"SAA pleads poverty to avoid fine
March 7, 2005
By Ann Crotty
Johannesburg - SAA faced a real risk of insolvency, and many employees risked losing their jobs if the competition tribunal imposed a fine of R100 million on the airline as recommended by the competition commission, the airline's legal team said at the weekend.
On Saturday, the tribunal heard the closing arguments of a case that was initially brought by Nationwide Airlines in April 2000.
Nationwide alleged that SAA, the dominant player in the market, was offering incentives to travel agents and their consultants that were in contravention of the Competition Act. After investigating the allegation, the commission took Nationwide's case to the tribunal.
At Saturday's hearing, which was the close of an extremely protracted and highly controversial case, the tribunal was told that "having regard to all the circumstances referred to, the commission recommends an administrative penalty of R100 million to be imposed on SAA".
It also recommended that the tribunal prohibit the incentive schemes employed by SAA.
The amount of R100 million represents about 5 percent of the total revenue derived by SAA in the affected line of business during the period June 2000 to May 2001. In terms of the Competition Act, the tribunal can levy a penalty of up to 10 percent of the "affected revenue".
The circumstances referred to by commissioner Menzi Simelane included the anti-competitive behaviour by SAA as well as the way SAA conducted the case before the competition authorities.
The commission stated that harm had been done to consumers through higher prices and "consumers having to fly at less convenient times than if they had been offered an unbiased selection of ticket options".
It stated that SAA could not show that it offered better services than its competitors, Nationwide and Comair.
"The competitors of SAA suffered considerable losses in revenue notwithstanding that the evidence indicates that Nationwide and Comair were generally regarded as providing a better service to the travel agents and therefore ultimately the consumer."
The commissioner also noted: "SAA has throughout the process attempted to delay the conclusion of this matter." In addition, it stated that SAA had continued some anti-competitive practices even after the commission had pronounced against them.
In its closing arguments, SAA's legal team said that by March 2004 SAA was technically insolvent and the airline's cash on hand only covered its operational costs for 30-day periods.
"Clearly, any penalty and fine will have disastrous consequences on this cash flow." It suggested that if SAA was able remain in business after paying the fines it might have to increase its fares to cover the cost."
