ANALYSIS. How the express industry caught the arbitrary levy of surcharge

With the Competition Commission of India (CCI) acting against three domestic airlines for rigging fuel surcharge for transporting cargo, the industry might be exposed to more such charges of cartelisation.

Acting on a complaint by the Express Industry Council of India (EICI), a body representing cargo and freight operators, the CCI on Tuesday imposed penalties of ₹258 crore against Jet Airways, IndiGo and SpiceJet, which dominate the airline industry in the country. All the three put together have a market share of over 70 per cent.

The EICI has been keeping tabs on the airlines’ practices since 2008, the first time they imposed a ₹5 per kilo litre of fuel surcharge on cargo to derisk themselves against the volatility of fuel prices. But since then, the EICI claimed that the airlines used it as a tool to rig the market.

In 2010, the lobby representing the cargo industry wrote a letter to all airline CEOs that they need to benchmark the fuel surcharge to an index as per the international practise. “It could have been benchmarked to some basket of crude. In the US, it is usually done with energy prices,” pointed out Vijay Kumar, Chief Operating Officer of EICI.

As per the matrix drawn up by the body and shared with the CCI, on September 16, 2012, the ATF price per kl was ₹73,710.69. At that time, the fuel surcharge was ₹13 per kl. Two months later, the ATF price had gone down to ₹68,397.52, while the fuel surcharge was increased to ₹15 per kl. “This defies logic. When the price goes up, the cost is passed on to the customer. But when it goes down, the benefit too, should be passed on to the customer. But this didn’t happen. The customer was always on the losing side,” Vijay Kumar told BusinessLine .

He also said that during 2008, the airlines did reduce the fuel surcharge but since then, they have only been increasing it. Not only that, the airlines started increasing the surcharge every six to eight weeks since 2012. The EICI again wrote to the airlines but as they did not respond positively, the body filed a formal petition to the CCI in February 2013. In its petition, the body said: “There is absolutely no correlation between ATF prices and fuel surcharge and whenever surcharge has been increased, it has been done in concert. It has been used as a tool to the detriment to the users who include express companies, freight forwarders and the end user.”

The CCI found the charges prima facie valid but got its investigation team to start an enquiry into the alleged claim. It took the commission nearly two-and-half years to come to the conclusion after going through all the records of all the airlines that the EICI’s charges were valid. Though the EICI had included all the airlines in their petition, the CCI found it fit to exclude Air India and GoAir stating that these two airlines did not merit any penalties as they did not rig the prices.

Vijay Kumar said the burden on additional surcharge was as high as between 8 per cent and 12 per cent for the customers.

However, the former chief operating officer of GoAir, Capt AK Sachdev, said that the CCI should not have imposed any penalties against the airlines and should have allowed the market forces to play out. “I don’t see any merit in CCI imposing penalties against the airlines. It is a market driven industry and market forces should be allowed to play out,” he said.

But Vijay Kumar said the body sees this ruling as good for the economy as a whole. “Anywhere prices are rigged, this ruling will act as a deterrent,” he said. On the amount of penalty imposed by the CCI, he said that it was more of an exemplary nature.

With the airlines challenging the order, the case will now be headed by an appellate tribunal with the CCI being the main respondent.

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