What are the competition law implications of an airline merger?

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Competition Law Implications of an Airline Merger

An airline merger can have significant competition law implications, primarily concerning the potential for a substantial lessening of competition in the aviation services market. In Malaysia, the Malaysian Aviation Commission Act 2015 (MACA 2015) governs such matters, mandating that mergers which have resulted or may be expected to result in a substantial lessening of competition are prohibited. While the notification process under MACA 2015 is voluntary, parties are responsible for assessing the competitive impact and determining the necessity of notifying the Malaysian Aviation Commission (MAVCOM).
Assessment of Substantial Lessening of Competition (SLC)

MAVCOM employs a four-step test outlined in its 'Guidelines on Substantive Assessment of Mergers' to determine if a merger leads to a substantial lessening of competition. This process involves defining the relevant aviation service market, identifying potential "theories of harm" that could negatively impact competition, developing a counterfactual scenario to understand the market's state without the merger, and finally, assessing the competitive landscape against this counterfactual. Typical competition issues considered within the airline industry include practices like code-sharing, price-fixing, allocation of airport capacity and slots, frequent flyer programs, corporate discount schemes, travel agent commissions, and tariff coordination.
Market Concentration and Dominant Position

A merger between Malaysia Airlines (MAS) and AirAsia, for instance, would create a combined entity controlling approximately 80% of the Malaysian aviation market share. MAVCOM's 'Guidelines on Abuse of Dominant Position' suggest that a market share exceeding 60% is generally indicative of a dominant position. Such a high level of market concentration raises concerns about the merged entity's ability to operate independently of competitors and consumers, potentially leading to increased airfares, reduced flight frequencies, and a decline in service quality due to diminished competition. MAVCOM has specifically noted that a MAS-AirAsia merger could result in significant market concentration and potential monopoly status on numerous domestic routes.
Safeguarding Industry and Consumer Interests

MAVCOM emphasizes that any consolidation within the aviation industry, even if driven by the need to support struggling firms, must comply with the merger control provisions of MACA 2015 to protect both industry and consumer interests. While acknowledging the potential justification of a "failing firm defence" during economic crises like the Covid-19 pandemic, MAVCOM will rigorously assess the merits of such claims. This defence argues that the failing party would exit the market regardless of the merger, thus its competitive contribution would be lost anyway. However, such defences require substantial evidence, including commercially sensitive information, to prove that the party would genuinely fail without the merger. The Malaysian Competition Commission (MyCC) has previously intervened in cases where collaboration agreements between airlines distorted competition, such as a past agreement involving MAS' predecessor, AirAsia Berhad, and AirAsia X Sdn Bhd, which was found to have the object of market-sharing for commercial revenue maximization.

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What are the competition law implications of an airline merger?

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