A few days old but nevertheless an update:
SAA incentives were essential - Viljoen
August 23, 2004
By Ann Crotty
Johannesburg - In mid-1998 SAA used physicians with fruit baskets to visit the homes of employees who had taken sick leave after receiving their monthly pay.
"Often they were not found at home, they were found at shopping malls," SAA's outgoing chief executive, Andre Viljoen, told the competition tribunal on Friday.
In mid-1998, Viljoen said, SAA's management found that it was losing market share and needed to take action to turn the airline around.
Action had been initiated on a variety of fronts, including dealing with the high level of absenteeism, which Viljoen said had been a contributor to the national carrier's "dismal on-time performance" at that stage.
"We would have between 30 percent and 40 percent absentee rate on the day after a major concert and many employees wouldn't turn up for work for three or four days after they were paid. They went shopping instead," he said.
Physicians were used to check up on employees in these circumstances.
Other areas targeted for attention included the need to develop networks with other international airlines; ensure more international passengers were connected to SAA's domestic flights; improve revenue management so each flight would generate higher profit; take forward cover on plane costs and the cost of fuel; and overhaul SAA sales functions.
The overhaul of the sales functions included a close analysis of the payments made to travel agents.
Viljoen said these payments represented significant amounts and were one of the few variables in the airline's cost structure. He said airlines across the globe had been attacking these commissions.
It was under these circumstances that SAA management decided to reduce the basic commission paid to travel agents and increase incentives paid on achieving set targets.
It is these incentives that are the subject of the competition commission's case against the airline.
Viljoen was giving evidence on the fifth day of the tribunal's hearing into the commission's allegations that SAA's incentive commissions to travel agents and consultants contravened the Competition Act because they represented an abuse of its dominant position in the market.
Viljoen said SAA did not have market power and was not dominant in the market segment that was the subject of the commission's case.
The commission's case against SAA hinges on whether the airline is dominant or has market power and, if so, whether the incentives it provides to travel agents do indeed influence their behaviour to the detriment of other airlines.
In terms of the Competition Act a firm is dominant if it has at least 45 percent of a particular market or if it has market power.
Market power means the power of a company to control prices, to exclude competition or to behave independently of its competitors, customers or suppliers. Viljoen told the hearing that SAA did not have the power to do any of this.
The hearing was adjourned and will reconvene at a date that has yet to be arranged.