Case Law Details

Case Name : Travel Agents Association of India Vs Lufthansa German Airlines (Compitation Appellate Tribunal)
Appeal Number : Appeal No. 25 OF 2011
Date of Judgement/Order : 07/12/2012
Related Assessment Year :

COMPETITION APPELLATE TRIBUNAL

Travel Agents Association of India

Versus

Lufthansa German Airlines

APPEAL NO. 25 OF 2011

DECEMBER 7, 2012

ORDER

V.S. Sirpurkar, Chairman J.

The appellant – Travel Agents Association of India has challenged the order passed by the Competition Commission of India (hereinafter referred to as “CCI”) under Section 26(6) of the Competition Act, 2002 (hereinafter referred to as “Act”) whereby the matter relating to the information supplied by the appellant herein was ordered to be closed.

2. The informant/appellant complained by way of an information that it is a representative body for the travel agents. It was claimed that the respondents, who were the airlines, used to pay commission on the sale of tickets up to 5% to the travel agents. It was urged that from 1.11.2008 most of the airlines stopped giving such commission to the respondents. In the case of Austrian Airlines, it discontinued the commission from 1.1.2009. It was urged that these airlines had formed a cartel and were also abusing the dominant position. It was also urged that the respondents had not followed the directives of the Aircraft Rules, 1937 as they were not informing the customers about the break-up of the fares. It was urged that the respondents were deliberately and intentionally not enforcing the transaction fee system which was a model introduced by them in lieu of prevailing commission system and this caused to deprive of the income to the members of the informant’s association. It was also complained that such concerted action on the part of the respondents had created a monopolistic market which was detrimental to the interest of the economy and thereby the competition was adversely affected in the airlines business in the country.

3. This information was considered by the CCI and finding given that their existed a prima facie case. A reference was made to the Director General for conducting the investigation vide order dated 12.5.2010.

4. The Director General got the matter investigated by the Additional Director General and a report was submitted on 27.1.2011.

5. The Director General found that the international flight services provided by the foreign carriers in India like respondents was the relevant product market and whole of India as the relevant geographic market. In his report which was based on the investigation, the Director General was found that there was no violation of any provisions of Section 3 of the Act and the Director General gave the following reasons for the said conclusion.

  –  Firstly, it was found that the cartels were generally formed amongst those enterprises, which were competing enterprises. However, the respondents were not the competitors as they were serving different destinations.

  –  Secondly, it was found that there has to be a meeting of minds for forming a cartel but there was no such evidence available suggesting the meeting of minds amongst the respondents. It was deduced that the respondents had taken a decision to reduce the commission on different dates and some of the respondents had taken decision as early as in 2004.

  –  Lastly, it was found that the reduction in travel agents commission was also effected by Air India and other domestic air operators in India and not only the foreign airlines.

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6. As regards, the violation of Section 4, the Director General examined the claim of the informant that the respondents were having 90% market share and were as such in a dominant position in the relevant market and were abusing their dominant position by imposing unfair and discriminatory conditions on sale of their air tickets, the Director General reported that the respondents were not a group as envisaged in the Act and none of the respondents individually was in a dominant position in the relevant market. The Director General found from the Website of Director General Civil Aviation that individually none of the respondents had a market share of more than 5% to 6% in the international traffic. Again as per the study conducted by the Centre of Asia Pacific Aviation (CAPA) most of the respondents did not have any meaningful share in the international flying market based on the seats strength. It was deduced that no respondent individually was in a dominant position in the relevant market. He, therefore, concluded that there was no question of breach of Section 4 of the Act. As regards the complaint of the informant that members suffered financially and became jobless, the Director General concluded that the business of booking of tickets through travel agents had not gone down after the opposite parties (respondents) resorted to the practice of abolition/reduction of commission. On this basis, the Director General gave a negative report on the information lodged by the appellant.

