Case Of Jet Airways (India) Limited And Etihad Airways PJSC (Combination Regulation)

The Case Of Jet Airways (India) Limited And Etihad Airways PJSC is a landmark decision by the Competition Commission of India (CCI) that deals with the approval of a strategic combination between two major airlines. This case marks the first instance where a foreign airline invested directly in an Indian carrier following a significant change in India’s Foreign Direct Investment (FDI) policy. 

The decision has important implications for competition law, foreign investment, and airline industry regulation in India. It provides insight into how CCI approaches competition assessment in the aviation sector, especially in cross-border airline partnerships.

Background and Parties to Case Of Jet Airways (India) Limited And Etihad Airways PJSC (Combination Regulation)

Jet Airways (India) Limited, a prominent Indian airline, provides both low-cost and full-service passenger flights along with cargo, maintenance, repair and overhaul (MRO), and ground handling services. Etihad Airways PJSC, the national airline of the United Arab Emirates (UAE), operates international passenger and cargo flights and holds stakes in several other international airlines.

In 2013, after India liberalised its civil aviation FDI policy allowing up to 49% foreign investment, Etihad proposed to acquire a 24% equity stake in Jet Airways. This acquisition was facilitated through various agreements, including the Investment Agreement, Shareholders Agreement, and Commercial Cooperation Agreement.

The proposed combination obtained prior regulatory approvals from SEBI, Foreign Investment Promotion Board (FIPB), and the Cabinet Committee on Economic Affairs (CCEA). Subsequently, the parties filed a notice with the CCI seeking approval under Section 6(2) of the Competition Act, 2002. The case came under the ambit of the Competition Commission of India Regulations, 2011, primarily Regulations 14 and 16 concerning procedural conduct and reporting changes in combinations.

Issue Before the Commission

The core issue in the Case Of Jet Airways (India) Limited And Etihad Airways PJSC was whether the proposed combination would cause an Appreciable Adverse Effect on Competition (AAEC) in India. CCI’s assessment was focused on determining if the deal would substantially lessen or distort competition in the relevant market, considering both parties’ existing market shares and the nature of competition in international air passenger transportation.

Relevant Market Determination

A significant part of the Commission’s exercise involved defining the relevant market. The CCI adopted a granular approach by considering international passenger air transport markets based on Origin and Destination (O&D) pairs. Each O&D pair was treated as a distinct market because consumers view each route separately when making travel decisions.

Key factors influencing the market definition included:

• The substitutability between direct and indirect flights on the same O&D route.
• Availability of indirect competitor flights as alternatives.
• Differentiation among passenger classes and the corresponding inflight services.
• Sensitivity of passengers to time and price, distinguishing business travellers from holidaymakers.
• The fact that Etihad did not operate in the domestic Indian aviation market, coupled with India’s open skies policy for international air cargo.

Accordingly, the relevant market was defined as:

1. O&D pairs between nine major Indian cities and the UAE.
2. O&D pairs between India and other international destinations where both Jet and Etihad had overlapping routes.

This precise market delineation was vital to ensure that the competition assessment reflected the real commercial and consumer choices in international air travel.

Competition Analysis and Market Shares

After defining the relevant markets, CCI analysed the potential impact of the combination on competition. The Commission noted that Jet and Etihad operated on 38 international routes involving India, with at least one competitor on every route.

Combined market share analysis showed that on only seven routes did Jet and Etihad together hold more than 50% of the market. Of these, three routes were such that one party had a dominant share, while the other had negligible presence. CCI concluded that this change in market shares represented a post-transaction redistribution rather than an elimination of competition.

The Commission emphasised the importance of trans-boundary competition since the routes were international in nature. This required looking beyond Indian domestic markets and considering the global network effects.

Network Effects and System-Level Competition

The Case Of Jet Airways (India) Limited And Etihad Airways PJSC presented a nuanced competition issue because airlines compete not only on individual routes but also through their network connectivity. CCI recognised that competition in the airline sector operates both on point-to-point O&D pairs and at the system or network level.

The combination was expected to strengthen network complementarities between Jet’s Indian base and Etihad’s global hubs, particularly Abu Dhabi. This network effect included improved access to airport gates, slots, and infrastructure, which enhanced connectivity and offered passengers a broader range of travel options.

CCI concluded that competition was increasing among airline systems rather than just individual routes. Consequently, despite high combined market shares at some hubs, the network-level competition from other carriers was robust enough to preclude an appreciable adverse effect on competition.

Exclusive Hub Arrangement and Code-Share Restrictions

A unique aspect of this combination was the requirement, as per the Commercial Cooperation Agreement, that Jet use Abu Dhabi as its exclusive hub for flights to Africa, North and South America, and the UAE.

The agreement also imposed restrictions on Jet’s ability to code-share with other airlines on certain routes. CCI examined whether this could lead to market foreclosure or abuse of dominance by limiting competitors’ access.

The Commission found that the routes affected by such restrictions had credible competition from other established players, which constrained any potential market power. Hence, these exclusivity clauses were not seen as adversely affecting competition.

Financial Distress and Efficiency Considerations

CCI also took into account the financial difficulties Jet Airways was facing at the time of the deal. The infusion of equity from Etihad was considered crucial for Jet’s survival and its ability to compete both domestically and internationally.

The combination was expected to enable Jet to maintain and expand its service offerings, thus potentially increasing competition in the relevant markets. This failing firm rationale was important in CCI’s overall assessment that the deal would not lead to an AAEC.

Majority Decision in Case Of Jet Airways (India) Limited And Etihad Airways PJSC (Combination Regulation)

Based on the above reasoning, the majority in the Case Of Jet Airways (India) Limited And Etihad Airways PJSC concluded that the proposed combination was not likely to cause an Appreciable Adverse Effect on Competition in India.

The approval was granted with the condition that the decision was based on information provided by the parties at the time. Any material change to the combination would require fresh approval from the Commission. The parties were also reminded that the ex-ante approval should not lead to any ex-post violations of the Competition Act.

Minority Opinion

There was a dissenting view in the case which took a more cautious approach. The minority raised concerns that the combination might cause AAEC for the following reasons:

• Frequent Flyer Programmes (FFP) could lock consumers into the Jet-Etihad network, creating barriers for competitors.
• The approach to substitutability, especially treating different airports or routes as interchangeable, was flawed, as consumers and airlines often do not view them as such.
• On the Delhi–Abu Dhabi route, Jet and Etihad were the only direct competitors. Their combination would effectively eliminate head-to-head competition on this route.
• One-stop carriers were deemed too weak a competitive constraint to mitigate the combined entity’s market power.

The minority held that an investigation was necessary before approving the combination, as it was likely to cause an AAEC.

Conclusion

The Case Of Jet Airways (India) Limited And Etihad Airways PJSC illustrates the evolving jurisprudence of the Competition Commission of India in handling cross-border combinations in the aviation sector. The decision provides a balanced framework for evaluating competition concerns, considering both market shares and network effects, while accommodating the practical realities of airline business models.

By approving the combination subject to safeguards and monitoring, CCI paved the way for future foreign investments in Indian aviation under the FDI policy. It also set a precedent on the interplay between competition law and strategic airline partnerships, underscoring the need for careful, fact-based assessments that account for both competition and efficiencies.