 reminder notices to the party but the party chose not to comply. The SLP was filed on
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4.5.2010, and it was neither admitted nor was a stay granted by the Apex Court. As such, there was no reasonable cause for noncompliance in terms of the notice dated 15.4.2010 and subsequent 7 notices and the provisions of Section 43 of the Act. It is further noted that, unlike for the period upto 14.4.2010, there was no mitigating circumstances whatsoever. The party on its own chose to withdraw the SLP on 24.9.2010, and requisite information in compliance of notice dated 15.4.2010 was furnished on 27.9.2010. Conclusion 23. In view of the above, the Commission is of the view that Kingfisher Airlines had no 'reasonable cause' for non compliance from 5.5.2010 to 27.9.2010 and is consequently liable to levying of a penalty. The period of non compliance was 145 days. The maximum penalty prescribed under Section 43 of the Act is Rs.1 lakh for each day of default subject to a maximum of Rs. 1 crore. Keeping the facts of the case, and the... observations of Hon'ble Competition Appellate Tribunal in view, a penalty of Rs.50.000/- (Rupees Fifty Thousand only) per day totalling to Rs.72.50 lakhs is levied on Kingfisher Airlines Ltd. under Section 43 of the Act, within 60 days of the date of receipt of this Order. 24. Secretary is directed to send a copy of thus order to M/s Kingfisher Airlines Ltd. for compliance immediately. R. Prased, Member (dissenting) Order under Section 27 of the Act 25. I have gone through the majority order of the Commission in this matter. With great respect, I would like to record a dissenting order. In order to avoid repetition of facts and for the sake of brevity, I propose to restate the relevant facts only in brief and will refrain from narrating the details. I proceed to pass the order as follows: 2 6 . The relevant facts relating to the instant information may be summarized as under:- 26.1. The present information was filed by Mr. M.P. Mehrotra (the Informant) on 26.07.2009 under section 19(1) of the Competition Act, 2002 (the Act). The informant has alleged that in October, 2008 let Airways (India) Limited (opposite party No. 1/ Jet Airways) and Kingfisher Airlines Limited (opposite party No. 2/ Kingfisher Airlines) reached an agreement to relating to the following areas: i) Code- shares on both domestic and international flights subject to DGCA approval; ii) Interline/ special prorate agreements to leverage the joint network deploying 189 aircraft offering 927 domestic and 82 international flights daily; iii) Joint fuel management to reduce fuel expenses; iv) Common ground handling of the highest quality; v) Cross selling of flight inventories using the common Global Distribution system platform;
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vi) Joint network rationalization and synergies; vii) Cross utilization of crew on similar aircraft types and commonality of training as also of the technical resources, subject to DGCA approval; and viii) Reciprocity in Jet Privilege and King Club frequent flier programmes. 26.2 As per the information, the opposite party no. 1 controls around 31% of the total air passenger traffic and the opposite party No. 2 holds around 28%. It has been alleged that following the above-mentioned strategic alliance about 60% of the total air passengers and air transport services are controlled by the opposite parties Nos. 1 and 2 collectively. It has also been alleged that the opposite parties have a bulk of the market share as well as airport slots in the Indian market undermining the ability of other players to compete on a level playing field. 2 6 . 3 As per the information, the aforesaid alliance may result in cartelization/ monopoly and the joint network rationalization amounts to agreement to limit production and supply and agreement to allocate markets. It is further alleged that cross selling of flight inventories using common global distribution system platform and code shares on both domestic and international flights is an exclusive supply/ distribution arrangement that may have an appreciable adverse impact on competition. 2 6 . 4 The informant has further submitted that as per the information provided on the websites of the airlines, opposite party no. 1 currently operates a fleet of 85 aircraft and opposite party No. 2 currently operates a fleet of 73 aircraft. Accordingly, the opposite parties collectively operate a total of 158 aircraft which is 11 aircraft more than the State owned carrier viz., Air India. It is alleged that owing to the collective operations, the opposite parties have a bulk of the market share as well as a bulk of the airport slots placing them in a dominant position and undermining the ability of other players to compete on a level playing felid. It may be mentioned that the numbers and figures reproduced at paras 2.2 and 2.4 refer to the time of filing of the information. 26.5 The information states that the fuel surcharge is charged at a fixed rate irrespective of distance and while in June 2009, the opposite parties increased fuel surcharge by Rs. 400 on all domestic sectors attributing the same to an increase in aviation fuel prices, the decrease in fuel prices later were not accompanied by decrease in the fuel surcharge rates. 26.6 It has been further alleged that the dominant position held by cartel of the opposite parties allows them float schemes such as ticket booklets i.e. multiple tickets at cheaper prices and reciprocity in their frequent flier- programmes. The informant has alleged that the alliance of opposite parties, who are jointly controlling 60% of the market share for commercial air transport services in India are clearly acting in concert to fix prices and limiting/ controlling supply through route rationalization in violation of section 3 of the Act.
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26.7 It has also been alleged that other airlines not enjoying a dominant position are not able to offer such schemes and suffer in comparison. The informant has alleged that this abuse of dominant position is allowing the cartel of the opposite parties to increase their dominant position even further, squeezing out the smaller players and acting as severe disincentive for new entrants in the market. 26.8 The informant has attached various news paper reports and extracts from the websites of the opposite parties to support his submissions. The informant has stated that the information has been filed for the benefit of the consumers whose interest is being affected by the alleged cartelized behavior of the opposite parties. It is further submitted that the alleged abuse of dominant position by the opposite parties is also causing appreciable adverse effect on fair competition. 26.9 The informant as inter alia sought the following reliefs: a) To institute an inquiry against the opposite parties' and direct the Director General (DG) to carry out an investigation into the cartel like behaviour of the opposite parties; b) Direct the opposite parties to discontinue and not to re-enter such cartel like agreements; c) Pass an order declaring the agreement between the opposite parties null and void for being anti-competitive; d) Impose the maximum penalty permissible under section 27 of the Act upon each opposite party for indulging in cartelization. 27. The Commission, on examining the matter, was of the opinion that there exists a prima facie case in the present matter and passed an order under section 26(1) of the Act directing the (DG) to cause an investigation to. be made into the matter. 28. The DG submitted his report dated 10.11.2010 to the Commission. In his report the DG has examined in details the allegations relating to section 3 of the Act. The same are discussed and analyzed below: 28.1 As per the report of the DG, the market in India is fairly concentrated and an understanding between the two opposite parties would help them command around 48% of the market share and the next competitor i.e. NACIL would be far behind at 18.3%. The DG has opined that, in view of the above market dynamics, any agreement or understanding or even intention or decision to reach an understanding would have an adverse effect on competition. 28.2. The DG has noted that the opposite parties issued a Joint Announcement under the signature of their respective Chairmen and MDs on 13.10.2008 (the Joint Statement) in which they declared their joint intent to conclude their alliance that will help both carriers to significantly rationalize and reduce costs and provide improved standards of service and a wider choice of air travel options to consumers with immediate effect. As per the Joint Statement the scope of the alliance includes the areas (i) to (viii) as detailed in the information and mentioned at Para 2.1 above
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28.3 In the report the DG has concluded that there was an understanding between the opposite parties. To substantiate this above conclusion, the DG has quoted and relied on the below statements of Mr. Naresh Goyal, the Chairman of opposite party no. 1 and Mr. Vijay Mallya, the Chairman of the opposite party No. 2. ...the Jet Airways Kingfisher alliance represents a completely new industrial model for aviation in India which would be based on an unprecedented depth of cooperation between the two companies. There will be huge cost savings and revenue enhancement opportunities arising from this alliance Mr. Naresh Goyal This is quantum leap forward in the evolution of Indian aviation which will benefit customers by delivering the most comprehensive integration in the industry. Both Jet and Kingfisher fully realize that better understanding of supply and demand in this capital and labour intensive industry is the key to profitability and enhancement of shareholder value. Mr. Vijay Mallya 28.4 In this regard, the DG has also relied on the press brief issued by Mr. Mallya which is reproduced below: Dear Friends, The fundamentals for air transport in India remain sound. Our economic growth at a rate or more than 7.5% bears testimony to the fact that the prospect for air transport will also grow in the future. However, over the past six months, the Indian aviation industry has suffered due to high fuel prices back breaking taxation, excessive airport charges and over-capacity. Acquisitions, mergers and alliances are common worldwide which lead to consolidation " and significant improvement in financial performances. Recognizing the benefits that strong alliances bring, I am delighted to announce our partnership with Jet airways thus bringing together two of India's largest carriers with innumerable benefits in terms of cost savings, revenue improvement and an unprecedented network. I am pleased to attach the joint press statement issued by Naresh Goyal and myself. I look forward to your continued support and cooperation. Vijay Mallya Chairman & CEO Kingfisher Airlines Limited 28.5 Further, it is noted from the report of the DG that no material was made available by the opposite parties to show that the strategic alliance announced in October, 2008 between them was rescinded. In view of the above the DG has concluded that the agreement between the opposite parties continues to subsist and remains intact. Moreover, there is no denial to the
