Low-cost airlines react to SAA, Mango 'collusion' allegations

GPS devices are critical to air travel. (Duncan Alfreds, Fin24)
GPS devices are critical to air travel. (Duncan Alfreds, Fin24)

Cape Town - Allegations that South African Airways (SAA) has assisted its low-cost subsidiary Mango by subleasing aircraft at a significantly discounted cost are concerning, Elmar Conradie, CEO of Safair which owns low-cost airline FlySafair, told Fin24 on Monday.

This was after SAA seems to inadvertently have revealed in a statement that it has enabled Mango to offer discounted flights through subleasing aircraft at discounted rates.

"Airline lease agreements can include not only the use of an aircraft, but also certain aspects of the maintenance of that aircraft. This can represent a very significant portion of an airline’s cost structure. Any airline operating with a significant reduction of those costs, would be at a competitive advantage," explained Conradie.

"If Mango has been accessing aircraft at greatly reduced costs through the state, it would certainly point to anti-competitive behaviour that puts FlySafair and kulula.com at a marked disadvantage."

He pointed out, however, that without published financial statements for Mango as an independent entity, it is difficult to have an informed view about what the SAA comments meant.

"All we ask for is the right to compete on a level playing field such that we can win the customer purely by virtue of our superior pricing, experience and performance," said Conradie.

READ: Call for competition probe into SAA, Mango 'collusion'

SAA had issued the statement in question in reaction to the resignation of Mango CEO Nico Bezuidenhout, who has been appointed as new CEO of Africa-focused low-cost airline fastjet as from August 1 2016. Bezuidenhout has been CEO since Mango commenced operations ten years ago. He has also acted as SAA CEO twice.

In the statement SAA said as "an initial investment to subsidise the start-up of Mango Airlines, SAA subleased 10 aircraft, at a significantly discounted cost to Mango Airlines, while continuing to pay the market related premium to the lessor".

"The aircraft are still in use and comprise the whole of Mango’s fleet. SAA understands and accepts that this is a necessary investment and a demonstration of shareholder support towards an entity it has exclusive shareholding over."

READ: Fastjet names Mango's Nico Bezuidenhout as new CEO

The DA said on Monday it will ask the Competition Commission to launch a full-scale investigation into the alleged collusion between SAA and Mango.

Erik Venter, CEO of Comair is not very optimistic about seeing any relief from the Competition Commission on the SAA, Mango allegations.

Comair operates scheduled services on domestic routes in SA as a British Airways franchisee and also as a low-cost carrier under its own kulula.com brand.

"The tragedy is that SAA now regards the subsidisation of Mango as an acceptable practice, and consequently that Mango can price its tickets at below the normal operating costs of competitors," Venter told Fin24 on Monday.

"We are unlikely to see any relief from the Competition Commission. Unlike the competition law of other jurisdictions, South African competition law does not contain any legislation to prevent unfair competition arising from state subsidies."

Venter said there are sections of the Competition Act that could be applied, such as predatory pricing. The process through the competition courts is very slow, uncertain and prohibitively expensive, though, in his view.

"Normally the Commission would rely on another party to research and lodge a complaint on a complex and untested principle such as predatory pricing. In theory the Commission could investigate independently, but without sufficient pressure from Government it is unlikely to do so," said Venter.

"It prefers to deal with simpler matters such as collusion, where one of the participants acts as whistle blower and provides all the required evidence."

Tabassum Qadir and Javed Malik, co-chairs of grounded low-cost airline Skywise, told Fin24 on Monday that "in 10 years of historical airline demises in SA", for the first time SAA has now indicated "that Mango has been subsidised".

They, therefore, question whether Mango's profitability in the context of its own performance and emphasised that, in their opinion, unfair market competition in the SA aviation industry had led to the demise of "great private airlines".

"The growth in the aviation industry can be a catalyst for the economy if right things are done with a long term view," said Qadir and Malik.

At the same time they lauded "the brave leadership and courage" of SAA chair Dudu Myeni for standing on principle, rather than popularity.

They also propose that SAA, Mango and SA Express (the state-owned regional airline) should be merged to form a stronger force.

ALSO READ: Room for 25% equity partner in SAA merger - Brown

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