The relationship between South African Airways (SAA) and its low-cost subsidiary Mango will be the focus of an investigation by the Competition Commission, following a recent SAA “own goal”.
The Commission confirmed it would be investigating a complaint by the Democratic Alliance following a statement by SAA that Mango’s financial achievements were the result of assistance by SAA in the form of subsidised aircraft leases.
SAA issued the statement on June 11, acknowledging the resignation of Mango CEO Nico Bezuidenhout. In an apparent effort to detract from Bezuidenhout’s achievements, SAA pointed out that Mango’s impressive profit record came on the back of assistance by its shareholder, SAA.
Mango showed a profit in all but two of its ten years of operation. Bezuidenhout will be joining regional low-cost airline fastjet in August.
SAA later “clarified” the statement. It said: “The clarification relates to a paragraph in the said media statement on SAA sub-leasing 10 aircraft, at a significantly discounted cost to Mango Airlines, while continuing to pay the market related premium to the lessor.
And: “The value of the sub-leases to Mango fully recovered SAA’s aircraft lease cost for FY2015 over the balance of the lease period.”
It further states that during March 2016, “the SAA Board, with the assistance of external advisors, analysed these lease agreements with Mango and satisfied itself that all such agreements had been concluded on a full cost recovery basis. These aircraft were accordingly not leased at a discount”.
The initial statement seemed to confirm the arguments of Mango rivals, especially Comair, that operates the low-cost brand kulula.com, that Mango has an unfair advantage over its competitors since it is being assisted by SAA with taxpayers’ money.
Moneyweb also reported that the disclosure could tip the scale in favour of the SAA Pilots Association, which is currently in arbitration with SAA about whether the exclusive right of its members to fly for SAA includes flying Mango flights. SAA in its “clarification” said it would not comment on this issue.
Comair CEO Erik Venter on Wednesday welcomed the investigation. “We are happy to hear that the Competition Commission will launch an investigation into the dealings between SAA and Mango, and we will leave it to the authorities to manage and let the investigative process takes its course,” he said.
FlySafair said: “We’re certainly pleased to hear that the commission is investigating the allegations as they would clearly have a material impact on our industry and our ability to compete, and an investigation of this nature will be the best way for the industry to find clarity on the matter. FlySafair will be watching the narrative unfold closely and we have every confidence that the commission will be fair.”
The Commission is expected to focus on indications of abuse of dominance and predatory pricing, which would have a detrimental impact on competitors in the extremely competitive and low-margin market that has seen more low-cost airlines fail than succeed.
SAA said on Wednesday it would not comment beyond its earlier clarification and Mango did not respond to a request for comment.
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