A local aviation industry body, which represents all big carriers in SA and the region, says it would be unreasonable and unfair for the competition authority to penalise airlines for failing to provide cheap tickets.
“The rules of supply and demand, as well as the checks and balances to promote fair competition apply to all SA airlines, just as they do to any other local business,” Aaron Munetsi, CEO of the Airlines Association of Southern Africa, told Business Day at the weekend.
In the wake of Comair’s decision to halt operations due to a cash-flow crisis, the Competition Commission — a key statutory body mandated to investigate abuse of dominant positions and mergers to achieve equity and efficiency in the economy — said it had met airlines Lyft, FlySafair, Airlink and SAA amid concern that the move by the British Airways (BA) and Kulula operator to suspend operations could lead to a spike in airline ticket prices.
The commission said it was aiming to prevent any possible price gouging emanating from the supply shock as a result of the grounding of Comair, a regional airline accounting for 40% of airline capacity.
Local airlines also came under scrutiny in March after ticket prices skyrocketed when the aviation regulator grounded Comair’s fleet for almost a week due to concern about safety. The commission said then that reports and complaints suggested that prices for seats on the remaining airlines had spiked, with carriers quoting R5,000 for a single flight ticket from Johannesburg to Cape Town.
Munetsi said an important distinction must be made between price gouging or unfair, unreasonable or unjust pricing, and what airline customers are sometimes confronted with when one carrier cancels its flights or stops trading.
“Every airline sets its own fares based on their unique business models, scale of their operation, fleet composition and utilisation, fixed and variable costs, destinations, and target markets,” said Munetsi. There are typically various fares in each class of travel — such as economy and business — with their own terms, conditions and associated flexibility or restrictions.
“When an airline’s lowest and most restrictive fares have all been sold on a given flight, the next fare levels are higher but usually less restrictive. In this respect, no two airlines are the same. It would be unfair if one airline’s lowest band of fares was used as the standard against which others are measured, especially if they are subeconomic in the context of competing carriers,” said Munetsi.
“In the same way, it would be unfair to punish a boutique for selling a tailored suit at a price higher than that commanded by a department store for a functionally and similar-looking off-the-peg garment.”
Munetsi said that an airline carries a finite inventory and, just like any other business, it would be unreasonable if it was penalised for failing to carry surplus cheap stock on the off-chance that one of its rivals might stop trading.
“A similar scenario would be if a shopper, who urgently needs to buy toilet rolls, drove to the mall only to find the hyper store was closed and instead purchased them at a higher price from their local convenience store, whose prices reflect its higher overheads. For an airline, producing additional capacity means adding flights or operating larger aircraft, but this carries extra costs, which must also be covered. It is no different to any other business,” he said.
This suggests that travellers should brace for a possible steep rise in ticket prices as Comair’s grounding means there could be fewer seats available for the foreseeable future.
Aviation analyst Phuthego Mojapele said last week that prices can be kept in check by more competition in the market, and the possible demise of Comair presents an opportunity for new players to enter the space.
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