The Competition Tribunal has resumed hearings for the ongoing case against the South African Airline, Airlink, over accusations of predatory and excessive pricing practices.
This case is rooted in allegations that Airlink abused its market dominance on a route between 2012 and 2016 following the exit of Fly Blue Crane (FBC), a new entrant in the market that briefly competed.
The route in question is the Johannesburg–Mthatha route, and Airlink is accused of deliberately lowering prices to unsustainable levels to drive out rival Fly Blue Crane and then raising prices once more following the competitor’s exit.
Guy Leitch, an aviation expert, has stated that the case against Airlink could be a watershed moment for the South African aviation industry.
“The commission argues this conduct harmed consumers and discouraged new entrants, with losses estimated at up to R108 million,” said Leitch.
He also noted that the South African airline industry has been deregulated since the early 1990s, and consequently, the market has been a total free-for-all.
Leitch then explained that most airlines now use a dynamic pricing model, with ticket prices varying depending on timing and demand.
“Airlines can essentially charge as much as they possibly can for the seats, which makes the timing of when you buy the seat really important,” he explained.
“If you buy early, it’s cheaper. If you buy at the last minute, when only a few seats are left, it’s more expensive.”
He noted that this has resulted in the industry being placed under scrutiny from regulators on a frequent basis.
“We’ve seen problems with SAA, Comair, and others, with Comair even winning more than a billion rand in damages against SAA for abusing the free market. So this is not a new problem.”
Reasons for its significance
Leitch has explained that all airlines run special offers, such as FlySafair, which is well known for its specials.
“On the one hand, it could just be a way to sell seats and build up routes. On the other hand, it could be pricing designed to keep competitors out of the market. That’s the crux of this case,” he said.
He noted that Fly Blue Crane, which was launched by former SAA and SA Express CEO Sizakele Mzimela, attempted to operate on underserved regional routes such as Mthatha but collapsed with claims of predatory pricing by Airlink.
Leitch explained that the complaint is that fares were priced so low that Blue Crane couldn’t compete, noting that fares on routes like Johannesburg–Mthatha are usually higher than on busier city pairs due to higher operating costs.
“You can’t compare Mthatha to Johannesburg, Durban, or Cape Town. Those routes are flown with 180-seat Boeing 737s, whereas Mthatha can only be served with 35-seat aircraft,” he said.
“The airport hasn’t been approved for larger planes, so the costs are enormously higher. You still need two pilots, full operating expenses, but spread across a fraction of the seats.”
Despite the pricing controversy, he stated that Airlink is key in servicing the region by providing as many as four to five daily flights.
“If they didn’t operate, and no other airline stepped in, Mthatha would slowly decline. It’s 200 kilometres to East London, so without flights, investment, and people simply wouldn’t come,” he noted.
“It’s incredibly difficult to determine what a fair price is in aviation. That’s why this is such a landmark case for competition law.”
Loading ...
