CCI imposes penalty on domestic Airlines for price-fixing in air cargo operations
The Competition Commission of India (“CCI”) vide order dated 07.03.2018 has imposed penalty on three domestic airlines, namely, Jet Airways (India) Ltd (‘Jet Airways’), InterGlobe Aviation Limited (‘IndiGo Airlines’) and SpiceJet Limited (‘SpiceJet’) (collectively ‘OPs’) amounting to INR 39.81 Crore, INR 9.45 Crore and INR 5.10 Crore respectively for inter alia colluding to fix uniform rate of Fuel Surcharge for cargo transportation. The penalty was imposed @ 3% of the average relevant turnover from cargo operations.
Background of present proceedings
Incidentally, vide an earlier order dated 17.11.2015, the CCI imposed a cumulative penalty of INR 257.91 Crores on the same OPs on the same allegation. While imposing penalty on the OPs, the CCI had disagreed with the DG’s Investigation Report (“DG Report”) which had exonerated the OPs of any anti-competitive conduct.
However, on appeal by the OPs, the Competition Appellate Tribunal (“COMPAT”) vide common order dated 18.04.2016 in Appeal Nos. 07/08/11 of 2016 set aside the order of the CCI on technical grounds. While setting aside the Commission’s order, the Tribunal held that:
“If the Commission disagrees with the findings and conclusions recorded by the Jt. DG, then it shall indicate the reasons for such disagreement and issue notice to the parties incorporating reasons of disagreement and give them opportunity to file their replies/ objections.”
It is in this light that that the DG Report was reconsidered by the CCI and the CCI vide Show Cause Notice dated 08.02.2017 (“Show Cause Notice”) gave reasons for its disagreement with the finding in the DG report and directed the OPs to explain as to why they should not be held in contravention of Section 3(1) read with Section 3(3) (a) of the Act.
The crux of the allegations were that certain domestic airlines connived to introduce a ‘Fuel Surcharge’ (FSC) for transporting cargo, which was fixed at an uniform rate of INR 5/kg and came into force on May 15, 2008. It was further stated that FSC has been increased by almost the same rate and from almost the same date and that the increase did not correspond with an increase in the fuel prices. In fact, even when fuel prices declined substantially, the Airlines acting in concert and have uniformly increased the FSC.
As per the DG report, there was no evidence found of such a collusion between the OPs during the course of investigation. However, the DG returned a contradictory finding stating that the behaviour of the Airlines with respect to imposition of FSC was not in conformity with the market conditions where players were actively competing.
Replies by OPs to the Show Cause Notice
Each of the three airlines, besides challenging the jurisdiction of the CCI to investigate the conduct having taken place prior to May 20, 2009, i.e. the date of enforcement of section 3 of the Act as a preliminary objection, relied mainly upon the finding in the DG report of absence of any evidence of collusion amongst them to fix the rate of FSC attributed the uniform rate to the interdependence between the market participants in an oligopolistic market in which price parallelism was a normal feature and where the pricing policies of the players are decided by the pricing policies of each other which may lead to similar prices as other players tend to “follow the leader”. Each of the OP justified the levy and changes in the rate of FSC during the period May 2008 to August 2013 (which was considered in the DG report) due to change in Aviation Turbine Fuel (ATF) prices and the fluctuating US Dollar – Indian Rupee rate of exchange. The declining market share was pleaded by Jet Airways, which also pointed out other factors such as agents which were common to the OPs and provided a crucial link in providing market feedback / market intelligence to the concerned airlines. Spice Jet also pleaded that the air cargo industry is extremely competitive due to presence of large dedicated cargo operators such as Blue Dart Aviation Ltd. having their own freight aircrafts in India.
The CCI while rejecting the preliminary objection of lack of jurisdiction having been already settled, observed that in the year 2008, Jet Airways, Indigo Airlines and Spicejet had implemented FSC on the same date and all of them had levied a rate of Rs. 5 per kg at the same time. Further, for the time period April-June 2011, the CCI noted that the OPs had increased the FSC rate by the same amount i.e. Rs. 9 per kg and that Indigo and Spicejet had increased the same on the very same date. Similarly, in June 2012 and September 2012, time lag of just few days is observed in the dates of implementation of revised FSC. Again, in November 2012, it is noted that Jet Airways and Indigo had increased FSC rate on the very same date.
It was held that a holistic and comprehensive appreciation of revisions effected by the airlines in FSC indicates concerted and coordinated efforts by the airlines. The increments of the rates on same date or a nearby date are reflective of some sort of understanding amongst OPs. Further, it has been admitted by the airlines that they have common agents and these agents act as a conduit for exchange of information with respect to rates levied on cargo handled and changes in FSC proposed to be implemented which has not been disputed. A parallel conduct is legal only when the adaptation to the market conditions are done independently and not on the basis of information exchanged between the competitors, the object of which is to influence the market. Thus, it was held that OPs have acted in parallel and the only plausible reason for increment of FSC rates by the airlines was collusion amongst them. Such a conduct has, in turn, resulted into indirectly determining the rates of air cargo transport in terms of the provisions contained in Section 3 (3)(a) of the Act.
OP-4 was exonerated as when there was a substantial decline in the fuel costs, the fuel surcharge was withdrawn. Op-5 was exonerated as it gave its cargo belly space to third party vendors to undertake cargo functions. Further, it was stated that OP-5 had no control and was never part of any commercial/ economic aspects of cargo operations done by its vendors including imposition of FSC.
As regard the penalty, the CCI, relying upon the Supreme Court Judgment in Excel Corp case held that the infringing product involved in this case is provision of air cargo transport services, therefore revenue generated by the OPs from that service only will be taken for the purpose of computation of relevant turnover. After duly considering the matter, the CCI decided to impose a penalty on OP-1 to OP-3 at the rate of 3 % of their average turnover earned from levy of FSC on the volume of cargo handled during the last three financial years based on the financial statements filed by them.
The order marks an important development in the jurisprudence, arising out of the COMPAT order in appeal that if the CCI disagrees with the findings in the DG Report, it is imperative for the CCI to notify parties as to the reasons of such disagreement and afford an opportunity to the OPs to file their replies/objections before deciding the matter.