The Civil Aeronautics of Colombia issued objected this Tuesday (8) the integration of Avianca and Viva, assuring that the study they carried out concludes that the merger represents risks for competition in the airline industry sector and the wellbeing of consumers.
The study details that this integration would generate or reinforce the market power of Avianca, Viva and Viva Air Peru considering that they operate in 59 domestic routes that mobilize 93.7% of the domestic traffic in Colombia, and that they overlap in 29 routes, besides being the only operators in 16 routes.
This, according to the study, would mean that in terms of free competition, the Colombian market would regress to the levels of seven years ago.
«Viva, which has been a relevant player in the Colombian market, has energized competition in the sector and has become a valuable alternative for Colombian and regional consumers, would disappear as an independent competitor», says Aerocivil, adding that «other competitors would face new difficulties to grow or enter markets affected by higher barriers to entry and greater market power», which could translate into an impact on consumers given the ease that Avianca and Viva would have to increase their prices or reduce frequencies.
Despite this, Aerocivil does not close the door completely to the integration, given that, as has happened in other similar situations, the companies may propose actions to compensate the so-called «anti-competitive effects» on the market. Thus, they also could prove that the integration of Viva falls under the exception of a company in crisis under local legistlation.
The latter had been the path chosen by Viva, but Aerocivil states that «although it was proven that Viva is currently facing a relevant financial situation, Avianca and Viva did not prove that Viva’s economic crisis is of such magnitude that it affects its viability in the market and, therefore, is doomed to exit the market imminently and inevitably».
On the other hand, according to Aerocivil, Viva did not prove that it has explored and exhausted other alternatives and that they have been unfeasible», such as loans to financial entities or offers to potential buyers.
Likewise, both companies «did not prove that the damage to competition generated by the transaction was less than that which would be caused by Viva’s exit from the market. On the contrary, Avianca and Viva merely recounted the effects of the alleged exit of Viva from the market, but did not compare them with the effects that would be generated by the approval of the transaction».
In this way, Aerocivil issues a recommendation to the ultra-low cost airline to «adopt the pertinent internal and alternative measures in order to overcome the financial situation it is currently facing».
Both parties now have 10 days to appeal this measure, but Aerocivil warned that «only those conditions that solve the competition concerns of the authority will be accepted» and that, if Avianca and Viva submit a new request, the analysis may be updated and that they may take the time that «is appropriate», contrary to the current study that was carried out with «speed and efficiency due to the urgency expressed» by the parties.
Avianca had made a bid for Viva at the end of April, acquiring 100% of the economic rights of the company in Colombia and Peru, although without having control or management over the low-cost carrier. In August they requested the integration under the process of company in crisis alleging the drastic financial deterioration of Viva in the last quarter. This occurred just hours before Gustavo Petro took office as president of Colombia, the first in the country’s history to be considered a leftist, which led to fears of a less pro-market position than that of his predecessors that would have a negative impact on the integration of Avianca and Viva, which, whether because of this or not, ended up coming true, at least for now.
Surprise at Viva
After learning of Aerocivil’s decision, Viva issued a statement saying that they have received it «respectfully, but with surprise».
«Under the suggestions made by the Authority when giving its concept, we will review the alternatives presented to us, given that this alliance is necessary for the continuity of Viva, to continue to enhance connectivity with the airline. Viva, continue to enhance the country’s air connectivity at low prices and the source of work for the more than 5,000 direct and indirect employees of Viva,» they continued.
«For our part, and while we study the possibilities we have as a company to review this decision, we will continue to operate as we have done throughout our ten years of operations, and in recent months despite the difficult macroeconomic environment we face, committed to promoting air inclusion in Colombia and the region, hand in hand with our ‘Super Low Cost’ model that has generated higher levels of connectivity and development for the country and the region,» they concluded.