7. This report was forwarded to the parties for filing their replies.

8. The informant/appellant, inter alia, contended that the Director General had incorrectly given clean chit to the opposite parties (respondents) and that the process of investigation adopted was devoid of procedural discipline. It was further urged that there was an appreciable adverse effect on the competition in India and there was no justification on the decision of the respondents not to offer the commission. It was also further urged that the Director General had wrongly determined the relevant market as the market share of the airlines determined by the DG. It was then urged that the market share of the airlines was increasing in India and the respondents were becoming dominant day by day and together they were much bigger than the Indian National Carrier. Lastly, it was contended that the issue of commission was between a principal and its agent and as such principal was always in a dominant position as compared to its agent.

8.1 Various separate replies were given by the respondents. Respondent – Lufthansa German Airlines concurred with the Director General’s Report and based its contention on the same. It was pointed out that the Aircraft Act, 1934 and the Aircraft Rules, 1937 did not mandate the payment of the commission to the travel agents and all that it provided was to include the commission paid to the travel agents in the tariff published by an airline. It further asserted that the decision of zero per cent commission was its independent commercial decision. It was also urged that as per the data of DGCA its market share was 3.5% to the year 2009-10 as compared to 4.2% in the year 2008-2009.

9. Respondent – Air Canada vide its reply 23.03.2011 contended that the allegations were based on the events occurred prior to the date of enforcement of the Act and as such the complaint was not maintainable. However, it concurred with the findings of the Director General.

10. Austrian Airlines also concurred with the contentions raised by the Lufthansa Airlines. Respondent – Continental Airline also agreed with and relied upon the Director General’s report.

11. Respondent – Air France Airlines asserted that there was no violation of any of the provisions of the Act and there was no cartel formed by it with any other airlines. Like Air Canada Air France airlines also raised the contentions that the events were prior to the Act became enforceable. It was further submitted by the Air France Airlines that there was nothing in the information which could establish any agreement between the various airlines much less causing appreciable adverse effect on competition within India. It further denied that there was any abuse of dominant position as there was done.

12. Respondent – North West Airlines (Delta Airlines) also concurred with the conclusions of the DG’s report and challenged the jurisdiction of the CCI on the same ground as that of Air Canada.

13. Respondent – KLM Royal Dutch Airlines relied on the DG’s report. It also raised a plea that the matter pertaining to the period prior to May, 2009 could not be examined.

14. Respondent – Swiss Airlines also supported the DG’s report. Singapore Airlines also relied on the DG’s report and asserted that its decision to implement zero per cent commission was an independent decision based on the recommendations and policy of its head office. It was further urged that such decision could not be said to be an agreement. It also rejected the plea that they were dominant player in the market.

15. During the pendency of this matter before the CCI, the Travel Agents Federation of India also sent a letter stating that they should also be heard before any decision is taken. However, the CCI did not allow them to take part in the proceedings since they had approached at a very late stage. Some additional written submissions were filed by the informant wherein it was mainly submitted that the relevant market in the present case ought to have been taken as the routes on which these airlines operate independently and not the entire Indian air space. It was asserted that various airlines cater to more than 50 – 80% passengers on the routes on which they operated and thus they were in the dominant position at least as far as those routes were concerned. It was urged that after the payment of the commission was stopped, the airlines have not implemented the Net Fare Model. It was nothing but to step up monopolization and those airlines eventually increased their fares to the detriment of the ultimate air traveller. These written submissions were also countered by the Lufthansa German Airlines and Austrian Airlines where they reiterated their original stand. It was pointed out that the travel agents were rewarded under the productivity linked bonus scheme (PLB). It was pointed out that it has shifted its commission based model to Net Fare Model in about 75 aviation markets. It was pointed out by the Lufthansa Airlines that DGCA by its order dated 5.3.2010 had concluded that Director General could not laid down the quantum of commission payable by the airlines to the agents. It was also pointed out that the Ministry of Civil Aviation vide letter dated 12.08.2010 had clarified that there was no violation of any provision of the Aircraft Rules by the foreign airlines if they did not pay the commission to the travel agents. It was pointed out that at the instance of the High Court of Kerala, DGCA was directed to take the necessary action to the representations made in respect of the above. By order dated 28.7.2011 it was held that the role of DGCA was that of regulator and intervention in the commercial agreements between the two private parties was beyond its jurisdiction. Thus, it was asserted that payment of commission was entirely a commercial arrangement between the relevant airlines and their agents.

