General News Mon, 20 Jan 2003

Another "IFC" In The Making


If the sweet talking of Nationwide Airlines and the lackadaisical attitude of government negotiators to yield to public requests for transparency in the divestiture of Ghana Airways continues, another blunder like the IFC loan fiasco may be committed – our national carrier would be given to a budding domestic South African airline which has been struggling to find its feet in South Africa’s airline industry.

Aviation documents from South Africa say it all – Nationwide can be swallowed a million times by the debts of Ghana Airways, a Chronicle report indicate.

It has also established that Nationwide Airlines is one of the little players in South Africa’s airline industry, trailing behind major players like South African Airways, South African Express Airways and South African Airlink.

In the face of industrial extinction and the struggle for survival in South Africa’s airline business came case number 92/IR/OCT00. It was a frivolous writ filed in SA’s Competition Tribunal by Nationwide Airline seeking several reliefs from the court to compel its competitors to upwardly adjust their prices in order to allow it stay in business.

Nationwide Airlines, walked to the tribunal with dozens of frivolous allegations against its competitors – South African Airways, (SAA) Propriety Limited, South African Express (SAE) and South African Link (SEL) (propriety) Limited.

In return, Nationwide walked out of the tribunal with dozens of disappointments as the court threw away their case and gave their competitors a thumb-up for effective management resulting in low prices in the face of rising costs. In year 2000, South Africa’s airline industry experienced an escalation in operation costs.

According to a aviation and court documents, jet fuel prices increased by 56 per cent between August and November of that year. At the same time, the rand-dollar exchange rate had changed rate had changed unfavourably.

Nationwide Airlines, a key contender in the id for Ghana Airways, was the only airline, which could not stand this price shock. They told the Competition Tribunal that these escalations had forced them to upwardly adjust prices but their competitors refused to adjust their prices.

According to Nationwide, figures from its competitors indicate that they should have increased their prices by 20 per cent and that their reluctance to increase prices in the face of rising costs amounted to predatory pricing.

Allegation number two: Nationwide told the court that the respondents – SAA, SAX and SAL were engaged in an unlawful campaign to recruit its pilots and that its competitors were engaged in prohibited practices of an exclusionary nature.

Nationwide noted tat some of the prohibited practices related to certain agreements which their competitors have with travel agents to provide override commissions and other incentives.

But the tribunal did not waste time. It threw away the writ and refused to grant the interim injunctions, which were being sought by Nationwide Airlines.

In its 23-page ruling, the tribunal presided over by one Norman Manoim, stated, “we have decided that the applicants have failed to establish their claims and we have decided that their application must fail.”

On the charge of predator pricing, the tribunal noted that it was unaccepted for Nationwide Airlines to signal that a failure to pass on input price to final consumers amounted to an anti-competitive practice.

“Indeed, it is an increase in the price of input that frequently triggers the search for pro-competitive strategies in downstream markets where competition prevents simple pass-through of the increase top consumers”, the court said.

Then came the real blow – “we would want to reward those firms who, as a result of the efficiency, are able to absorb price increase of their inputs without passing them onto the consumers,” the court stated., adding, the scant evidence provided by Nationwide did not assist its case.

Competitors of Nationwide, especially, SAA on their part, proved to the court that even in the wake of the escalations their revenues exceeded their costs. SAA maintained that they had been able to absorb the increases in cost because they made much efficiencies introduced by its management to increase profitability.

One of the competitors of Nationwide – SAA explained to the court that its ability to absorb cost was a result of its successful hedging against an increase in fuel prices and currency depreciation.

“Having failed to establish that SAA is pricing below marginal or average variable cost, the predatory pricing charge fails to be dismissed under section 8 (d) (i) of the Competition Act. In its heads of argument, Nationwide’s representatives concede as much but seek to rely on circumstantial evidence. We fail to find such evidence in the record,” the court stated.

On Nationwide Airline’s allegation that its competitors were inducing travel agents not to do business with them, the court noted that there was no evidence that competitors were perpetrating a prohibited practice with travel agents.

The court finally made a ruling on the allegation of poaching of staff of Nationwide Airline by its competitors, especially SAA. It emerged that in year 2000 alone, as many as seven B737 pilots from Nationwide Airlines joined South African Airways. Out of the seven pilots, four were captains.

Nationwide expressed concern that such highly trained captains were not being utilised on command positions on the aircraft for which they had been trained but, instead, its competitors, especially SAA, were using them as relief pilots on Boeing 747s, indicating sinister intentions because they could easily have sourced relief pilots from the pool of unemployed pilots in South Africa.

But SAA said Nationwide pilots had not received the required training on their aircraft and that its policy towards all new recruits was prior to flying independently. The court also dismissed this claim of unlawful poaching.


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