South African Airways one of the state owned enterprises has been slapped with a R105 million fine for market abuse. The claim was submitted by Nationwide Airline that ceased operations. Nationwide initially claimed R171,5 m in damages including interest but the South Gauteng High Court ordered that SAA pay R104,6 m plus interest for damages for uncompetitive practices. Nationwide is claiming damages as it ceased operating in April 2008 and is currently in liquidation processes.
The anti-competitive behaviour that SAA was fined for related to the SAA paying commission to travel agencies, as travel intermediaries to divert customers from booking on Nationwide and travel with SAA instead. The act of paying commission may had diverted some of the clientele meant for Nationwide, and this may have negatively affected their business.
The award of damages has been upheld by the South Gauteng High Court, concurring with the Competition Commission Tribunal and the Competition Appeals Court, that SAA abused its dominance in the local market. Travel agency commission is the lifeblood of many travel agencies, who increasingly had to apply service fees as airlines reduced the percentage of travel agency commission they paid. The steep fine imposed will acts as a deterrent to SAA specifically and the aviation players generally.
Karen Ellis in a piece titled ‘’Making markets work: Can you compete with the elite? Karen Ellis noted that ‘’competition and competition policy… play a crucial role in disciplining business, and preventing excess profits and unfair business practices designed to keep out new entrants. The existence of a good competition policy framework allows new firms to enter the market and helps to create a level playing field between firms, which is important for attracting investment and developing the private sector’’.
The steep fine that SAA was subjected to, is testament that South Africa has sound institutions, as reflected in the exemplary performance of the Competition Commission and the courts. Dani Rodrik in his classical work titled ‘’Institutions for High-Quality Growth: What They Are and How to Acquire Them’’ notes that that the markets needs to be supported by non-market institutions.
What is undeniable is that strong institutions are necessary to drive economic growth and create an incentive to attract foreign direct investment. Strong institutions create a systems of checks and balances that South Africa must be proud of. Most importantly the outcome has restored trust in the South African economy, which is stagnating and would possibly enter into recession.
South African Airways will possibly face serious financial challenges with this outcome. The state as sole shareholder will step in to assist South African Airways, as a strategic asset. It may also be an opportunity for the shareholder to ensure that vacancies on the board and management of South African Airways and its subsidiaries are speedily filled. The Minister of Finance during his Budget Speech indicated that SAA and SA Express ought to merge into one entity.
Telkom is an example of a state owned entity that has nursed to health by the strengthening of its board and management. Privatisation is not a panacea for state inefficiencies, governance is the key to ensure that both private and public entities reach their full potential.
South African Airways must be nursed to health and it must be remain globally competitive. The privatisation bandwagon will be in full swing as privatisation would be fashioned as a panacea for SAA. The depressing news and allegations associated with SAA is a cause for concern that requires immediate attention. Our state owned enterprises must be exemplary models of governance and management and most importantly be globally competitive. Partial privatisation can be used to bring in human capital, creativity and processes that would ensure that South African Airways becomes globally competitive.
We all long to hear new and positive stories as the country enters its ‘’special period’’ which is characterised by a confluence of tragedies, self -inflicted own goals. The country will enter a recession, whilst business confidence is at an all-time low, whilst unemployment remain consistently high and the rating agencies are junking us. The paucity of decisive political leadership is possibly the greatest unfreedom during this ‘’special period’’. The planning for a better tomorrow starts today, as we experience the pain of the many self-inflicted realities that manifest. They usually counsel that in every cloud there is a silver lining, and selling the family silver is not an option. Let’s make South Africa great, again.
Mr. Unathi Sonwabile Henama teaches tourism at the Tshwane University of Technology and writes in his personal capacity.