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effect that other clauses of the alliance would not be brought in force in the future. 28.6 The DG has also noted in the report that the intention of the alliance between the opposite parties was rationalization of network i.e. reduction of routes along which the two airlines viz., the opposite parties would operate. In this regard the DG has recorded the statement of Mr. Saroj K Dutta, Executive Director of opposite party no. 1 who stated that the opposite parties expect that the code sharing pact to bring in more passenger traffic to both viz., Jet Airways and Kingfisher Airlines i.e. the opposite parties. The relevant excerpts are reproduced below: ... It is an announcement of intent to reach some kind of agreement. There was a joint press announcement issued on 13.10.2008.... ... There is no alliance agreement. At working level, there are normal airline agreements like inter-line agreements, special re-protection agreements. At technical level, we have an MoU to loan to each other technical staff and equipments, if required at the airports. These arrangements are also with other airlines. ... The proposed agreement was just an intention.... There was an intent when joint announcement was made. 28.7 The DG has noted that some if not all the clauses of the alliance have been operationalised. In this regard the DG has found that after the announcement on alliance on October 13, 2008 there have been meetings and also a technical MoU was signed in May 2009 to provide technical support on line stations. This MoU was also subsequently amended in October 2009. The agreements like interline traffic agreements, interline e- ticketing (IET) agreement, and special re-protection agreements entered into after the announcements are also in force as on date. 2 8 .8 In the report, the DG has noted that the agreements between the opposite parties talk about settlement on revenues based upon published and unpublished fares and are statements of commercial, intent of the two airlines. 28.9 The DG has from the investigation gathered that there was a joint call from Federation of Indian Airlines to call for strike on August 18, 2009. The opposite parties were also part of this strike call and the respective chairmen of the opposite parties together made a joint announcement calling for a one day suspension of flights. 28.10 A study was commissioned by the Commission on Competition Issues in the Domestic Segment of the Air Transport Sector in India which was carried out by the Administrative Staff College of India, Hyderabad. As per
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the study has inter an analysis of market shares in terms of slots shows that the opposite parties are controlling a major share of slots as well as control of slots in the peak period. Further, the study states that an analysis of the slots on the Delhi-Mumbai route for 2008 shows that out of a total of 58 slots the opposite parties had 30 slots and out of the 15 peak time slots, the opposite parties had 8 slots. 28.11 The DG has noted that a media presentation made by opposite party No. 2 in October 2008 brings out that industry consolidation would be driven through exit of fringe players and rational capacity addition linked to demand by existing players in the near term....Kingfisher and Jet Airways have announce an agreement to form a alliance of wide ranging proportions that will help both carriers to significantly rationalize and reduce costs by offering a unique high product-quality, with improved standards of service to its consumers....Further consolidation would result in exit of fringe players; rational capacity addition and viable pricing. 28.12 In the report, the DG has also highlighted the below excerpts of. Mr. Mallya's statements in a press interview reported on October 22, 2008: We are not going to unnecessarily deploy capacity which we cannot fill...if in non-peak hours Jet flight is not full and Kingfisher flight is not full, it makes sense for us to co-operate and fly one aircraft instead of two. (With this) the economics of airlines will improve substantially. He also said the two private carriers would co-operate on international routes, "The world is big enough. We have enough routes to operate without clashing with anyone unnecessarily, 28.13 In the report of the DG, it is also stated that there is a high degree of price parallelism between the opposite parties. The DG has compared the prices of the tickets of the opposite parties on particular routes to the fares charged by Air India on the same route on the same day. From the above comparison, it is clear that the amounts charged by both the opposite parties were the same and were higher than the corresponding fares charged by Air India. The study carried out by the administrative staff college of India, Hyderabad has also noted that a high degree of price parallelism in the opposite parties' flights has also been seen. 28.14 As per the report of the DG, the scope of the alliance between the opposite parties, the joint network rationalization amounts to an agreement to limit production and supply and to allocate markets. The DG examined the annual report of OP2 and found that 05 Airbus 320, 04 ATR 42 and 01 ATR 72 aircrafts were withdrawn from a service by OP2. This resulted in 17% drop in capacity in the financial year 2009 but the total passenger carried decreased by only 2%. In the financial, year 2011 Kingfisher showed 22% growth and a 12% increase in load factor. The domestic revenues increased despite the reduction in number of seats. In fact Shri Vijaya Malya in a statement We are not going to unnecessarily deploy capacity which we cannot fill... if in non-peak hours Jet flight is not full and Kingfisher flight is not full, it makes sense for us to co-operate and fly one aircraft
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instead of two. (With this) the economics of airlines will improve substantially. The DG also found that Jet Airways had also resorted to a reduction in capacity. In fact in May 2009, OP1 wanted to reduce domestic capacity by 10% within a month. This was over and above the 20% capacity reduction that OP1 had carried out in November 2008 to May 2009. The DG found that though there was a reduction in capacity the profitability of OP1 and OP2 had increased. The DG therefore came to the conclusion that if one took a look at the scope of the airlines to join the network rationalization it amounted to an agreement to limit and restrict supply in the market. Further, the alliance is also in a position to determine price patterns as reflected in the high degree of price parallelism between the two opposite parties. Though it was claimed by both OP1 and OP2 that the alliance was entered in to decrease costs and enhance efficiency, the objective was to cut down supply and increase revenue. The DG also considered the factors mentioned in this Section 19(3) of the Competition Act and found that the factors mentioned that were applicable to the facts of this case. Accordingly, as per the DG the alliance in question is anti-competitive in terms of section 3(3)(a) and 3(3)(b) of the Act and hence in contravention of section 3 of the Act. The DG has further observed that even a decision to enter into such an alliance is violative of the provisions of section 3 of the Act. 2 9 . The opposite party no. 1 submitted their, reply/ preliminary objections and detailed comments/ objections to the DG and the Commission and a brief summary of the same is given below: 29.1 In its reply dated 25.08.2009, the opposite party no. 1 has submitted that Jet Airways and Kingfisher Airlines have not signed any agreement(s) in respect of the proposed co-operation between the two airlines. The opposite party no. 1 has further submitted that on October 13, 2008 the opposite parties announced that they had agreed to an alliance that will help both carriers to significantly rationalize and reduce costs and provide improved standards of service to the traveling public. The opposite party No. 1 has stated that the above announcement had also clearly indicated that the two airlines did not have any intention of becoming a group and continue to functions as separate and independent business entities. 29.2 The opposite party No. 1 has submitted that in light if the critical state of the aviation sector at that time, it was imperative for all the operators to investigate possibilities of reducing costs and achieving economies by higher degree of cooperation and better utilization, of joint resources and higher productivity. 29.3.. The opposite party no. 1 in its reply has submitted that no formal alliance agreement has been concluded by the opposite parties except the interline agreement' which is fairly standard airline agreement concluded by most airlines throughout the aviation- industry worldwide in order to facilitate passengers travel particularly on routes/ sectors not operated by either party as also in the event of disruption of services or cancellation of flights for technical, commercial, weather or reasons beyond the control of the operators. The opposite party No. 1. in its, reply has, also denied the allegations relating to taking measures which could result in an appreciable adverse impact on completion or cartelization and have submitted that there is no violation of any provisions of the Act.
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29.4 In its reply dated 03.12.2009 the opposite party no. 1 has reiterated the submissions made in earlier reply and stated that the information is wholly misconceived, based on inferences and surmises and/ or speculative and is liable to be dismissed. With respect to the interline agreement, the opposite party no. 1 has submitted that the interline agreement between the opposite parties which has been put into effect is a voluntary commercial agreement between individual airlines. 29.5 In its reply dated 27.09.2010 the opposite party no. 1 has argued that Section 3 of the Act applies only to agreements entered into after the relevant provisions of the Act came into force i.e 20.05.2009. The opposite party No. 1 has further argued that arguendo the provisions of the Act apply to agreements entered into a prior to 20.5.2009 the provisions of the Act can be applied to only such agreements which will continue to operate after the abovementioned effective date. 29.6 The opposite party No. 1 has once again stated that there is no alliance agreement at all in place between the opposite parties save, and accept the interline agreements which enables the passengers to seamlessly use different service providers. The opposite party has submitted that it has a similar interline agreement with Air. India.. It is submitted by the opposite party that Jet Airways and Kingfisher Airlines are in fierce competition and offering full service flights as well as in low fare services to the consumers. And each of them is promoting in competition to the other the level and quality of the services to increase its own respective market share and this is done by making more, and more facilities available to its customers both at ground level and in flight. At the time of downturn in the market and considering severe constraint on financial as well as on physical resources the two airlines had discussions so as to avoid or mitigate the wastage of resources. It is submitted that the discussions between the two had up to an extent been fruitful but no final conclusion could be reached, It is submitted that as it is inevitable airlines strain to stagger flights in a manner as would give them higher and higher capacity. This is not an anti-competitive practice but simply a matter of a sensible and prudent management of resources. There is no any covert or overt agreement between the competitor airlines. 29.7 This arrangement is more in the nature of passenger-facility and it is completely at the option and will of the passenger to avail of the facility, if so desired. Respondent has entered into multilateral interline traffic agreement with Respondent No. 2. This agreement forms the pre-requisite for any subsequent interline relationship. Besides Respondent No. 2, the Answering Respondent has MITA agreements with more than 140 IATA approved carriers (airlines) across the world, including Air India/India Airlines. It is general commercial practice prevailing in aviation industry, which ultimately benefits the passengers. The said interline agreements between the Respondent airlines, does not in any manner adversely affect the competition with each other in the industry. The consumers availing of the services of the Answering Respondent or the Respondent No. 2 are not in any way precluded from/ availing of the services of similarly situated service providers. None of the Respondents control the price of the air tickets or any part of the market. It is denied that the said interline agreements are/or amounts to any cartel or any cartel-like behavior. Respondent has not sought to impose any unfair or discriminatory conditions on the passengers as
