Low cost airlines need to form a monopoly: Gopinath

Excerpts from What's Hot on CNBC-TV18 Watch the full show »

Would an alliance of airline firms to check price undercutting be regarded as anti-competitive and therefore actionable under competitive law, that's the hot issue being debated. Ten airline firms got together in Mumbai on Monday at the behest of Air India to form the Federation of Indian Airlines and find ways to give passengers the best service.

The Association will agitate on common issues affecting the industry but there is a fear that the actual purpose is to stop price wars. Can and should the competition come in to check the price wars? Discussing this are Member Competition Commission, VK Dhall and Chairman & Managing Director of Air Deccan, Captain GR Gopinath.

Excerpts from an interview given to CNBC-TV18

Q: After the Monday meeting, are we likely to see a price below which, airline fares are not going to drop?

GR Gopinath: No I don't think that is possible in the kind of scenario that is fortunately there, because the government liberalized the aviation industry and there are far too many players and then there are two different models available - the low cost model which gives you low fares and the high cost model which gives you high fares.

Q: Were fares at all discussed in the Monday meeting?

GR Gopinath: Of course, to be fair it was basically to bring together the industry on a platform to work with and lobby with the government - for example, our aviation turbine fuel or ATF costs 60% more than international prices, our airports are inefficient but charging the highest in the world.

There is a new monopoly now, first we had the airport monopoly, now we got new players in the private sector but I think it is in the interest of the consumers, that somebody needs to work on  these issues which can hurt the industry. In the long term, it is good for the industry and good for the consumer.

Q: Since all the carriers are losing money, is it not in their common interest to band together and check undercutting?

GR Gopinath: No even if you get together and fix a price, then your place will go empty. So though of course, there was the concern of the existing service carriers because of the kind of threat that it posed to them. But with low cost carriers, there is nothing you can do unless you create a kind of monopoly and then fix a price. We already had some kind of a cartel which existed before Air Deccan came in.

Q: Have you at all taken notice of the meeting of airline firms on Monday in Mumbai and what action if at all, have you initiated?

Dhall: About this particular meeting, I must tell you that we don't know all the facts more so because enforcement provisions of the Competition Act have not yet been notified. So our statutory powers are not exercisable by us at this stage. But we do have a competition advocacy role and here I must tell you that cartels everywhere in any country are treated very seriously. They are regarded as the most predatory form of competition violation.

Q: If the clients are all losing money and if they band together to stem the bleeding, would you consider that as a cartel and as anti-competitive?

Dhall: Our act makes no distinction between the stage, where an enterprise or any airline maybe losing money or not losing money. If these are normal activities in the market - that is to say that there may be phases or profit or loss - but that cannot be a ground for any collusive arrangement between the enterprises or the airlines. The act doesn't make any distinction. If you go by that argument and if you collude, your profits can be much higher so in ordinary circumstances, enterprises can come together with a view to enhancing their profits and that couldn't be justified.

Q: So even if all the airlines come together and if they keep on undercutting fares even below cost, you wouldn't regard that as predatory pricing?
 
Dhall: No that wouldn't be predatory unless it is dominant. You know price wars are normal occurrence in the market - that's how firms compete with each other and the healthy firms survive and the others may go down - or there maybe mergers.