Airline stocks drop after CCI imposes penalty for cartelisation

Three airline stocks dropped by 0.57% to 3.04% at 9:25 IST on BSE after the Competition Commission of India has imposed penalties upon these airlines for concerted action in fixing and revising Fuel Surcharge for transporting cargo.

Meanwhile, the S&P BSE Sensex was down 19.25 points or 0.07% at 25,845.22.

Among airline stocks, Jet Airways (India) (down 3.04%), InterGlobe Aviation (down 0.57%) and SpiceJet (down 2.4%) dropped.

The Competition Commission of India (CCI) has imposed penalties upon 3 airlines for concerted action in fixing and revising Fuel Surcharge (FSC) for transporting cargo. The final order was passed by CCI yesterday, 17 November 2015 in a matter which was filed by Express Industry Council of India against Jet Airways (India), InterGlobe Aviation, Spice Jet, Air India and Go Airlines (India) alleging contravention of the provisions of section 3 of the Act which deals with anti-competitive agreements.

The Commission noted that the airlines acted in parallel in collusion in fixing FSC rates. Such conduct was found to have resulted in indirectly determining the rates of air cargo transport and thereby in contravention of the provisions of section 3(1) read with section 3(3)(a) of the Act. Accordingly, penalties of Rs 151.69 crore, Rs 63.74 crore and Rs 42.48 crore were imposed upon Jet Airways (India), InterGlobe Aviation and Spice Jet respectively for the impugned conduct which was found to be in contravention of the provisions of section 3(1) read with section 3(3)(a) of the Act. Besides, cease and desist order was also issued against the airlines.

No penalty, however, was imposed upon Air India as its conduct was not found to be parallel with other airlines. Similarly, no penalty was imposed upon Go Airlines (India) as it gave its cargo belly space to third party vendors with no control on any part of commercial/economic aspects of cargo operations done by vendors including imposition of FSC.

While imposing penalties, the Commission noted that such conduct in the air cargo industry undermines economic development of the country and ultimately acts to the detriment of end-consumers. However, considering the precarious financial position of airlines, the penalty was imposed by the Commission at the rate of 1% of their average turnover of the last three financial years.

Jet Airways (India) said before market hours today, 18 November 2015, that it is not in contravention of the provisions of the Competition Act and it shall pursue all available legal steps to defend its position.

InterGlobe Aviation said before market hours today, 18 November 2015, that the company is studying the CCI order and will take legal steps to challenge the order in the appropriate forum. The company has been legally advised that it is not in contravention of the provisions of the Competition Act, 2002.

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