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alleged or otherwise, while availing of the services of the Answering Respondent. 29.8 The opposite Party no. 1 in its reply dated 15.2.2011 to the report of the DG has stated that public announcement of alliance can never be construed as decision taken under section 3 (3) of the Competition Act. In absence of any concluded agreement/contract and or any conclusive decision to implement any alliance, it is not just, proper or appropriate to even suggest that Jet Airways and Kingfisher Airlines are acting in concern and thereby affecting competition adversely. It further submitted that DG has misconstrued that many of the clauses of the alliance have been operationalized and or are still in operation. The alliance as mentioned in the announcement dated 13.10.2008 has not been put into effect at all in respect of any of the aspects or scope of the proposed alliance. Hence the question of rescinding an alliance which never came into existence in the first place does not arise at all. Only certain arrangements or agreements common in the Airlines industry have been entered into which have nothing to do with the announcement. Thus alliance per say cannot be termed violating of provisions of section 3 (3) of the Act. 29.9 The opposite party no. 1 has submitted that the conclusion of the DG that if not all, some of the clauses of the alliance announced on 30.10.2008. viz. interline agreement and special re-protection agreement, have been operationalized is erroneous. The opposite Party No. 1 has further submitted that the DG's conclusion that such interline agreements are voilative of the provisions of the Act is also erroneous for the following reasons: i. Multilateral interline traffic agreement (MITA); say this agreement is a voluntary commercial agreement between individual airlines to handle passengers travelling on itineraries that require multiple airlines and is made between two carriers operating schedule air transportation services, who desire to enter into arrangements under which each party may sell transportation over the rules of the other Carrier. The opposite party no. 1 has submitted that it has entered into MITA with almost 140 IAT approved airlines across the world including kingfisher airlines and Air India. ii. Interline Electronic ticketing (IET): The opposite party no. 1 has submitted that this agreement has primarily of technical nature to facilitate issuance of interline E-ticket documents and does not involve per say any commercial or financial benefits for the opposite parties. The opposite Party no. 1 has further submitted that beside opposite party No. 2, it has IET agreements with more than 80 IAT approved carriers across the world. iii. Special Re-protection agreement: This is a bilateral agreement between the carriers who operate similar routes to protect their passengers in case of any disruption in operating carrier schedules due to flight cancellation, delay or re-timing of the flights. The opposite party no. 1 has submitted that apart from Kingfisher Airlines it has entered into similar agreements with more than 28 carriers including Air India
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iv. Technical MOU: The opposite party No. 1 has submitted that it is memorandum of understanding signed between two airlines to provide technical services to each other at certain line stations and that prior to the said MoU with Kingfisher Airlines the opposite party no. 1 has a similar arrangement with Air India. 29.10 The opposite party no. 1 has argued that the above makes it amply clear that such agreements area common industry-practice and have nothing to do with the press announcement relating to the alleged alliance. The opposite party no. 1 has submitted that Jet Airways and Kingfisher Airlines are operating totally independently and continue to compete in the market and pursue their own respective policies and strategies with the sole aim of offering seamless and quality service to its. respective passengers. The opposite party no. 1 has submitted that conclusions have been drawn by the DG that there are serious competition concerns is not only imaginary and farfetched but also incorrect. 29.11 As regards the allegations of price parallelism the opposite party no. 1 has submitted that the opposite parties compete vigorously in several domestic sectors. The opposite party no. 1 has submitted that Jet airways and Kingfisher Airlines files their fares through Airlines Tariff Publishing Company (ATPCo) which in turn, distributes the fares to various Global Distribution System and within a matter of hours the fares become transparent to the outside world. The opposite party No. 1 has submitted that it constantly watches its competitors" actions through ATPCo and takes a call on its own fares. In this regard the opposite party no. 1 has also submitted that the fare that is 'actually' offered to the customer at a particular point in time for the flight of choice is determined by seat availability which is managed by the opposite party No. 1. computerized Revenue Management systems. The opposite party No. 1. Has argues that in light of the above factual explanation, the close-to identical match of fares of the tickets of the opposite parties cannot be said to be price parallelism as sought to be shown in the report of the DG. 3 0 . The opposite party No. 2 submitted their reply/ preliminary objections and detailed comments/ objections to the DG and the Commission. A brier summary of the same is as under: 30.1 The opposite party No. 2 in its reply dated 25.8.2009 has argued that since the information received by the Commission is with regard to an agreement alleged to have been reached amongst the opposite parties in October 2008, the Commission has no jurisdiction or authority to investigate into matters prior to 20.5.2009 i.e. the date on which sections 3 and 4 of the Act were notified. The opposite party No. 2 has further submitted that neither section 3 nor section 4 of the Act has retrospective effect and there cannot be any retrospective effect given the penal consequences of fine and imprisonment prescribed by the provision of the Act. 30.2 The opposite party No. 2 has also argued that in light of provisions of section 66 of the Act, the Commission has no jurisdiction or authority under the Act in the present matter given that the monopolies and restrictive trade practices Commission (MRTPC) under the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) is seized of an enquiry in respect of the same
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alleged agreement of 2008 in No. UTP Enquiry No. 172 of 2008 Director General of Investigation and Registration v. Jet Airways (India) Ltd. and Kingfisher Airlines Ltd. 30.3 The opposite Party No. 2 has requested that in light of the facts and circumstances as stated in its reply above, the notice sent to the opposite party be withdrawn and the Commission not take any cognizance of the information. 31. After considering the. entire relevant material on record including the report of the DG, and the submissions, of the parties; the main point for determination before the commission is: Whether the opposite parties have violated the provisions of section 3 of the Act. 3 1 .1 Section 3 of the Act which deals with anti-competitive agreements reads as follows: 3 . (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. 31.2 An agreement for the purposes of the Competition Act is defined very widely and is not limited to the conventional understanding of the term 'agreement'. Section 2(b) of the Act defines an agreement to include any arrangement or understanding or action in concert,-- (i) Whether or not, such arrangement; understanding or action is formal or in writing; or (ii) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings; 31.3 Section 3 covers agreements, as defined under the Act, which cause or are likely to cause appreciable adverse effect on competition in India. It is pertinent to note that the agreement need not have taken effect or have been operationalising for the provisions of section 3 of the Act to apply. Further, section 3(3) which deals with horizontal arrangements covers not only agreements, as defined in the Act, but also practice carried on, or decision taken by, including cartels, enterprises engaged in similar trade of goods or provision of services. It is clear that the legislative intent was to ensure that all types of arrangements, understanding, actions in concert by enterprises engaged in similar trade of goods or provision of services would be covered by this provision. 3 1 .4 It was submitted by the opposite parties that the alliance did not materialize, except for some arrangements like inter-line agreement and special prorate agreement. However, their conduct and submissions in this regard have been inconsistent. Before the Monopolies and Restrictive Trade Practices Commission (the MRTPC) the opposite parties argued that no aspect of the proposed alliance has been given effect. On this basis the MRTPC
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passed its order dated 04.09.2009 holding that the alliance between the opposite parties had not come into existence and therefore the apprehensions raised by the DG cannot be taken into consideration. Accordingly the MRTPC closed the matter. However, before the Hon'ble High Court of Bombay the opposite parties argued that the Commission would have no jurisdiction since the matter was pending at the MRTPC and given that the agreement was made prior to the enactment of the Act, the, provisions of which do not have retrospective effect, the same would not apply to the agreement. The opposite parties then went on to submit before the DG and the Commission that the proposed alliance had not been operationalised in its entirety and only certain interline agreements had been entered into between the opposite parties. It was further submitted that the above-mentioned interline agreements were very common in the national and international aviation market and were not. anti-competitive in nature. In his statement, when examined by DG, Mr. Saroj Dutta of opposite party no. 1 has admitted that apart from the airline agreements like interline agreements, special re- protection agreements at a working level the opposite parties have also executed a Moll to loan each other technical staff and equipments, if required at the airports. The changing stands of the opposite parties and the inconsistent submissions before the various forums regarding the existing of the alliance/ agreement and extent of operationalisation of the agreement shows that the opposite parties have not come with clean hands. 31.5 It is also noted that while the alliance/ agreement was announced with grandeur, there was no public announcement or communication that the alliance has been revoked or rescinded. In view of the above, the DG has concluded that the decision and the intent of forging alliance on all lines as mentioned in the announcement dated 13.10.2008 still subsists and hence the agreement/ alliance in question continues to be in place. 31.6 It is also pertinent to mention the inherent contradictions in the Joint Statement which states that: ...the two airlines will be able to rationalize their operations and derive maximum synergies, and thereby offer the best possible fares for the benefit of the consumers.....The proposed alliance between Jet Airways and Kingfisher is in the national interest by incorporating the international best practice to strengthen the Indian aviation industry. 31.7 The Joint Statement quotes the Mr. Naresh Goyal, the Chairman of opposite party No. 1 stating: the Jet Airways Kingfisher alliance represents a completely new industrial model for aviation in India which would be based on an unprecedented depth of cooperation between the two companies There will be huge cost savings and revenue enhancement opportunities arising from this alliance. 31.8 Further, the Joint statement quotes and Mr. Vijay Mallya, the Chairman of the opposite party No. 2: This is quantum leap forward in the evolution of Indian aviation which will benefit customers by delivering the most comprehensive
