Top South African airline facing serious accusations

Last week, the Tribunal resumed hearings about allegations that Airlink abused its dominance on the route between 2012 and 2016, when new entrant Fly Blue Crane (FBC) briefly competed before exiting the market.

Aviation expert Guy Leitch said the case against Airlink, which was before the Competition Tribunal, could be a landmark moment for South Africa’s aviation industry. 

He explained that the airline stands accused of predatory and excessive pricing on the Johannesburg–Mthatha route between 2012 and 2016.

The airline faces allegations of deliberately lowering prices to unsustainable levels to drive out rival Fly Blue Crane, before being raised again once the competitor had exited.

“The commission argues this conduct harmed consumers and discouraged new entrants, with losses estimated at up to R108 million,” said Leitch.

He noted that the South African airline industry has been deregulated since the early 1990s, making it a complete free-for-all. 

According to Leitch, airlines now use a dynamic pricing model where ticket costs vary 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.”

This deregulated environment, he added, has placed the industry under repeated scrutiny from regulators. 

“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.”

Leitch said the tribunal faces a difficult challenge in determining whether Airlink’s conduct amounted to predatory pricing or whether it was simply a competitive market practice. 

Why it’s a landmark case for competition law

“All airlines run special offers. FlySafair, which is now the dominant domestic carrier, is well known for its specials,” Leitch said.

“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 pointed out that Fly Blue Crane, launched by former SAA and SA Express CEO Sizakele Mzimela, attempted to operate on underserved regional routes such as Mthatha, but collapsed amid claims of predatory pricing by Airlink. 

“The complaint was that fares were pushed so low that Blue Crane couldn’t compete, and then once they exited, prices rose again. That’s the allegation the tribunal must assess,” said Leitch.

Leitch explained why fares on routes like Johannesburg–Mthatha are higher than on busier city pairs, stressing that operating costs are far greater.

“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.”

Leitch also emphasised the importance of Airlink’s service to the region despite the pricing controversy.

“Airlink has done an enormously important job in providing essential connectivity to Mthatha, with as many as four or five flights daily.” 

‘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 argued.

In his view, this makes the case both complex and significant. “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.”

“The tribunal has to decide where the line is between fair market practice and abuse of dominance. And almost regardless of cost, the essential air link to Mthatha must be maintained,” Leitch concluded.

Issued on BusinessTech by Malcolm Libera | https://businesstech.co.za/news/business/838510/top-south-african-airline-facing-serious-accusations/