Go First crisis: What is CCI's role when the number of competitors shrinks?

Go First

The Competition Commission of India (CCI) is the nation’s antitrust watchdog tasked with the duty of eliminating practices that can have an adverse effect on competition and for the promotion of healthy competition to protect the interests of consumers and to promote freedom of trade.

The CCI can penalise an enterprise for abusing its dominant position and levy penalties on a group of companies for cartelising and influencing the market.

Companies looking to merge, or acquire the controlling shares or voting rights of a competing enterprise must obtain the CCI’s permission before doing so.

How is CCI’s role relevant in the Go First crisis?

Despite being one of the largest aviation markets in the world, India has only a handful of players operating in the market. As of March 2023, Indigo, which is the country's largest carrier in terms of market share, dominates the Indian skies with a 56.8 percent share. This is followed by SpiceJet (6.4 percent), Air India (8.8 percent), Vistara (8.9 percent) and Go First (6.9 percent).

Go First, a low-cost airline, which had a market share of 8.8 percent in March 2022, suspended flights and filed for insolvency on May 2, 2023, and is currently under moratorium.

SpiceJet, another low-cost airline, is having trouble with its grounded fleet as it is taking steps to revive its grounded fleet using the government's Emergency Credit Line Guarantee Scheme (ECLGS) and internal cash accruals.

At the National Company Law Tribunal (NCLT), Go First’s lawyers argued that it is essential to keep the airline running to ensure that a healthy competition is maintained in the market.

Under such circumstances, the role of an antitrust regulator assumes importance. With the market share of Go First up for grabs since its flights remain suspended till May 23 and SpiceJet having trouble with its fleet, the dominant players may look to further increase their market share. However, it is to be noted that no instance of violation of competition law has been reported.

What can the CCI do under such circumstances?

Lawyers say while the CCI has the power to punish a company for abusing its dominant position, it cannot do so before an offence is committed. They, however, note that it is important for the CCI to keep a close watch on the sector now.

Neelambera Sandeepan, partner, Lakshmikumaran & Sridharan Attorneys, said: “In India, only a single enterprise or group can be in a position of dominance. The Indian Competition Act does not recognise the concept of collective dominance, wherein more than one enterprise is collectively in a position of dominance. As long as there are at least two airlines with competing market shares, neither can be found to be in a position of dominance.”

She notes that market concentration in the hands of a few players could lead to higher prices for customers and it is likely that the CCI will closely watch this market for signs of potential anti-competitive behaviour.

“While the CCI has powers to suo moto investigate cases of anti-competitive behaviour and abuse of dominance, such investigations cannot be commenced ex-ante, i.e., prior to the commission of the offence. Under the Competition Act, such powers are available to the CCI only ex-post, i.e., after the alleged violation has occurred,” she said.

“There is a strong chance that market competition can be hampered and the CCI will need to track the market operations before they turn autocratic. This comes at a time of high demand and fewer service providers, creating an unfavourable spot for the customers,” said Sameer Jain, managing partner, PSL Advocates and Solicitors.

Jain noted that this will be an interesting time to track the changes in the domestic aviation sector as prices and competition become steady and market leaders are ready to compete.

Abdullah Hussain, partner at DSK Legal, said: “The CCI has taken suo motu cognizance of a significant increase in airline prices in the past, but this is post the increase. They investigated whether there was any coordination between the airlines amounting to cartelisation but concluded ultimately that there was evidence to sustain such an allegation.”

Hussain noted that though the CCI has the power to initiate an investigation on the basis of a complaint or suo motu into any unusual price increases by airlines, it may choose to sit out as it is not a price regulator and prefers to leave actual pricing to market forces.

“CCI can neither force Go First to stay afloat nor can it compel someone to start a new airline,” said KKSharma, partner at Singhania and co.

Of course, Sharma said, the CCI has wide powers, including division of an enterprise, if an abuse of a dominant position is feared. However, “no such pressing circumstances exist to warrant the exercise of that power,” he said.

Shri Venkatesh, managing partner at SKV Law Offices, said: “While acquiring a dominant position itself is not barred under the Competition Act, if it is found that the entity enjoying a dominant position operates in a manner affecting competition, provisions of the law come into play.”