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integration in the industry. Both Jet and Kingfisher fully realize that better understanding of supply and demand in this capital and labour intensive industry is the key to profitability and enhancement of shareholder value. 31.9 While the Joint Statement explicitly mentions that the proposed alliance is in the national interest, the statements of the Chairman of the opposite party no. 1 assert that the focus of the alliance is to save costs and revenue enhancement opportunities of the two companies. It is obvious that the alliance was aimed at benefiting the individual interest of two of the major private players in the aviation sector viz., the opposite parties and not in the national interest as claimed in the Joint Statement. That profitability was the underlying focus of the proposed alliance is also reinforced by the statement of the Chairman of the opposite party No. 2 which states that the alliance was owing to the realization of the both the opposite parties that the cooperation would help achieve profitability and enhance shareholder value. Mr. Dutta's statement to the DG also mentions that the prime focus of the alliance was cost reduction. 31.10 The Joint Statement by the opposite parties was nothing but a public announcement of their joint decision to execute the proposed alliance. It is evident that the opposite parties had already decided to cooperate with each other on various issues in their common business and the Joint Statement which was signed by their respective Chairmen and MDs was a written declaration of this agreement. Further, the fact that there was an agreement, as defined under the Act, between the two opposite parties is reinforced by the statement of Mr. Dutta provided in the report of the DG. 31.11 As mentioned earlier, for the purposes of the provisions of section 3 of the Act, it is not relevant whether the opposite parties executed further agreements in writing to operationalise the alliance. It is sufficient that the opposite parties decided to cooperate and coordinate with each other on the subject matter of the alliance. 31.12 As per section 3(3) any agreement, practice, or decision etc., which inter alia shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way is presumed to have an appreciable adverse effect on competition. 31.13 As per section 4 of Indian Evidence Act whenever it is directed that the court shall presume a fact, it shall regard such fact as proved unless and untill it is disproved. While section 3(3) contains the phrase 'shall presume' stating that in case there are horizontal agreements 7.14 within the meaning of that section, it shall be presumed that there is appreciable adverse effect on competition. Section 19(3) states that the Commission while determining whether an agreement has an appreciable adverse effect on competition under section 3, have due regard to all or any of the factors listed therein 31.15 However, if it is established that an agreements covered under section 3(3) of the Act (a) directly or indirectly determines purchase or sale prices; (b) limits or controls production, supply, markets, technical development, investment or provision of services; (c) shares the market or source of
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production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way; or (d) directly or indirectly results in bid rigging or collusive bidding, it will be presumed that the agreement has an appreciable adverse effect on competition and the onus shifts to the opposite parties to prove that this is not the case. 31.16 With respect to the effect and objective of the agreement between the opposite parties, it is significant to mention the DGs observation that the announcement of the proposed alliance coupled with the media coverage of the interactions between the Chairmen of the opposite parties including the pictures of them embracing each other created an impression all around that the two will now jointly operate in the market. 31.17 Further, as per the above statements of Mr. Goyal claiming that the alliance would be based on an unprecedented depth of cooperation and that of Mr. Vijay Mallya that the alliance will deliver the most comprehensive integration in the industry clearly indicate that the alliance would in effect allow them to operate-as one unit as far as the market and the customers are concerned allowing the opposite parties to share the market, customers and fix prices of the services and it is clear that the proposed alliance is more than likely to cause an appreciable adverse effect on the competition in sector. 31.18 The opposite parties could have resorted to measures independent of each other to reduce costs and improve efficiency. Coordinating with the immediate competitor for these purposes will not only impact the ordinary market dynamics but also enable them to distort the market in their favor. In the absence of such an alliance or an understanding to enter into such an agreement the opposite parties would have competed with each other as well as the other players in the market boosting the competition in the sector which would inter alia lead to the availability the best possible options to the consumers. However, instead of operating independently the opposite parties decided to coordinate with each other so as to share provision of services and number of customers. 31.19 The DG has also found that there is a high degree of price parallelism between the two airlines which is in contravention of section 3(3)(a) of the Act. Further, the conduct of the opposite parties of simultaneously increasing the fuel surcharge by Rs. 400 owing to the increase in the Air Turbine FUEL prices has also been examined by the DG. It is also important to note that while the opposite parties increased the fuel surcharge consequent to the rise in price of the air turbine fuel, neither opposite party reduced the fuel surcharge rates when there was a decrease in prices of the air turbine fuel. The conduct of the opposite parties in respect to the ticket prices and the increase in fuel surcharge appears to be actions in concert. 31.20 Further, the agreement between the opposite parties not only has the effect of foreclosing competition in the market but is also likely to create entry barriers in the sector for new players. 31.21 In view of the above, it is found that the opposite parties by entering into an agreement to execute an alliance as detailed in their Joint Statement
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have contravened the provisions of section 3 of the Act. 32.1 The informant had claimed violation of Section 4 of the Competition Act but the DG found that Section 4 would not be applicable in this case because there is no law against group dominance under the Indian Competition Act. The DG therefore did not examine as to whether the agreement entered into were hit by the provisions of Section 4 of the Act. Under Section 2(h) of the Competition Act an enterprise has been defined which includes a person. Section 2(1) defines a person and includes an association of persons or body of individuals whether incorporated or not in India or outside India. Agreement has been defined in Section 2(b) of the Act and it includes any arrangement or understanding or action in concert. In this case the agreement in question or the alliance which was announced means an agreement. When one person enters into an agreement with another person with some objective and it can be termed as an association of persons or body of individuals whether the AOP or BOI is incorporated or not. Therefore after the agreement the two airlines could be classified as an association of persons. Now under, Section 4 no enterprise can abuse its dominant position. An association of person is an enterprise and it can be held after the alliance /agreement that they constituted an AOP. 32.2 It has now to be decided whether there was an abuse of dominant position because this AOP of the two OPs controlled nearly 59% of the market. The first issue to be decided is whether the reduction in the number of seats limited or restricted provision of services. There is no doubt that provision of services has been reduced in the market which created a shortage of seats and therefore led to a price increase. The analysis by the DG shows that though the seat capacity had decreased the revenues of the airlines had gone up. Further issue to be decided is whether the claim of the two airlines that it increased the efficiency of the two airlines and the profitability was a reasonable ground to hold that the reduction in the number of seats was justified. There is no doubt that in August- September 2008 economic slowdown started all over the world. This was the primary reason for the alliance between OP1 and the OP2 so that the combined synergy could lead to better results for both the airlines but the fact is that to the consumer the availability of seats decreased and led to a higher price. There is no doubt that the airlines were under pressure but also there is no doubt that the consumers suffered due to the activities of the two airlines. The facts therefore clearly show that the AOP of the OPs had contravened the provisions of Section 4(b)(i) of the Competition Act. 32.3 The next issue to be considered is the issue of fuel surcharge. Fuel surcharge is levied when the fuel prices increase but they should also decrease when the prices come down. It has been observed that the fuel surcharge levied by OP1 & OP2 was not decreased when the fuel prices came down. Both the OPs stated that it is an industry practice and they were not at fault and they should not be singled out when the entire industry is following this practice. Further fuel prices: should be linked to the kilometers covered and cannot be the same for all the routes where the rates are different. This cannot be a plea because if someone commits an error it does not been mean that everyone should commit the same error especially when OP1 & OP2 were the major players in the airline sector in India. This is an unfair condition of service and both OP1 & OP2 who form an AOP are guilty of this unfair condition. Thus, the provisions of Section 4(2)(a)(1) of the Act are contravened. 32.4 While determining abuse of dominance the factors mentioned in Section 19(4) have to be examined by the Commission. In this case the market share of OP1 & OP2 together amounts to 59%. As OP1 & OP2 has come together by an alliance, I have