16. KLM Royal Dutch Airlines and Delta Airlines and Air France Airlines also raised the same plea and so also Singapore Airlines. On consideration of the entire issues the CCI observed that DG had undertaken extensive research, it rejected the argument that on a particular route, a particular airlines operating thereupon should be the relevant market. The Commission, therefore, upheld the finding of the DG relating to the relevant market which was the whole India. The CCI also upheld the DG’s findings and refuted the claims of the informant/appellant that the airlines between them were holding 90% of market share. It was deduced by CCI that none of the foreign airlines had substantial market share in the international flights in India. The CCI also held that there was no question of violation of Section 4 as the dominance under that section was relevant for a single enterprise or group of enterprises and there was no single enterprise or group of enterprises meaning thereby that there was no question of any dominance or its abuse. The CCI also deduced that there was no evidence for meeting of minds in between the airlines before the decision to stop paying commission was taken. The CCI also endorsed the finding of the DG that number of IATA Travel Agents had increased after this decision was taken and that it cannot be presumed that this was an action taken in consultation with each other. The CCI also found that prices of the air tickets had not gone up after the abolition of system of commission. In that view the CCI passed an order closing the enquiry.

17. Shri B.S. Chauhan, advocate appearing for the appellant advanced lengthy arguments reiterating the complaint. His contention was that the Director General had wrongly determined the relevant market and that in fact the relevant market vis-à-vis particular airlines was bound to be fixed on the basis of the route that the said airlines was operating upon. He pointed out if that was done then each airlines would be in a dominant position and thus the abuse by the particular airlines in respect of that route in which it was operating upon would be apparent. We are afraid we cannot accede to this argument for the simple reason that the airlines which provide international flight services to the consumers of India for travel to various destinations outside India and those routes are not necessarily fixed. The CCI had rightly observed that these routes are substitutable. CCI has rightly observed that as long as the consumer is transported to his ultimate destination, the route taken hardly matters. The selection by the consumer for a particular airline would be on the basis of various factors namely the timing, quality of service and also air fare charged by the airlines. It is not necessary that the route taken by one airline operating from Mumbai to London would be the same i.e. via Frankfurt or Paris in case of other Airline operating on that route. It could be via some other city like Brussels. It will make no difference to the consumer so long as airline reaches the consumer to London which is his destination. Therefore, it would be wrong to hold one route namely Mumbai to London as the relevant market for that particular airlines. It was pointed out during the arguments that number of times the consumer while reaching the final destination changes the route or changes the airlines also. In our opinion, the argument raised by the appellant in this behalf cannot be accepted.

18. The CCI has also relied on the Director General’s report about the market domination. Director General had concluded on the basis of his investigation that it was not proved that foreign airlines hold about 90% market share in the relevant market of international flying to and fro from India. The appellant was unable to give any specific statistics before the CCI or even before us. On the other hand, from the documents on record, it is clear that none of the nine foreign airlines has substantial market share in the relevant market of international flight services in India. In this behalf, we were taken through various documents referred to in the Director General’s report. The Director General has relied on that the data available on the Website of Central Asia Pacific Aviation (CAPA). It was criticized by the learned counsel that the credentials of the said body were not established. The learned counsel, however, could not give any other statistics and instead asked us to believe on the Comptroller Auditor General’s Report. According to which the market share of these airlines in case of Lufthansa German Airlines was 87%; Australian Airlines was 86%; Air France was 73%; KLM Royal Dutch Airlines was 76%; Swiss International Airlines Ltd was 63% and Singapore Airlines was 49%. We must clarify that this data is not for the percentage of individual market share. It pertains to the number of passengers travelling to and from various destinations in India under 6th freedom carriage. The total of these percentages goes beyond 100% and comes to 434%. It is, therefore, not possible for us to rely on Comptroller and Auditor General Report as it is not relevant to the controversy.

