Three months after the application was filed, the aeronautical authority concluded that it is a danger to free competition
Avianca and Viva requested to join last August, but Aerocivil considered that the merger would affect free competition PHOTO: JESÚS AVILÉS
The answer is no: this Tuesday, November 8, after three months of filing the request to merge the companies Avianca and Viva Air, the Civil Aeronautics decided that said union will not take place to avoid scenarios of monopoly and unfair competition in some cities.
This merger had been formally requested before Aerocivil on August 8. Several voices of protest were raised from the moment this petition was filed. For example, the president of the newly arrived airline Ultra Air, William Shaw, mentioned that this merger would control 65% of the Colombian air market.
“It would create a monopoly, which we already had and we live in Colombia and the only thing it brought was more expensive rates, but what this monopoly brings, in addition, is domination over the country's airport infrastructure” Shaw pointed out in dialogue with RCN Mundo.
A popular action had even been filed before the Administrative Court of Cundinamarca against the two airlines because, supposedly, they merged under the table before having permission from Aerocivil, which would constitute a violation of free competition laws.
Although this lawsuit did not prosper and Avianca sued William Shaw for disseminating false information, the aeronautical authority also concluded that allowing this integration “represents risks to competition in the sector and to the welfare of consumers”, according to what they indicate in their communication.
Aerocivil gave several arguments to prevent this union. For example, he pointed out that the merger would strengthen the market power of Avianca, Viva Air and Viva Peru. They also showed that their slice of the business would be even larger than Shaw estimated.
“The intervening parties participate in 59 national routes, which mobilize 93.7% of domestic traffic in the country. Of these routes, they participate in 29 national round trip routes in a coincident way, ”said Aerocivil. What's worse: if the merger is allowed, this merged company would be the only option for consumers of 16 national routes.
If this merger were allowed, there would be a setback of more than seven years in terms of free competition and the new entrepreneurs “would face new difficulties to grow or enter markets affected by higher barriers to entry and greater market power.”
Viva, which was described as a “valuable alternative for Colombian and regional consumers”, has already mentioned before that it is in crisis and could disappear if the merger does not happen. In this eventuality, Aerocivil says that this situation must be proven so that they can make an exception.
For example, they had to demonstrate that the company would leave the market if it is not sold or integrated with a third party. Furthermore, if they merged, they had to prove that the merger would do no more harm to competition than the bankruptcy of the failing company.
Since the companies did not show sufficient evidence that Viva was in a fatal crisis and that the competition would not be more damaged by the merger than by the disappearance of the low-cost airline, the authority decided to reject the application altogether. It also recommended Viva “to adopt the pertinent internal and alternative measures in order to overcome the financial situation it currently faces.” However, companies still have an appeal.