Airlink faces steep fine for putting rival out of business in price war

Airlink jet Picture Credit: flyairlink.com
Airlink jet Picture Credit: flyairlink.com
Image: flyairlink.com

The Competition Commission has referred SA Airlink to the Competition Tribunal for prosecution on charges of excessive and predatory pricing on the Johannesburg-Mthatha route.

This stems from complaints lodged by Khwezi Tiya‚ Fly Blue Crane and the OR Tambo District Chamber of Business between 2015 and 2017. They alleged that Airlink‚ a privately controlled regional feeder airline‚ had excessive pricing before Fly Blue Crane entered the route; that SA Airlink then lowered its prices below its costs - referred to as predatory pricing - when Fly Blue Crane entered the route; and it was also alleged that SA Airlink went back to their exorbitant prices after Fly Blue Crane exited the route in January 2017.

Fly Blue Crane arrived on the scene charging only R799 for a one-way flight‚ while Airlink offered a return flight for R4‚000‚ DispatchLIVE reported last year. Airlink provided two return flights per day between Mthatha and Johannesburg from Monday to Friday and one on Saturdays and Sundays. But when Fly Blue Crane appeared‚ Air Link introduced a third flight and slashed its return fares to R2‚000. The Dispatch reported that Airlink had been operating flights from Mthatha to Johannesburg since the government pumped in around R700-million towards the renovation of the Mthatha airport which included the construction of a R250-million 3km runway to accommodate larger aircraft.

On Wednesday‚ the Competition Commission said its investigation found:

- 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.

- 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; and

- The effect of the predation is also likely to deter future competition on this route from other airlines.

The Commission wants 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".

Deputy Commissioner‚ Hardin Ratshisusu‚ said: “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 R100 million 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.”

X