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already held that they constitute an AOP and for this reason the market share, size and resources of the said enterprise and the economic power of the enterprise are extremely high. Therefore clauses (a) (b) and (d) of Section 19(4) are attracted in this case. The dominance is created by the AOP by pooling of the resources of OP1 & OP2 and therefore it would be hit by the item 'otherwise' mentioned in clause (g) of Section 19(4). The joint venture which is in AOP would have countervailing buying power and would be in a position to act independently in the market. Therefore many of the factors mentioned in 19(4) are applicable to the facts of this case. 32.5 The issue is as to whether the coming together of OP1 &. OP2 would be a joint venture or not. Joint venture can also be formed by creating third entity known as a Special Purpose Vehicles (SPV). Joint venture can also be formed by pooling of resources and in this case by the agreement in October 2008, this is what was proposed. Both OP1 & OP2 have been in operation for the number of years. It is not clear as to why the interline/special prorate agreements were not entered into by this two airlines at an earlier date. Joint full management, common ground handling selling of flight inventories and joint network rationalisation and synergies lead to a conclusion that the entire idea was to create a colossus so that the other operators in the airline industry would not be in a position to match them. There is no doubt that many of these agreements are normal and the airlines enter into them for efficiency and consumer service. But by bringing these very items in the alliance in October 2008 the idea was to have a synergized entity which would be profitable both for OP1 & OP2 and in that case both OP1 & OP2 would have profited. In the consequence the competitors and the consumers would have suffered. 33.1 To sum up violation of Sections 3(3)(a) and 3(3)(b) of the Act as well as that of Sections 4(2)(a)(1) and 4(2)(b)(1) are found to be contravened. 33.2 As violation of different sections of the Competition Act have been found in this alliance between OP1 & OP2 and as the said agreements could lead to likely appreciable adverse effect on competition, the agreements have to be held as anti competitive in terms of Section 3(1) of the Competition Act. Therefore the agreement, though not acted upon as stated by the both OP1 & OP2, have not been abrogated. The agreement has to be held as void in view of Section 3(2) of the Competition Act. The DG has demonstrated that by cutting down supply and increasing fares the consumers have been put to a harm/loss and therefore their economic surplus would decrease. For this reason as well as the reasons as already discussed above the alliance caused an appreciable adverse effect within India. Therefore as already held Section 3(1) and 3 (2) are also applicable. 34.1 In accordance with the provision of Section 27 of the Act OP1 & OP2 were directed to discontinue the alliance in accordance with Section 27(a) of the Act. As far as interline drafted agreement, interline electronic ticketing, special protection agreement and technical MOU are concerned OP1 & OP2 can enter into these agreements again provided this does not put them in a position where they can act independently of the market, the competitors and the consumers. 3 4 .2 As far as fuel surcharge is concerned, it has already been held that the behaviour of both OP1 & OP2 is anti-competitive. Therefore OP1 & OP2 are directed to increase / decrease the fuel surcharge as and when fuel prices go up and come down. 34.3 OP1 & OP2 consider increasing the seat capacity on the different routes and
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they should also compete against each other subject to the fact that they are able to operate with viable capacity. 34.4 OP1 & OP2 should inform the Commission regarding the action taken by them on the directions given, within three months of this order. The Secretary should serve this order on the OP1 & OP2 and enforce compliance to the directions given. 35. The present case relates to the alleged anti-competitive alliance between the two major passenger airline operators in India i.e. Jet Airways (India) Ltd. (hereinafter referred to as "OP1") and Airlines Ltd. (hereinafter referred to as "OP 2"). 36. The information in this regard has been submitted to the Commission by Mr. M.P. Mehrotra (hereinafter referred to as "Informant") under Section 19 of the Competition Act, 2002 (hereinafter referred to as "the Act") on 26.07.2009. 37. The facts and allegations as stated in the information, in brief, are as under: 37.1 It has been stated that after year 2005, consolidation of players in the airline industry has taken place. Firstly, Jet Airways acquired Air Sahara and re-branded it as Jet Line. Then Kingfisher merged with Air Deccan and re- branded it as Kingfisher Red. 3 7 . 2 The informant has submitted that in the passenger air transport services market in India, the OP 1 and OP 2 are two dominant enterprises. In terms of air passenger traffic, the share of OP 1 is around 31 percent and that of OP 2 is around 28 percent and therefore, collectively both the Opposite Parties are holding majority of the market share in air passenger traffic in India. Further, Jet Airways operates a fleet of 85 aircrafts whereas Kingfisher operates a fleet of 73 aircrafts, taking their collective strength to 158 aircrafts. Thus, Jet and Kingfisher have a bulk of the market share as well as airport slots which confers a dominant position upon them, undermining ability of other players to compete on a level playing field. 37.3 The informant has alleged that being the two dominant enterprises in the aviation industry in India, OP 1 and OP 2 have entered into a strategic alliance/arrangement with regard to various components/areas of passenger air transport services on 13.10.2008 which is anti-competitive as per the provisions of section 3 of the Act. 3 7 .4 As per the averments of the informant the said strategic alliance / agreement between OP 1 and OP 2 was reached on the following issues/ areas: a) Code-sharing on both domestic and international flights. b) Interline/special prorate agreements to leverage the joint network deploying aircrafts covering both domestic and international flights. c) Joint fuel management. d) Common ground handling. e) Cross selling of flight inventories using the common global system
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platform. f) Joint network rationalization and synergies. g) Cross-utilization of crew on similar aircraft types and commonality of training as also of the technical resources. h) Reciprocity in Jet Privilege and King Club frequent flier programmes. 37.5 It has been alleged that through the strategic alliance, the two airlines have worked out a joint network and route rationalization plan which amounts to agreement to limit supply and allocate market of passenger air transport services in India in violation of provisions of section 3 of the Act. Further, cross selling of flight inventories using common global distribution system platform and code sharing on both domestic and international flights is an exclusive supply/distribution arrangement between the Opposite Parties which may have an appreciable adverse effect on competition. 37.6 It has been further alleged that, in June 2009, both OP 1 and OP 2 simultaneously increased the fuel surcharge by Rs. 400 per ticket on all domestic sectors, irrespective of distances on the pretext of escalation in aviation fuel prices. But, they did not lower the fuel surcharge when fuel prices receded. It shows that on one hand the Opposite Parties shifted the cost of increase in aviation fuel prices to the passengers but on other hand the benefit of decrease in aviation fuel prices was not transferred to the passengers which is clearly unfair. 37.7 It has been also alleged that the dominant position held by Opposite Parties enables them to float schemes such as ticket booklets (multiple tickets at cheaper prices) and reciprocity in Jet Privilege and King Club frequent flyer programme, etc. Other airlines not enjoying such a dominant position are not able to offer such schemes and suffer in comparison. Such schemes have been floated by the opposite parties with the intention to wipe out the competitors from the market. 38. The Commission considered this information in its meeting held on 04.08.2009. After considering the matter in the light of facts and circumstances obtaining in this case, the Commission formed an opinion that there exist a prima facie case in the matter and directed the Director General (hereinafter referred to as "DG") under Section 26 (1) of the Act, to cause an investigation into the matter. Accordingly, on 07.08.2009, DG was directed to conduct an investigation and submit his investigation report to the Commission within 45 days of receipt of the order. 39. Summary of DG Investigation The DG submitted his investigation report to the Commission on 10.11.2010 in accordance with the provisions of Section 26 (3) of the Act. The gist of the DG report is as follows: 39.1 The DG framed following issues for the purpose of investigation in the matter: i. Whether OP 1 and OP 2 have abused their dominant position?
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ii. Whether the alleged agreement/alliance reached between OP 1 and OP 2 is violative of the provisions of section 3 of the Act? 39.2 During the course of investigation in this matter the DG sought replies from the Opposite Parties and has also taken into account the information and material furnished by the informant to the Commission. The DG also recorded the statement of Shri Saroj K. Dutta, Executive Director of Jet Airways and has also placed reliance on joint statement issued by Shri Naresh Goyal, Chairman of Jet Airways as well as Dr. Vijay Mallya, Chairman, Kingfisher Airlines on 13th October, 2008 in addition to separate press briefing issued by Dr. Mallya in respect of announcement of agreement for the formation of an alliance. Besides, the DG has also taken into consideration findings of the study conducted by the Administrative Staff College of India, Hyderabad on "Competition Issues in the Domestic Segment of the Air Transport Sector in India". 39.3 Reply filed by Jet Airways (India) Ltd before DG 39.3.1 In response to the notice of DG, the Jet Airways denied that it had signed any agreement(s) with OP 2 on 13th October, 2008. It had contended that the announcement made by it with OP 2 on 13th October, 2008 did not have any intention of forming a group, rather it was intended to help each other to rationalize and reduce the costs and to provide improved standard of services to the passengers. Both the OP 1 and OP 2 continued to function as separate and independent business entities even after the said announcement. The two airlines only issued a joint press announcement in which they declared their intent to conclude an alliance to enhance their commercial and operational co-operation. 5.3.2 It was further submitted that neither any formal agreement nor any informal agreement was signed between OP 1 and OP 2 in respect of any matters that contravene the provisions of the Act. The exception was in respect of the allegations relating to 'Interline Agreement' which is a fairly standard airline agreement between most of the airline operators throughout the aviation industry worldwide. The 'Interline Agreement' between the airlines is signed in order to facilitate passengers' travel, particularly on routes/sectors not operated by either parties and in the event of disruption of services or cancellation of flights for technical, commercial, weather or other reasons beyond the control of the operators. The OP 1 and OP 2 have also concluded arrangements for 'E- ticketing facility' and 'Thorough Check in' of passengers between their connecting flights which do not involve any competition issues. 39.3.3 It was also submitted that aviation industry in India has been passing through an extremely critical phase since the latter half of 2007 because of the global financial and economic meltdown. This financial crisis resulted in rise in Aviation Turbine Fuel (hereinafter referred to as 'ATF') prices, increase in the price of crude oil and severe decline in air passenger travel both on international and domestic routes. In that difficult situation, any technical alliance between OP 1 and OP 2 to save each other from going out of business is not an anti- competitive activity. It was also contended by OP 1 that the two airlines have not taken any measures which could result in an appreciable adverse affect on competition or result in cartelization as per the provisions of the Act.
