Code Sharing Agreement in India and Anti-Competitive Conduct

[By Siddharth Chaturvedi]

The author is a student of National Law University, Jabalpur.

 

Introduction

Many airlines in India are increasingly relying on Code Sharing Agreements in order to run their businesses. Code Sharing Agreements refer to a unique understanding between airlines where one airline places its code on another airline ( the airline that operates) and then markets and sells tickets for that flight. Such an agreement helps to expand any airline’s presence, market reach, and competitive ability.

In this piece, the author dissects the Code Sharing Agreements in India by taking note of how the European Union and USA have grappled with the same challenge and then moves to examine relevant provisions of the Competition Act in India. Lastly, it concludes that with the rise in India’s aviation sector, CCI is likely to deal with many cases that deal with Code-Sharing Agreements and it must assess those agreements on certain parameters that have been suggested in the piece. These parameters have been suggested by the author after taking into consideration the best  regulatory practices that emerge after referring to the existing jurisprudence in USA and Europe.

View from Abroad

Convention on International Civil Aviation  Chicago Convention forms one of the bedrocks of legal instruments concerning international aviation. India was one of the earliest signatories to the convention. It is important to note that Article 6 of the Chicago Agreement states that “no scheduled international air service may be operated over or into the territory of a contracting state, except with the special permission or authorisation from the state and in accordance with terms of such permission.” However, there is no explicit mention of the prohibition of code-sharing agreements. In the USA, it is at the discretion of the Department of Transport whether it wants to approve any application of code sharing agreement after taking into consideration economic concerns which also include anti-competitive concerns. In some instances, there has also has been an establishment of firewall by Department of Justice in order to ensure that there is no exchange of sensitive information between the two airlines.

The European Union has been proactive in dealing with the issue of code-sharing agreements. In February 2011, the EU Commission launched an antitrust investigation into the code-sharing agreement between the Brussels and Lisbon route. The three primary concerns of the EU were a) capacity reduction b) unlimited rights to sell each other’ seats c) aligning fare structures as well as ticket prices. Such a decision was taken after taking into consideration empirical evidence that there was an elimination of competition in prices and capacity between the two airlines. In another case concerning Lufthansa Airlines and Turkish Airlines, it was noted by the EU Commission that there was no anti-competitive conduct since both the airlines did not have access to each other’s seat inventory. Thus, the EU Commission’s parameters are objectively defined in order to decide the issue on a case-to-case basis.

India

In India, Code Sharing Agreements can possibly be covered under the ambit of horizontal agreements and vertical agreements. Horizontal agreements are those that are entered into by parties which are operating at the same level in the market and are considered to have an appreciable adverse effect on the competition under Section 3(3) of the Competition Act.[i] For example- Any Code Sharing Agreement between two airlines gets covered under the ambit of a horizontal agreement since the airlines are operating at the same level in the market. However, in order to show there exists a horizontal agreement in India, various factors need to be fulfilled, such as price fixation, cartel, etc. In contrast, Vertical Agreements are those agreements which are entered amongst various enterprises or persons in actvities such as supply, distribution, storage, sale etc.[ii] Code Sharing Agreements can also be covered within Vertical Agreements since there is a restriction on marketing carrier’s ability to distribute the tickets. India’s National Aviation Civil Aviation Policy highlights various aspects related to code-sharing agreements. Under commercial operations, flight operators are permitted to enter into code-sharing agreements. Liberalised rules allow international airlines to enter into agreements, and there is only a single requirement to inform the  Ministry of Civil Aviation 30 per days  prior to starting the Code Sharing Agreement. Thus, there is no presumption that code-sharing agreements have any anti-competitive effects. For example- Air India and American Airlines recently entered into a code-sharing agreement, whereby a new service operated by American Airlines will be launched between New Delhi and New York. In turn, American Airlines’ code will appear on 29 domestic flights that are operated by Indigo Airlines. Prima facie, there appears to be no case of anti-competitive conduct. However, such issues may arise if there is a case of price fixation or the sharing of geographical markets, which is automatically prohibited by virtue of causing an appreciable adverse effect on competition. Thus, CCI can delve into this aspect while deciding on any issue considering price fixation.

 It is interesting to note the view of CCI while deciding the case of the Jet-Etihad deal. CCI had taken a positive view of Code-Sharing Agreements in India and stated that code-share agreements allow customers in multiple cities of India to seamlessly travel across various destinations around the globe. However, in the above case, the issue concerning the code-sharing agreement was not a primary issue and thus CCI’s observation on the sharing Agreement cannot be taken to be final. Thus, it remains to be seen from the Indian Context how code-sharing agreements are executed.

Conclusion

After going through the above discussion, it becomes clear that Code Sharing Agreements can potentially cause anti-competitive conduct if they cause detrimental effects on market pricing and other factors such as the fixation of seats. It is recommended that India take into consideration other relevant factors such as access to each other’s seat inventory while deciding whether code-sharing agreements are causing anti-competitive conduct or not. With a rise in India’s aviation sector, there is a likely increase in the number of codeshare agreements, and thus it is imperative that CCI ensure that there is a level playing field for all the competitors in the sector.

 

[i] The Indian Competition Act, 2002, § 3No 12, Acts of Parliament,2002.

[ii] Id.

Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

Contact Us

Kerwa Dam Road., 
National Law Institute University, Bhopal
Madhya Pradesh, India. 462044​.

write to us at – cbcl@nliu.ac.in