The Jet-Kingfisher ‘deal’ has re-ignited the debate on how poor regulation leads to cartels and collusion at the cost of the consumer. By Aditi Prasad

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True! But the problems for these two players are largely self-imposed. Both Mallya and Goyal already knew the existing fuel policy of the government, yet they expanded faster than ever and expensively acquired rival airlines, Deccan and Sahara respectively. Route rationalisation was far from Mallya’s mind when he was busy re-painting Deccan’s planes with his Kingfisher red. Had he rationalised routes then, things would have never reached such a passé. Moreover, to stem their monetary bleeding, the two airlines could have as easily looked at other ways to raise capital (like selling their stake) instead of this hurriedly stitched alliance. “They are too clever to sell stake when valuations are low. Also, high interest rates are dissuading them from borrowing. So the only way out was to get together, reduce competition and eventually charge a premium from consumers,” points out management consultant Avinash Narula.

Section 10 of the MRTP Act, 1969, prohibits cartelisation in any industry and says it is a restrictive trade practice as it imposes an unjustified burden on consumers. So although belatedly, but the MRTPC woke up from its deep slumber and on October 17 ordered a probe into the Jet-Kingfisher tie-up. Yet, by the time, the commission submits its report (they are supposed to do so in 60 days, but we know our bureaucrats better) and suggests action; the two airlines would have possibly ridden over the present storm, with adequate customer money in their airbags.

Incidentally, last June, Google and Yahoo! had entered into a somewhat similar alliance globally. The alliance said that Google (with 80% share of the paid-search market) would supply Yahoo! (20% share) with search ads to supplement Yahoo!’s. Yahoo! would get a new source of revenue, while Google would get a new customer for its ad delivery service. But before the ‘deal’ could see the light of the day, antitrust regulators in the US got in the way, fearing that the deal may create a monopoly and lead to illegal price fixing.

The search giants’ lawyers may eventually win over antitrust hurdles, but unlike the Jet-Kingfisher ‘alliance’, at least someone took notice before the deal was signed and put a spanner in their works until further review!

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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