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39.3.4 OP 1 also submitted that there are no records or minutes of any meetings that might have been held between Shri Naresh Goyal, Chairman, Jet Airways (India) Ltd. and Shri Vijay Mallya, Chairman, Kingfisher Airlines Ltd. on this issue either prior to or since October, 2008. There has been no consolidation of operations of airlines of OP 1 and OP 2. As on date, OP 1 has a total of 107 aircrafts (84 aircrafts belonging to Jet Airways and 23 belonging to Jet Lite). 39.3.5 It was further submitted that, in terms of revenue, the combined market share of passengers carried by the Jet group i.e. Jet Airways and Jet Lite during January-July, 2009 was 24.7%. There is neither any reciprocity between the frequent flyer programmes of Jet Airways ('Jet Privilege') and Kingfisher airlines ('King Club') nor there is any code sharing on any sector between OP 1 and OP 2. 39.3.6 OP 1 also submitted that along with its wholly owned subsidiary Jet lite India Ltd. it was the largest domestic airline operator having around 26.2% market share during April-June, 2010. It is also the first Indian carrier to operate on international routes to and from India following the liberalization of international civil aviation policy in December, 2004/January, 2005 by the Government of India. As on 1st August, 2010, the OP 1 has combined flight strength of 113 and operates 516 flights daily. As on date, 7 out of 10 Boeing 777-300 ER aircraft have been leased out to foreign airlines due to the ongoing route restructuring and cost saving programmes undertaken by it. It carried 12.04 million passengers on its international and domestic services during the year 2009-10 which was 1108 million during the year 2008 - 09. 39.3.7 OP 1 had also taken a plea that the press announcement issued by the Chairmen of OP 1 and OP 2 on 13th October, 2008 was intended to work towards an alliance between the two airlines with the objective of joint fuel management to reduce fuel expenses. 39.3.8 OP 1 also submitted that till 15th August, 2010 many agreements were signed between OP 1 and many other airline operators world over which include: Multilateral Interline Traffic Agreements(MITA) with 144 operators, Bilateral Interline Traffic Agreements(BITA) arrangements with 13 operators, Interline Electronic Ticketing (IET arrangements) with 83 operators, Special Prorate Agreement with 86 operators, Special Re-protection Agreement (SRA) with 32 operators, Inter Airline Thorough Check in (IATCI) with 38 operators, Code sharing with 13 operators and entering into such agreements is globally accepted practice amongst the airlines. 39.4 Reply filed by Kingfisher Airlines Ltd. before DG 39.4.1 The Kingfisher Airlines Ltd. submitted that it has not formed any group with OP 1 as envisaged in the provisions of section 4 of the Act and therefore the question of joint abuse of dominant position does not arise. 39.4.2 Kingfisher also submitted that in October, 2008, when OP 1 and OP 2 announced the alliance, the global oil prices were at all time high and there was a worldwide recession resulting into 40% drop in the passenger traffic. Many airlines all over the world had gone out of business. Both the Opposite Parties at that time were also in deep financial crisis. Because of this they
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had decided to enter into an alliance/agreement with a view to save costs by rationalizing the use of certain common resource. 39.4.3 It has also submitted that the objective of the proposed alliance was only to enable the two airlines to significantly rationalize their operations and derive the maximum synergies and thereby to offer the best possible prices to the consumers. 39.4.4 It was also urged that it is an internationally accepted practice amongst the airlines to enter into code sharing agreement and/or interline/special prorate agreement. The proposed measures in the said alliance, if put in place, would be in the national interest. The two airlines had not yet put in place any of the measures contemplated in the proposed alliance. At present, Kingfisher has 89 such interlined agreements with different airlines world over. 39.4.5 It was denied that a joint network rationalization, even when put in effect, would amount to an agreement to limit production and supply of passenger air transport service or an agreement to allocate market. The objective of route rationalization, if put in place, is to reduce the cost of operation of both the Opposite Parties and consequently the high price burden on the passengers would reduce. It was submitted that neither the cross selling of flight inventories using common global distribution system platform agreement nor the code sharing on domestic nor international flight agreement between the OP 1 and OP 2 has been put in place till date. 39.4.6 OP 2 denied that it was enjoying dominant position in the market of passenger air transportation services in India. It was stated that not only the Opposite Parties but also all the airlines had increased fuel surcharge uniformly by Rs. 400 per ticket in June, 2009. 39.4.7 It was further denied that the Opposite Parties made money out of repeated increase in passenger fares as it is evident from the figures that the OP 2 had incurred losses to the tune of Rs. 2155.21 crores during the financial year ending 31.03.2009 and to the tune of Rs.2418 crores during the financial year ending 31.03.2010. It was submitted that the proposed alliance between OP1 and OP 2 was nothing but an attempt to reduce costs and to keep the air fares low. 39.4.8 The OP 2 denied that smaller players have been squeezed because of the proposed alliance between the Opposite Parties and that Air India suffered losses due to the said alliance. It is submitted that the Opposite Parties are not holding majority share in the air passenger transport service market in India as alleged by the informant. 39.4.9 It was also contended that the 'alliance' between OP 1 and OP 2 cannot be termed as agreement as it was only a broad understanding between the Opposite Parties as stated in the press statement dated 13.11.2008. There were no minutes of the meeting between OP 1 and OP 2 including the meetings between Mr. Naresh Goyal Chairman, Jet Airways (India) Ltd. and Shri Vijay Mallya, Chairman, Kingfisher Airlines Ltd. It was denied that there was joint network rationalization and code sharing between the two Opposite Parties and was submitted that there is no reciprocity between Jet Privilege and King Club frequent flyer programmes.
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39.5 Findings of DG Investigation 39.5.1 The DG has investigated the case to ascertain whether OP 1 and OP 2 have reached any agreement/alliance that amounts to cartelization which have an appreciable adverse effect on competition in India as per the provisions of section 3 of the Act and whether by launching different schemes of ticketing under which air tickets are sold at relatively lower prices, both OP 1 and OP 2 have abused their dominant position in the relevant market as per the provisions of section 4 of the Act. 39.5.2 For the purpose of investigation in this case, the DG has taken the relevant market as the 'services for transportation of passengers on aircrafts in India'. 39.5.3 As per the DG investigation report, OP 1 and OP 2 cannot constitute a group as per the requirements of the definition of "group" envisaged in clause (c) of explanation to section 4 read with clause (b) of the explanation to section 5 of the Act. Because, both OP 1 and OP 2 do not fulfill any of the conditions with respect to the voting rights, appointment of Board of Directors and control over the management of the enterprise. Thus, dominance of the enterprise in the instant case is to be assessed individually rather than considering both the enterprises as a group. 39.5.4 It is observed by DG that at least 4 major players such as; Jet Airways, Kingfisher Airlines, National Aviation Company of India Ltd. (NACIL) - Air India and Indigo Airlines are operating in the relevant market. Each of the above airlines are having market share in the range of around 17% to 27%. Given the above market share figures of the stated airline operators, it is difficult to ignore the presence of other players in the relevant market. Moreover, during the last two to three years, the market shares of these airlines have been more or less constant. In terms of size and resources the position of three major players such as Jet Airways, Kingfisher Airlines and NACIL group of companies are not incomparable. All the above three airline operators are in a position to compete independently with each other. On the basis of above analysis the DG report concludes that the allegation regarding abuse of dominant position by OP 1 and op 2 are not sustainable. To investigate on the allegation of anti-competitive alliance/agreement between OP 1 and OP 2, the DG Report has considered the level of market concentration of different airlines operating in the relevant market. As per the DG Report, the market of passenger air transport services in India is fairly concentrated with Herfindahl-Hirschman Index (HHI) of 1924.1 and this factor may give rise to competition concerns. In the relevant market, both the OP 1 and OP 2 command nearly 48% of the market share together whereas the market share of their nearest competitor i.e. NACIL is 18.3% which is far below than the combined market share of the Opposite Parties. 39.5.5 The DG has noted that with fair degree of market concentration in the civil aviation industry, any agreement or understanding or even intention or decision to reach an understanding between any airline operators would have adverse effect on competition. The joint announcement between the Chairman and MD of OP 1 and OP 2 created an impression that both the parties will jointly operate in the market.
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39.5.6 Taking into account the comments of the Chairmen of OP 1 and OP 2 on the press announcement dated 13.10.2008, the statement of Saroj K. Datta Executive Director of OP 1, the pictures of Chairmen of OP 1 and OP 2 while travelling in a golf cart to the venue of the India Aviation 2008 International Exhibition and Conference on Civil Aviation-in Hyderabad on 15.10.2008, 39.5.7 the DG report concluded that after the announcement of said alliance both the Opposite Parties are meeting together on different occasions. 39.5.8 After the announcement of the alliance, a technical Memorandum of Understanding (MOU) was also signed between the Opposite Parties in May, 2009. Moreover, after the announcement of alliance, many agreements such as Interline Traffic Agreements (ITA), Interline E-ticketing Agreements (IET) and Special Re-protection Agreements (SRA) were entered into between OP 1 and OP 2 and these agreements are also in force as on date. Thus, some of the clauses of the alliance announced on 13th October, 2008 have been operationalised between the Opposite Parties. 39.5.9 Relying on the findings of the study on the "Competition Issues in the Domestic Segment of the Air Transport Sector in India" conducted by the Administrative Staff College of India, Hyderabad, the DG report concludes that OP 1 and OP 2 are controlling a major share of slots as well as controlling slots in the peak period. Further, a high degree of price parallelism in OP 1 and OP 2 flights at peak hours has also been noticed in some of the air sectors. The tendency of price collusion, at later stage, may leads to over pricing. 39.5.10 The DG has also cited the European Commission decision in Case No. 2001/776 concerning SAS and Maersk in which the co-operation agreements between the two airlines were found to be anti competitive and substantial fines were also imposed. 39.5.11 In the DG investigation, it is also revealed that when there was an increase in ATF by 12.25% the fuel surcharge component of the air fare were increased by Rs. 400 by OP 1 and OP 2. On the other band when ATF prices were reduced by 5.7% on 15.07.2009, the fuel surcharge component of air fare have not been reduced. The OP 2 had also increased the fares during May-July, 2009 even when the ATF prices had come down. The DG also noted that fuel surcharge has been fixed by both the OP 1 and OP 2 for all places irrespective of actual distance. 39.5.12 It is also reported that the Chairmen of two airlines have met on common platform. On 18th August, 2009 on the occasion of joint call from 'Federation of Indian Airlines' for strike, both the OP 1 and OP 2 were also part of this strike call. Since they command the majority of the market share, the call of strike could have a huge impact on the civil aviation industry and on the consumers. Thus, any decision of two airlines joining hands may have serious consequences upon competition. 39.5.13 The DG investigation revealed that post alliance, the two airlines have successfully enhanced their market share and also increased their profitability. The revenue of OP 1 increased by 30.25% from Rs. 8811.10 crores in 2007-08 to Rs. 11476.97 crores in 2008-09. The passenger
