SA Airlink to be prosecuted for 'predatory pricing'

2018-02-14 13:05 - Selene Brophy
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Cape Town - The mix of passenger load demand and route accessibility is a fine line within South Africa's domestic travel air space. 

A line which SA Airlink has been accused of crossing. This follows a complaint lodged by Fly Blue Crane  and the OR Tambo District Chamber of Business with the Competition Commission between 2015 and 2017, relating to Airlink’s prices on the Johannesburg-Mthatha route.

On Wednesday, 14 February the Competition Commission announced that it was referring SA Airlink to the Competition Tribunal for prosecution on charges of 'excessive and predatory pricing'.  

'Excessive and predatory pricing'

“This conduct has had a negative effect on the route, even contributing to the exit of a new competitor that had entered the market in late 2016. Our estimates further show that air travellers in that area overpaid more than R100m for the 5 years over which the conduct took place.The Commission is concerned about SA Airlink’s conduct and will seek the maximum administrative penalty before the Tribunal,” said Deputy Commissioner, Hardin Ratshisusu. 

Fly Blue Crane submitted it complaint on the basis that "Airlink always had ‘excessive prices’ on this route, the airline lowered its prices below cost when Fly Blue Crane entered the route. When Fly Blue Crane exited the route in January 2017, SA Airlink reportedly went back to exorbitant prices".

Towards the end of last year, Airlink and FlySafair announced plans to apply to the Competition Commission for approval to unite under the Airlink group of companies. The final decision is only expected in the first quarter of 2018. 

 According to the airlines, the “Safair purchase will not affect Airlink’s existing SAA franchise partnership, which continues to deliver traffic and business to SAA and Airlink while their customers benefit from the value, convenience and connectivity the arrangement provides”.

“As part of its continued commitment to the aviation industry within South Africa, Safair shareholder ASL Aviation Holdings will become a minority shareholder of the Airlink Group of companies.  ASL Aviation Holdings is a global aviation group with 6 European and 2 Asian airlines in addition to its South African interests.” 

SEE: Airlink + FlySafair: Here's what you need to know about the planned merger

The Competition Commission said that the investigation subsequently found that: 

  • SA Airlink contravened the Competition Act by abusing its dominance from September 2012 to August 2016 by charging excessive prices on the route to the detriment of consumers
  • Consumers would have saved between R89 million and R108 million had SA Airlink not priced excessively on this route;
  • Lower prices would also have resulted in more passengers travelling by air on the route, possibly contributing to the local economy of Mthatha;
  • The airline engaged in predatory pricing in that it priced below its average variable costs and average avoidable costs for some of its flights. (Variable costs are those costs which vary with the output.
  • Avoidable costs are those costs that can be avoided if a decision is made to alter the course of a business/project)
  • The predatory pricing conduct of SA Airlink contributed to the exit of Fly Blue Crane, their only competitor at the time on the Johannesburg-Mthatha route
  • The effect of the predation is also likely to deter future competition on this route from other airlines. 
  • The Commission will seek an administrative penalty of up to 10% of SA Airlink’s annual turnover for both the conduct of excessive pricing and predatory pricing.
  • In addition, the Commission has asked the Tribunal to determine other appropriate remedies in order to correct the conduct 

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(Source: Asata)