Competition Commission allows Scoot, Tiger to coordinate fares, flight schedules

By Howard Lee

The Competition Commission Singapore (CCS) has given the green light for what could be an alliance between two Scoot and Tiger Airways, which would see the two budget airlines coming together to decide on scheduling, pricing, sales and marketing, service policies, and other matters.

It is not clear if the partnership would lead to price fixing between the two airlines, both of which are partly or wholly owned by Singapore Airlines.

Nevertheless, CCS maintains that the cooperation would result in “net economic benefits” – which include improvements in scheduling and efficiency on routes, expanded connectivity across the two carriers’ networks and expansion of existing networks – that would not be detrimental to consumers.

CCS noted that the two airlines “operate largely complementary networks of flights”, which is taken to imply that they do not generally compete with each other.

“Although some parts of the Proposed Cooperation would raise competition concerns, these would be offset by a resulting net economic benefit (NEB) to Singapore passengers and therefore the Proposed Cooperation is excluded from the Section 34 Prohibition,” said CCS in a media statement.

Section 34 Prohibitions looks into agreements, decisions and practices which prevent, restrict or distort competition.

The two airlines have applied to CCS in January 2014 for clearance to undertake the cooperation, and CCS has sought feedback in February in relation to the proposal by the two airlines. The two airlines first announced a partnership in October 2012.

CCS also published a study report on 11 February 2014 that examines the NEB of joint ventures in the airline industry.

In its analysis of two airline alliances, the report evaluated that such cooperations, while resulting in economic benefit, might not necessarily result in a reduction in fares. As indicated:

“The main benefit of existing JVs (joint ventures) has been an increase in passenger numbers, both at the market level and for the carriers in the JV. These increases in passenger numbers are likely to have generated significant economic benefits for Singapore. While not quantifiable directly, economic benefits from increased trade and business travel are likely, as are more immediate benefits from increased airport revenue.

On fares, the picture is complex. Any changes following a JV appear to have been driven by what passengers do – which airlines they travel on, the routes they take and the proportion that travel in each fare class. These so-called “mix effects” can mean that average fares change even when fares offered by individual airlines or JVs remain the same.”

The approval from CCS to Scoot and Tiger Airways, however, is by no means a go-ahead for other airlines, as “each airline cooperation agreement would need to be examined on a case-by-case basis,” CCS said.

Scoot and Tiger Airways jointly operate a total of 33 aircraft, serving a total of 46 destinations in 15 countries from Singapore. the two budget carriers offer more than 450 weekly flights and about 169,000 seats every week.

CCS is a statutory board established under the Competition Act, which empowers CCS to investigate alleged anti-competitive activities, determine if such activities infringe the Act and impose suitable remedies, directions and financial penalties.

Images – Tiger Airways Airbus A320-200 by Phil Vabre (GFDL), Wikimedia Commons; Scoot Boeing 777-200ER by Kok Chwee Sim, Wikipedia Creative Commons