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revenue, excess baggage revenue, cargo revenue of OP 1 has also increased. For the quarter 2 of 2009, OP 2 has increased its guest count by 9% in spite of a capacity reduction of 17% in the domestic market. 39.5.14 DG had noted that although once the elements of section 3(3) are established a presumption arises with regard to appreciable adverse effect on competition but for further clarity the DG has also discussed the factor enumerated under Section 19(3) of the Act. a) There are limited numbers of player in the airline industry in India and in this market the combined market share of OP 1 and OP 2 is about 48%. No new player will gainfully enter into the market since majority of slots, including peak slots, majority of passenger share are covered by both the Opposite Parties. Therefore, it creates barriers to new entrants in the market. b) In the past OP 1 removed Sahara India and OP 2 removed Air Deccan from the market by merging the two with them. Considering past action, the alleged agreement of OP 1 and OP 2 may drive out the existing competitors out of the market. c) The act of announcing alliance by OP 1 and OP 2 leads to foreclosure of competition since these two airlines control majority of the market share and slots. d) There is no accrual of benefit to the consumers from the alliance between OP 1 and OP 2. e) The alliance has not led to any improvement in the production or distribution of goods or provision of services rather capacity has been reduced which leads to lesser availability of airline services. f) There is no positive outcome achieved either in terms of improvement in production or distribution of goods or provision of services or in terms of promotion of technical, scientific and economic development by means of production or distribution of goods or provision of services as a result of the alliance of the two airlines. 39.5.15 The DG has concluded that the alliance announced by OP 1 and OP 2 in October, 2008 has still not been rescinded and many of the clauses of the alliance have been operationalized and are still in operation. The clauses of the agreement have implications on reduction in capacity amounting to limiting supply, sharing of markets, synergize on cost and revenue matters between OP 1 and OP 2. Further, existence of high degree of price parallelism is a serious competition concern. These practices of OP 1 and OP 2 are anti competitive therefore, violate the provisions of section 3(3)(a), 3(3)(b) and 3(3)(c) of the Act. 39.5.16 With regards to applicability of section 4 of the Act, the DG has found that the OP 1 and OP 2 cannot be considered as a group in terms of the provisions of section 4 of the Act. Individually, OP 1 and OP 2 are not in a dominant position in the relevant market. Thus, as per DG report, allegations regarding abuse of dominant position by OP 1 and OP 2 are not
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established. 4 0 . The Commission considered the DG investigation report in its meeting dated 05.01.2011 and decided to send a copy of the report to the informant and Opposite Parties for inviting their replies/objections. Accordingly, the parties have filed before the Commission their replies/objections to the DG investigation. 41. Replies to DG Investigation Report by the Parties 41.1 Reply of the Jet Airways (India) Ltd. On 15.02.2011 OP 1 has submitted its reply on DG investigation report to the Commission. The gists of submission of OP 1 are as follows: 7.1.1 The OP 1 has replied that the observation in the DG report that the absence of public announcement of rescinding the alleged alliance by OP 1 and OP 2 on 13.10.2008 has given an impression to the stake-holders that Opposite Parties are operating together under an agreement is misconceived and is liable to be rejected as the said alliance was never put into effect. 41.1.2 The said public announcement of alliance can never be construed as 'decision taken' under section 3 (3) of the Act as has been considered by DG in his investigation report. In absence of any concluded agreement or any conclusive decision to implement any alliance, it is not appropriate to even suggest that Opposite Parties are acting in concert and thereby affecting competition adversely. 41.1.3 In the DG report it is stated that many of the clauses of the alliance have been operationalized and are still in operation between OP 1 and OP 2. This conclusion is misconstrued and wrong and has been arrived at without referring to the specific clauses. Further, the conclusion drawn by the DG that the said alliance between OP 1 and OP 2 has still not been rescinded is not supported by any cogent evidence on record. In fact as the alliance as announced on 13th October, 2008 was not put into effect at all, the question of rescinding it does not arise. 41.1.4 It has been contended that only certain arrangements for agreements which are quite common in the airline industry have been entered into which have nothing to do with the said announcement. Such arrangements are prevalent in the civil aviation industry all over the world for passenger facilities and are completely at the option and will of the passenger to avail such facility or not. Further, these agreements are only intended to provide efficient and better services to the passengers and not for reducing competition in the market as concluded by DG. Therefore, such agreements cannot be termed as alliance per se and are not anti- competitive. These agreements in fact give an option to the passengers and are for their convenience. 41.1.5 Jet Airways has submitted that the conclusion drawn by the DG that the agreements entered between OP 1 and OP2 are violative of the provisions of the Act is erroneous because of the following reasons: a) Under Multilateral Interline Traffic Agreement (MITA), two airlines operating scheduled air transportation services can enter into agreement to handle passenger travelling on itineraries that require multiple airlines and handling such passengers and their baggage and each party may also sell transportation over the routes of other carrier. Jet Airways has entered into MITA with almost 140 IATA approved airlines across the world, including Air
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India and Kingfisher. b) The OP 1 has entered into Interline Electronic Ticketing (IET) agreements with more than 80 carriers across the world including Air India. This agreement is primarily technical in nature and is implemented to facilitate issuance of interline e-ticket documents and does not involve any financial benefits to the parties to the agreement. c) The Special Re-protection Agreement (SRA) is a bilateral agreement between the operators who operates on similar routes to protect their passengers' interest in case of any disruption in operating carrier's schedules due to flight cancellation or delay or re-timing of flights. The OP 1 has entered into similar agreements with more than 28 carriers all over the world including Air India, Spice jet and Indigo. Such agreements are not for any commercial benefits to the airlines as they are invoked only under exceptional circumstances as enumerated above. d) The technical Memorandum of Understanding (MOU) is signed between two airlines to provide technical services to each other at certain line stations. Such agreements are a common industry practice and have nothing to do with the announcement relating to the so called alliance. 41.1.6 With regards to the observation of DG relating to price parallelism it has been submitted that both OP 1 and OP 2 are competing with each other in several domestic sectors. Since the product and services of both OP 1 and OP 2 are similar, the OP 1 cannot out-price OP 2 in sectors it competes with it nor does it have a desire to under sell it flights either. Jet Airways files its fares through Airline Tariff Publishing Company (ATPCO) which in turn distributes the fares to various Global Distribution System (GDS). Because of this within a matter of hours its fares become transparent to the outside world and so do the fares of other carriers such as Kingfisher. Jet Airways after considering its competitors fares through ATPCO determines its own fares. It has also submitted that the fare that actually is offered to a customer at a particular point in time is determined by seat availability which is managed through computerized revenue management system. It has been contended that any airline offering substantially higher fares than its competitors is likely to face a situation where no customer will be willing to buy its ticket which would ultimately force it to lose out its market share. For this reason all the airlines always strive to put its fares at same or similar level compared to other airlines. The fares of OP 1 and OP 2 in respect of some sector might be close to each other which cannot be treated as price parallelism as concluded by the DG in his report. 41.1.7 It has been submitted that the DG has failed to notice that both Jet Airways and Kingfisher are operating totally independently and continue to compete in the market and pursue their own respective policies and strategies with the sole aim of offering seamless and quality service to their respective passengers. 41.1.8 With regards to the conclusions drawn by DG it has submitted that: a) Since there is no alliance between OP 1 and OP 2 operationalised, there is no question of public announcement regarding 'no alliance in operation between OP 1 and OP 2'. b) With regards to linking fuel surcharge to actual distance it is submitted that such arrangements is already in place except that it is implemented in a
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slab wise manner. All other airlines operating domestically levy fuel surcharge on the same basis. So, to single out OP 1 on this issue is not fair. c) With regards to DG recommendation that reduced ATF prices should be passed on to the consumers it is submitted that this argument is not justified because there is no scientific mechanism anywhere in the world to link the actual quantum of the fuel surcharge to prevailing price of ATF. 41.1.9 Finally, it is submitted that OP 1 has not imposed any unfair and discriminatory conditions on its passengers and has not violated any provision of the act as alleged by the informant. 41.2 Reply filed by Kingfisher Airlines Ltd The OP 2 has submitted its reply/objection to DG investigation report to the Commission on 28.01.2011 and also filed summary of oral submissions on 24.03.2011. The gists of reply and oral submissions of OP 2 are as follows: 41.2.1 It has been submitted by OP 2 that some of the contents and conclusions of DG report are factually incorrect such as; there is no special pro rate agreement between OP 1 and OP 2, no written agreement was executed between OP 1 and OP 2, comparison between Kingfisher red fares with Kingfisher class fares is misleading, objective of alliance was not to limit supply and co-operate on revenue and cost matters, etc. 41.2.2 Kingfisher Airlines reduced its capacity because of global recession in the civil aviation industry. Further, though it reduced Kingfisher class capacity because of global slowdown but at same time it raised the capacity of low cost Kingfisher Red due to increase in demand for low cost carriers. 41.2.3 It has submitted that (i) the technical MoU signed between OP 1 and OP 2 has nothing to do with the public announcement of alliance made in October, 2008. It is a general practice in the aviation industry to sign technical MoUs amongst different operators so as to optimize the utilization of man power, (ii) the special re-protection agreement is limited only to cases where there is a disruption in the flight schedules of either of the airlines due to any unforeseen reason, (iii) with regards to interline traffic agreement it is submitted that it has entered into such agreement with 88 airline operators worldwide. Similarly, it has also entered into e-ticketing agreements with 65 airlines operators worldwide. So the reasons cited by DG to arrive at the conclusion that the OP 1 and OP 2 have violated provision of section 3 of the Act by entering into these kinds of agreements is misleading and erroneous. 41.2.4 The DG report has concluded that 'even a decision to enter into such an alliance would be violative of the act'. In this regard Kingfisher Airlines submitted that the same is ex facie erroneous because the term 'decision taken' used in section 3(3) of the Act is applicable only in case of association of enterprises or association of persons and to attract provisions of section 3(3) of the Act there must be an agreement between Kingfisher Airlines and Jet Airways. Furthermore, even if the announcement made by the Opposite Parties can be taken as decision the provisions of section 3(3) of the Act will not apply to a decision taken prior to coming into force of relevant section. 41.2.5 It has also been contended that the conclusion of the DG that after the declaration of alliance between OP 1 and OP 2 the market share of OP 2 has increased
