Airlink (South Africa) Embraer E135, © Airlink (South Africa) CH-Aviation
Airlink (South Africa) (4Z, Johannesburg O.R. Tambo) could face administrative penalties of up to 10% of its annual turnover if found guilty of overcharging passengers by ZAR100 million rands (USD6 million) between 2012 and 2016 on the domestic route between Johannesburg O.R. Tambo and Mthatha.
The South African Competition Tribunal on March 3 wrapped up closing arguments and adjourned for a final ruling in the long-running case referred by its advisory body, the country's Competition Commission, in February 2018.
The commission alleges that Airlink abused its market dominance, charged markups exceeding 33%, and overcharged consumers by ZAR100 million on the route between September 2012 and August 2016.
It charges that Airlink's alleged predatory pricing contributed to the exit of failed startup Fly Blue Crane (Johannesburg O.R. Tambo), which briefly operated between September 2015 and November 2016, before it entered business rescue and suspended flights indefinitely on February 3, 2017. The company was eventually deregistered in January 2024.
The case (CR280Feb18) stems from three separate complaints filed between 2015 and 2017 by Fly Blue Crane; business executive Khwezi Tiya; and the O.R. Tambo District Chamber of Business. They claimed that Airlink charged excessive fares before Fly Blue Crane entered the route, then slashed prices below cost and added extra capacity to drive the competitor out, and raised prices sharply after Fly Blue Crane exited the market.
The Competition Tribunal previously heard oral evidence from witnesses and finance and economic experts.
Closing arguments
In the closing arguments this week, as reported by South African media Independent Online (IOL) and Daily Maverick, the Competition Commission argued that volatility and profitability fluctuations cited by Airlink did not amount to a business cycle that would justify excessive pricing. It noted that the airline’s internal documents referred only to "difficult trading conditions" and contained no evidence of a defined cycle.
Advocate Jerome Wilson, for the commission, said volatility was not a defence and that excessive pricing cannot be assessed by averaging performance over decades. At issue was whether excessive pricing should be measured against a dominant firm’s actual economic costs or include the hypothetical costs faced by potential new entrants.
The commission said regulations required the benchmark to be based on the incumbent’s costs, adjusted for efficiency, and rejected Airlink’s proposed "potential entrant model", which would factor in higher entry and startup costs for new airlines.
The commission also challenged Airlink’s claim that losses on the Mthatha route constituted investment in customer goodwill that justified its pricing. Airlink contended that its historical startup losses should be capitalised as an intangible asset, allowing it to charge higher fares to recoup that investment. The commission rejected that approach as "textbook double-counting", arguing that routine operational expenses cannot be reclassified as capital assets to support a pricing model.
Airlink challenged the commission’s reliance on flight pricing from five months in 2017 as a benchmark to show it previously overcharged passengers between 2012 and 2016, arguing the same period was also alleged to reflect predatory pricing against Fly Blue Crane. The airline’s counsel said the authority could not use prices it claimed were artificially deflated by predation as evidence of a competitive baseline, calling the approach unfair.
"I think many people will say that this tribunal has lost its marbles. [It is] unprecedented, incoherent, circular, dangerous, and unfair," commented Airlink's counsel, Frank Snyckers.
The Competition Commission countered that the alleged predation affected only two flight pairs over five months, about 15% of annual flights, and said the remaining 2017 data was a valid and conservative benchmark.
Airlink also challenged the commission's allegation that it had dumped capacity by adding a midday flight to flood the market and oust Fly Blue Crane. It provided evidence that the flight was planned in May 2016, two months before it learned of Fly Blue Crane's market entry in July 2016. It also argued that the flights targeted different customer segments, with the startup having focused on peak-time commuters while Airlink’s additional service operated at midday, limiting direct competition.
