Following the Competition Tribunal’s verdict of December 21, 2000,—Nationwide’s claims against SAA - South African Airways wishes to make a formal statement regarding the outcome of the case.
SAA is pleased to announce that after Nationwide’s spurious and ridiculous protestations against the airline, the tribunal has reached the following conclusion:
* Nationwide’s claim that SAA has been “selling goods or services below their marginal or average variable costs” due to the constant rising cost of jet fuel has been rejected by the tribunal. Nationwide alleged that SAA failed to increase its airfare due to fuel increases since August 2000, as well as its failure to adjust prices to offset the depreciation of the Rand against the US Dollar, was tantamount to pricing below its marginal or variable costs on certain routes.
The tribunal ruled that “predatory pricing invariably, takes the form of a cut in prices by the alleged predator not on omission.” It further stated that it was “extremely reluctant to signal ‘failure’ to pass on input price increases to final consumers would be construed as anti-competitive”. In addition, the tribunal said “it is precisely an increase in the price of an input that frequently triggers the search for pro-competitive strategies in downstream markets where competition prevents a simple pass-through of the increase to consumers. We would want to reward those firms who, as a result of their efficiency, are able to absorb price increases of their inputs without passing them onto their consumers.”
The tribunal declared Nationwide’s argument with regard to SAA’s fuel hedging strategy as “frankly, incomprehensible.” It further stated: “Given the importance of fuel prices, and the volatility of commodity markets and of international currency markets, this strikes us as a commercially prudent and far-sighted strategy on the part of SAA.”
SAA admitted that the cost of jet fuel had increased significantly over the past months compared to the same period last year. Jet fuel is projected to cost SAA an additional R700 million this financial year. However, through forward looking and pro-active management, SAA managed to counteract this impact through its proactive hedging programme. During the course of this year, SAA has taken some price increases to offset the hedging costs.
This, together with increased aircraft utilisation and the optimisation of its schedules for the winter and summer seasons, and other major cost cutting programmes gave the airline flexibility with regards to potential future fare increases.
The main reasons for SAA’s success in the domestic sector has been purely because of its outstanding On-Time-Performance figures, new equipment (B737-800’s), enhanced flight schedules meeting passenger demands, cutting costs through fuel hedging programmes and through successful business management.
In the World Economic Forum Global Competitiveness Report of 1999, it was stated that the Republic of South Africa had the most competitive pricing of domestic fares in the world. South Africa was ranked first out of 64 countries.
* Nationwide also made claims that SAA has been poaching their staff, notably its Boeing Captains, to leave its employ in preference for employment with SAA on command positions - for which they had not been trained. In response, SAA told the tribunal that all new pilots initially flew as relief pilots before flying independently. Because of increasing demand, the airline advertised jobs from time to time by the airline, generating interest from highly qualified pilots. SAA denied Nationwide’s claim that its pilots were being specifically targeted and said that it only employed the best possible candidates.
* It was also alleged by Nationwide that SAA was using commissions, incentives or other inducements to sell its flights, to the detriment of Nationwide. Disputing this, SAA said travel agents were being paid a standard commission, in accordance with the world’s best practices, and paid its preferred suppliers an over-ride commission, which was in line with both domestic and international carriers current trends. These agreements have been in place for a considerable period. Nationwide, BA/Comair and other domestic operators have similar programmes.
SAA is therefore pleased to announce that the tribunal ruled in its favour on all aspects mentioned and stated that Nationwide would be liable for the respondents legal costs.