This article first appeared in The Edge Malaysia Weekly on January 27, 2020 - February 2, 2020

THE rumoured merger between AirAsia Group Bhd and Malaysia Airlines Bhd (MAS) has raised concerns about competition, mainly because the merged entity will command almost 85% of the domestic market in terms of revenue passenger kilometre.

When it comes to a merger between airlines, however, the assessment of whether it constitutes a monopoly is not as simple as looking at the market share of passengers it will carry in a year. According to competition law practitioner Shanthi Kandiah, such an assessment is typically based on the individual routes.

“The authorities would look at the extent of the overlapping of routes. They would also see whether the competitors have sufficient excess capacity to mitigate the risk of the merged entity’s raising prices.

“The parties would have to provide evidence of efficiencies, for example, through a better spread of scheduled flight timing and cost synergy,” says Shanthi when contacted by The Edge last Thursday. She is founding partner of SK Chambers, a legal firm that specialises in competition law.

Aviation is one of the sectors that have been carved out of the Competition Act 2010 and has its own competition laws and regulatory bodies. Its commercial aspects are regulated by the Malaysian Aviation Commission (Mavcom) while the air safety aspects are controlled by the Civil Aviation Authority of Malaysia (CAAM).

It is noteworthy that the government is planning to re-merge Mavcom with CAAM. However, the former still has jurisdiction over the commercial matters of the airline industry at the moment as its governing law — the Malaysian Aviation Commission Act 2015 — is still in effect.

On its website, the commission says it prohibits any merger that will substantially lessen competition in any aviation service market.

On how Mavcom goes about it, Shanthi says, “It depends on the areas of the merger, whether it is cargo, charter or commercial flights. For commercial flights, the market definition will depend on the flight’s origin and destination. What is likely is that some local destinations will lead to a monopoly provider if the two airlines merge, unless they are served by a third airline.”

International destinations are less likely to be monopolised because there usually is another carrier serving the route, she adds.

If the AirAsia Group-MAS merger is allowed by Mavcom, the commission could secure undertakings from the merged entity, for example, the divestment of certain slots to a competitor where slot availability is an issue, Shanthi explains. “It could be required to divest certain slots unless, for example, the route is low-volume and it would be difficult to sustain a competitor.”

When asked if the authorities — whether Mavcom in its current form or after being merged with CAAM — can take action against the merged entity post the exercise, Shanthi says, “Any dominant player must be cautious post-merger about increasing prices because in the past, we have seen competition authorities in other countries move to investigate the merged entity. Sometimes, the authorities even secure as an undertaking, no changes in pricing post-merger for a defined period.”
 

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