CARTEL IN THE SKY?

India’s two largest private airlines, Kingfisher and Jet, have formed an alliance. Kingfisher’s Vijay Mallaya and Jet’s Naresh Goyal call the alliance as a necessity driven by economic slowdown in which the aviation sector has been hit very hard. I am wondering how this alliance reads against Monopoly and Trade Restrictive Practices Act. The alliance will lead to sharing of manpower and infrastructure as well as determine exclusivity of routes between the two airlines in the alliance. Will not this kind of arrangement act against consumers’ interests? Speculations are rife that Nationalist Congress Party leaders Sharad Pawar and Praful Patel, later also the aviation minister, had a role to play in bringing about this alliance. When asked about the speculation, Mallaya refused to answer the question. There are reports that the aviation minister was not happy with the finance and petroleum ministries for not coming to rescue of the ailing financial health of the country’s airlines. So far it was okay. But from the statements the minister made after the alliance was announced, he appeared to be supportive of it. This is what is bothering. An ardent advocate of open skies policy has suddenly turned protective of only a select few, that too against the larger public interest. What is the larger public interest here? Well, with Jet and Kingfisher together controlling sixty percent of the market, the alliance will trigger monopolistic business practices, which is where the larger public interest comes in. It is not only against public interest but against the country’s economic interest. Accessible aviation and easy mobility are essential inputs in a growing economy like ours. Even more surprising is the silence among those leaders in Congress who termed, not very long ago, the understanding of pricing among steel and cement manufacturers as “cartel,” and firmly acted against such moves. They described the action was to protect consumers. Why then the same politicians have not so far expressed similar sentiments and actions against the Jet-Kingfisher alliance? By calling it an “alliance,” it is an attempt to gloss over the fact that it is nothing short of forming a “cartel.”

Arguments in support would say that the Country’s banking system is a cartel itself in that most of the banking sector is nationalized. One can not compare the banking sector with other sectors of industry. The banking sector is a foundation on which a country’s economy rests. A failure in this sector would have disastrous consequences on the country’s economy. India’s banking sector being a nationalized sector has come as a blessing amidst recent global financial turmoil which witnessed fall of many banks in America and Europe. So far Indian banks have withstood pressures from global financial meltdown, thanks to its mostly nationalized character.

If Jet and Kingfisher had merged as one entity, it would have been fine. It happens all the time around the world in open markets. While such mega mergers can create monopolistic conditions, it is acceptable and unavoidable. In the long run, new players would ultimately enter the segment and spur competition again. But an alliance of the kind between Jet and Kingfisher is unfair trade practices and the government must respond with measures that would protect consumer interests and other players in the aviation sector from any attempt at monopolizing the sector through such alliances, and by policy intervention that would provide incentives to low cost carriers so that more and more people can afford to travel by air. After all, air transportation represents only 3 percent of the total transportation segment in India.