/ 9 November 2012

Comair sues SAA for unfair practice

The multimillions claimed for uncompetitive behaviour could precede a much bigger lawsuit.
The multimillions claimed for uncompetitive behaviour could precede a much bigger lawsuit.

Already in the spotlight for allegedly forcing out competition after the liquidation of low-cost carrier 1Time, SAA was taken to the South Gauteng High Court in Johannesburg this week by Comair, which is seeking compensation for damages attributed to SAA's anti-competitive practices between October 1999 and May 2001.

The dispute relates to two incentive schemes SAA implemented to promote domestic airline ticket sales through the services of travel agents that prejudiced other competitors in the market, namely Comair (operated by British Airways) and the now defunct Nationwide.

The schemes rewarded travel agents for booking clients on SAA. However, because the carrier was considered dominant in the market – it had much more than 45% of market share – it was legally prohibited by the Competition Act from inducing a supplier or customer not to deal with a competitor such as Nationwide or Comair, unless it could show pro-competitive gains that outweighed the anti-competitive effect of its actions.

"The practical effects of the override scheme and the Explorer scheme was that they induced travel agents not to deal with the competitors of SAA," Comair said in its summons. "The scheme[s] had significant anti-competitive effects in that they inhibited Nationwide and BA [British Airways]/Comair] from expanding in the relevant markets, whilst reinforcing the dominant position of  SAA therein."

In October 2000, Nationwide submitted a complaint to the Competition Commission on this matter. The commission determined that the incentive schemes constituted prohibitive practices in contravention of the Competition Act. The complaint was referred to the Competition Tribunal in May 2001 and in 2005 it also found that the schemes constituted prohibitive practices.

<strong>Methodology and calculations</strong>
But an administrative penalty of R45-million was not enough due justice for Comair and Nationwide.

Nationwide shut its doors for good in November 2008, one of 10 others since the industry was opened up to competition 23 years ago, according to Comair chief executive Erik Venter. But Nationwide's liquidators still sued for damages and settled on an undisclosed amount, said Martin Versfeld, the co-head of the competition practice at Webber Wentzel, Comair's legal representatives.

It had taken time to pull the case together because of the complexity of the matter, Versfeld said. Another reason is that 25 days had to be be set down for the hearing, which began on Thursday. "But I do not anticipate that it will take the full 25 days," he said. Two amounts have been put forward &ndash; R70-million and R124-million &ndash; and it is up to the court to decide which is more accurate, if any at all.

In its plea, SAA denied that Comair had suffered any loss as a result of its conduct: "The defendant denies all the assumptions, facts, methodology and calculations … and its acceptance of a casual connection between the defendant's conduct and the plaintiff's alleged loss."

"SAA paid travel agents between R82-million and R84-million in incentives during that period," Versfeld said, "so it suggests the compensation we are seeking is in line with the damages."

<strong>Business rescue</strong>
But another, much bigger case is on the cards for the same uncompetitive practice between 2001 and 2005 in which both Nationwide and Comair will likely claim a far larger sum, given the longer duration. "We are hoping it will be heard toward the latter part of next year," Versfeld said.

The court case comes at a time when SAA and its uncompetitive practices are under scrutiny following the folding of 1time airline, which filed for business rescue last Friday.

SAA's's low-cost offshoot, Mango, has posed stiff competition for other budget carriers in South Africa and the state-owned airline as a whole has been propped up by a R5-billion guarantee, even though its financial results show a R1.3-billion loss.

Venter has openly accused Mango of being responsible for 1time's demise.

A statement released by Public Enterprises Minister Malusi Gigaba said Mango had achieved profitability in three of five full fiscal years and it had never participated in any benefit of capitalisation of its parent company, nor was it ever likely to do so. "Mango is legally and organisationally ring-fenced from SAA with a clear mandate to … be financially self-sufficient and … reduce the cost of air travel to all South Africans," Gigaba said.