LCCs: is the local playing field fair?

In a statement following
the resignation of Mango’s
ceo, Nico Bezuidenhout, SAA
acknowledged that it had
“materially contributed to the
much celebrated financial
performance of Mango
Airlines”. The statement said
SAA subleased 10 aircraft, at
a significantly discounted cost
to Mango, while continuing
to pay the market-related
premium to the lessor. The
Democratic Alliance has since
called for an investigation by
the Competition Commission
into the alleged collusion.
A spokesperson for
kulula.com told TNW that
SAA’s announcement
effectively meant that the
commitments made by
SAA and Mango – that they
operate at arm’s-length – were
false. “It also means that
the LCC segment, which was
presumed to be operating on
a level playing field, has been
subsidised by government.
This allowed Mango to price
at below the operating costs
of the industry, thereby driving
out competitors.”
“In aviation a lease
agreement can be for just
an aircraft, or for a fully
maintained aircraft and even
a fully crewed aircraft. Leasing
and maintenance alone can
account for between 35% and
40% of an airline’s operating
costs, so having these costs
subsidised by the state could
give a player a very unfair
advantage in the market,”
agrees FlySafair’s vp for sales
and distribution, Kirby Gordon.
“This kind of advantage
could drive predatory
pricing and unmatchable
remunerative structures for
intermediaries who sell tickets
for the airline.
 “Should there be an
investigation and a
Competition Tribunal find
SAA and Mango guilty of anticompetitive
practices, Mango
will need to carry its own
costs going forward. As the
airline seeks to recover costs,
consumers can expect to see
a possible rise in the price of
tickets.”
Meanwhile, Nico has refuted
SAA’s allegations that Mango
received discounts for leased
aircraft. He told TNW: “I can
confirm that Mango has
always negotiated and paid
market-related fees to all of
its suppliers.”
Nico has also refuted claims
made by SAA that routes
were removed from SAA
and allocated to Mango at
the expense of the national
carrier. Nico told TNW that
SAA elected to codeshare
on Mango between Cape
Town and Durban in 2010
and not operate the service
itself due to significant
losses incurred for a number
of years. “Successive
years have shown that the
codeshare route has become
commercially positive for
SAA. At the time, it was a
sound commercial decision
that delivered dividends and
a true reflection of effective
deployment of assets within
a group. A reversal of this
decision would likely add
additional capacity on a
route that may then become
over traded, with commercial
consequences for all carriers
operating on said route,”
Nico said.