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is wrong and not based on actual fact. Rather, the fact is that after the announcements of the said alliance the market share of OP 2 has declined. 41.2.6 With regards to the conclusion of DG report that after the announcement of alliance there was a reduction in capacity of OP 1 and OP 2, it has been submitted that the DG has failed to take into account the fact that this reduction in supply took place during the global slowdown. Further, it is not only the OP 1 and OP 2 who reduced their capacity but also other airline operators, including Air India, have reduced their capacity. 41.2.7 The OP 2 has also denied the conclusion drawn by DG that because of the declaration of alliance between OP 1 and OP 2 the market share of Air India has reduced. It has been pointed out that DG has failed to take into account the fact that while the market share of Air India has reduced the share of other airlines apart from Kingfisher and Jet Airways has also risen. 41.2.8 On price parallelism between OP 1 and OP 2 it has been submitted that the DG has considered the air fares of OP 1 and OP 2 in isolation. If a comparison of air fares of all airlines operating in India into full service and low cost category is made it will be seen that the air fares offered by airlines in each category are similar in range to other competing airlines. These fares are governed by market forces, demand and competition and any airline offering significantly higher fares than its competitors is likely to lose out on market share. 41.2.9 On recommendations made by DG in his report it has been urged that OP 2 is not required to make any public announcement regarding non-existence of alliance between OP 1 and OP 2 because such announcement is unnecessary and liable to misuse. With regards to linking fuel surcharge with actual distance it has been submitted that there is already an arrangement in place by which fuel surcharge his linked to distance, except that it is done in a slab-wise manner. It was submitted that the DG recommendation that air fares be reduced as and when ATF prices comedown is not justified. 41.2.10 Finally, it has been submitted by OP 2 that the complaint against it deserves to be dismissed and investigation in this regard should be closed. 42. Decision 42.1. The Commission has carefully pursued the entire material submitted by the informant, the submissions made by the Opposite Parties before the DG, the Report of the DG, the written submissions filed by the Opposite Parties and the Informant before the Commission and all other relevant material and evidence available on record. 42.2. From the available material on record, it is noted by the Commission that activities being performed by the Opposite Parties are covered within the definition of 'enterprise' under section 2 (h) of the Act. 43.3. After examining the applicability of the provisions of section 4 of the Act, DG has come to the conclusion that individually neither of the Opposite Parties is in a dominant position and since they do not form part of a group as envisaged in section 4 the allegation of abuse of dominance by the Opposite Parties has no substance. In the absence of any evidence to the contrary, there is no reason to disagree with the findings of the DG in this respect. 8.4. As regard to the applicability of section 3 of
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the Act to the present matter the DG has concluded that as the announcement of the alliance made by Jet Airways and Kingfisher Airlines on 13th October, 2008 was not rescinded publicly by the Opposite Parties and in fact they entered into technical MOU, Interline Traffic Agreements (ITA), Interline E-Ticketing (IET) agreement and Special Re-protection Agreements (SRA) after the announcement of alliance goes on to show that if not all, some of the clauses of the alliance have indeed been operationalized. The DG has drawn the conclusion that given the facts that both airlines together command 48% of the market share in the market of services for transportation of passenger on aircrafts in India', high degree of price parallelism in air fares of the Opposite Parties in some sectors, reduction in capacity and cooperation through route rationalization amount to price fixing, limiting the supply and allocating the market in violation of provisions of section 3(3)(a), 3(3)(b) and 3(3)(c) of the Act. 8.5. It is seen from the record that Jet Airways and Kingfisher Airlines issued a joint statement on 13 October, 2008 to announce an agreement to the formation of an alliance which would help both carriers to significantly rationalize and reduce costs and provide improved standard of service and a wider choice of air travel options to consumers and which will also offer the best possible fares for the benefit of the consumers. Further, the purported purpose of alliance was to tide over the slowdown in the aviation industry due to global recession. The scope of the alliance extended to the following areas : i) Code-sharing on both domestic and international flights. ii) Interline/special prorate agreements to leverage the joint network deploying aircrafts covering both domestic and international flights. iii) Joint fuel management. iv) Common ground handling. v) Cross selling of flight inventories using the common global system platform. vi) Joint network rationalization and synergies. vii) Cross-utilization of crew on similar aircraft types and commonality of training as also of the technical resources. viii) Reciprocity in Jet Privilege and King Club frequent flier programmes. 4 2 .6 The Kingfisher Airlines has submitted alongwith the summary of the oral submissions filed on 24.03.2011 that it has entered into the following agreements/arrangements with Jet Airways on different dates : i) Special Re-protection Agreement on 21st May, 2009 which was extended from time to time. ii) Interline Traffic Agreement on 24th October, 2008. iii) E-Ticketing Arrangement on 29th October, 2008. iv) Technical MOU on 25th May, 2009. 4 2 .7 Both the airlines i.e. Jet Airways and Kingfisher have maintained that the alleged alliance announced by them has not been given affect to and it was only an
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intent to conclude an alliance to enhance their cooperative commercial and operational partnership with a view to help both carriers to rationalize and reduce costs and improve standard of service to the travelling public. They have also repeatedly contended that all these agreements/arrangements are common industry practice and these have not been entered in pursuance of announcement of alliance on 13 October, 2008. They have also contended that they have such kind of agreements/arrangements with large number of domestic and international airlines including the third largest market player NACIL, a Government owned company and such agreements do not violate provisions of section 3 of the Act. 42.8 It is evident from the record that no other agreement apart from the agreements referred in para 8.6 has been entered into between the Opposite Parties. There is no evidence on record which could establish that the alliance as announced was operationalized in toto. Had all the elements of publicly announced alliance were given affect to and coordination between the Opposite Parties had extended to the fullest extent then that might have given rise to competition concern in view of the combined market share of Jet Airways and Kingfisher Airlines. 42.9 On examining the agreements/arrangements entered into between Jet Airways and Kingfisher Airlines it is noted that none of these agreements can be said to have either determining the airfares or limiting the supply or allocating the market in terms of the provisions of section 3(3)(a), 3(3)(b) and 3(3)(c) of the Act. Additionally it is also seen that such kind of agreements/arrangements have not only been entered between Jet Airways and Kingfisher Airlines but they have also separately entered into such kind of agreements with large number of domestic as well as international airlines and most of these agreements have also been entered by them with the NACIL (Air India). It is also noted that the market share of both the parties has remained constant even after passing of almost two years of the public announcement. In fact Kingfisher Airlines has reported losses in subsequent years ending March, 2009 and March, 2010. 42.10 Admittedly the Special, Re-protection Agreement which was entered into between Jet Airways and Kingfisher Airlines on 21st May, 2009 and extended from time to time is an agreement which has limited application and can be invoked only when there is disruption in the schedule of either of the party due to unforeseen reason. When such occasion arises then it enables the airline whose schedule has been interrupted to transfer its passengers on another airline operating on the same route. Very clearly such agreement cannot be said to be one which either determines purchase or sale price, or limits or controls production, supply, markets etc or provision of services, or which allocates the market. On the contrary DG has himself stated in the investigation report that it is beneficial because passengers are not stranded in case of disruption of flight and the airport staff is aware of the fact that on which other carrier services the affected passengers are to be transferred. It has also been mentioned that since the rate the other airline will receive for such transfers has been determined under the SRA, it prevents competitors from taking undue advantage of a disruption situation and increasing their fares at the last minute. Thus, it is apparent that SRA is in fact beneficial to the consumers and in no way it can be said to be anti-competitive in terms of section 3(3) (a)/(b)/(c) of the Act. 42.11 Jet Airways and Kingfisher airlines entered into Interline Traffic Agreement on 24 October, 2008. There is also no dispute about the fact that this is an internationally accepted practice amongst the airlines worldwide to enter into such
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kind of Interline Agreements. It is also borne out from the record that Jet Airways has entered into MITA with 140 airlines across the world including Air India and Kingfisher and similarly Kingfisher Airlines has 88 such agreements with various airlines including Air India. This agreement is entered into between individual airlines to handle passengers travelling on itineraries that require multiple airlines and is made between two carriers operating scheduled air transportation services and under this agreement each party is able to sell transportation over the routes of other carrier. This agreement also includes handling passengers and their baggage. Considering the nature and purpose of such kind of agreements which appear to be common industry practice, there does not seem to be any violation as provided in 3(3)(a), 3(3)(b) and 3(3)(c) of the Act. Rather such arrangement appears to facilitate passengers travel. 42.12 The third agreement which was entered between the Opposite Parties on 29th October, 2008 is Interline Electronic Ticketing (IET) arrangement is only a technical requirement following ITA. Both Jet and Kingfisher have such agreements with 65 - 80 airlines including Air India. This agreement only facilitates issuance of Interline E- Ticket document and does not involve any commercial benefits. The DG in his report has mentioned that if such kind of arrangement is not there a passenger will end up paying more for his tickets and it will be inconvenient and tedious for him. Quite obviously this arrangement also cannot be said to be fixing price or limiting output or allocating the market. 42.13 The fourth agreement is a technical MOU signed by the Opposite Parties on 25th May, 2009 and is also a common practice in airline industry. As per the submissions of the Kingfisher Airlines it has 25 similar arrangements with various airlines including Air India. Both the parties have claimed that it is nothing but ground handling arrangement and the purpose behind such agreement is optimum utilization of manpower resources. Such agreements enable the airlines to cut down their operating costs which in turn results into better fares for passengers. There is nothing in DG report to contradict such claim made by the Opposite Parties. In this case also clause a, b & c of section 3(3) are not attracted. 42.14 In view of the foregoing discussion, no violation of either section 3 or section 4 is found to have been established against Airways and Kingfisher Airlines and matter deserves to be closed. 42.15 The matter is closed forthwith. Secretary is directed to inform the parties accordingly.