19. We have seen the figures from the report of the Director General. The Director General has referred to the information available to the D.G.C.A. and has come to the conclusion that individually none of the opposite parties has a market share of more than 5% or 6% of the International traffic. Again as per the study conducted by the CAPA most of the opposite parties do not have any meaningful share in the international flying market based on the seat strength. Even in 2010, share of the Indian carriers in the International traffic was 50% and thus the opposite parties even taken together could not have more than 50% of international traffic. We are satisfied with this conclusion by the CCI which are based on the figures obtained from DGCA Website as also the CAPA. We are, therefore, of the clear opinion that the CCI has committed no error in coming to the conclusion that individually speaking none of the opponent could be said to be in a dominant position.

20. We must here take stock of the arguments that a collective share of all these airlines has to be taken into consideration. The argument is completely wrong for the simple reason that individual foreign airlines cannot be clubbed together and held to be enterprise. They are all independent companies. The question is whether these horizontal airlines companies have come together by way of a cartel and has decided to give way to the commission system. It is found that in fact no such specific agreement is either pleaded or proved. In fact, the pleadings in this behalf on the part of the complainant are confused. There is no evidence of enmity of these Airlines with the travelling agents nor is there any support to suggest that there was any meeting of minds among them. In fact it seems that even Air India the domestic airlines had initially terminated the system of commission to the travel agents. Shri Chauhan painstakingly pointed out that ultimately Air India withdrew their decision to abolish the commission system and again started paying the commission to the travel agents. That may be so. Air India may have its own reasons for doing so. But that does not mean that the decision taken by Air India should be emulated by all other companies operating in India. There was no joint decision to terminate the commission system. We are unable to see any agreement spelling out a cartel or any meetings of mind between these independently operating foreign airlines. All the airlines have in one voice denied any meeting of minds or any carteling arrangement and there is absolutely no evidence given for any interaction between the respondents inter se. In the absence of any evidence it is very difficult to reach to the conclusion of a cartel. In our opinion, the CCI has rightly refused to read any cartel on the part of these airlines and as rightly concluded that the decision to withdraw commission system and substituting the same with another was in terms of the world trend and as such cannot be found fault with.

21. The CCI has in no uncertain term held in the agreement with the D.G. that the decision by these airlines were the independent decision and as such there could be no question of violation of Section 3(3) of the Act. It cannot be forgotten here that it is not as if the travel agents have been left high and dry. There is no evidence that the travel agents have suffered. On the other hand in the line of world trend, the system has been substituted with Net Fare Model all over the world and not only in India.

22. Therefore, there was no question of proceeding further.

23. If what was said in the complaint was true then it would have resulted in the decrease in the number of the IATA Travel Agents. But the report of the Director General says that this has not happened and in fact number of travel agents have increased. It has also been found by the Director General and rightly confirmed by the CCI that subsequent to the abolition of the commission, the prices of the air tickets of the respondent foreign airlines had not gone up. In the result it was found rightly by the CCI that consumers were nowhere harmed. We do not find any fault with this logic and endorse the decision of the CCI not to proceed in the matter and closed the matter under Section 26(6) of the Act.

24. Thus to conclude:-

(1)  The CCI is right in holding that the relevant market for the respondents was the international routes reaching from and to India from the foreign destinations and not a particular route of being operated by a particular airline.

(2)  The CCI was right in holding that all these airlines could not be viewed as a group or enterprise.

(3)  That none of these airlines was individual dominant in the market which has been fixed above.

(4)  There was no evidence of any cartelization whatsoever.

The appeal is dismissed.

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