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1time, Kulula dispute hots up

Feb 09 2010 13:41 Sikonathi Mantshantsha

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Johannesburg - The fight for landing space at privately-owned Lanseria Airport in Johannesburg has heated up with a complaint filed by domestic airline 1time [JSE:1TM] with the Competition Tribunal, objecting to rival Kulula.com's exclusive use of the facility.

"1time is unable to fly from Lanseria while this agreement is in place," said 1time Holdings CEO Glenn Orsmond on Tuesday.

This follows after 1time complained about the matter to the Competition Commission in 2008, saying the exclusive use agreement between Kulula.com and Lanseria was anticompetitive as it prevented other airlines from using the less congested Johannesburg airport.

The commission declined to refer the matter for a decision by the tribunal, saying "the nature and duration of the agreement [five years] between Lanseria and Kulula was justified on the grounds of the risk and substantial investment which both parties took on when entering into the arrangement".

It investigated the matter for 19 months, even though both Kulula and Lanseria had acknowledged the existence of the exclusive agreement as far back as April 2008, when Finweek broke the story.

The agreement stated that only Kulula can use the airport for its regional and domestic flights during the five years to March 2011. Any other airline needs Kulula's permission to operate commercial flights from Lanseria.

"1time disagrees with the non-referral decision taken by the commission and is hopeful that the tribunal will arrive at a different conclusion," Orsmond said. "The exclusive agreement will also deny thousands of soccer supporters the opportunity to access cheap flights from Lanseria during the 2010 World Cup."

Orsmond said the effect of this exclusive arrangement is that "a large group of passengers are denied choice of airline and the opportunity to access cheap flights, while Kulula passengers continue to pay 30% more to fly from Lanseria" than from OR Tambo International airport.

The commission agreed with 1time that the agreement "indeed has the effect of [substantially] preventing competition in the domestic market" but its investigation found that both parties had made "substantial investments to get Kulula's operation off the ground". The commission said it was in the light of these findings that it deemed the agreement necessary to help Kulula recoup its investment.

"Although the commission felt the arrangement between Kulula and Lanseria was justifiable under the circumstances, we made it clear to the parties that an arrangement which went beyond the duration of five years would be unlikely to bear up to the same scrutiny," the commission's Nandi Mokoena told Fin24.com.

"Furthermore, the agreement is set to end in 2011, bringing the end of the agreement near."

Comair (which operates kulula.com) joint CEO Gidon Novick said his company had made a detailed submission to the commission in defence of its exclusive use agreement.

"The rationale for the agreement was related to the risk we took on the airport," said Novick. That was installing check-in equipment and other technologies as Lanseria previously had none. Novick said two airlines (Sun Air and Nationwide) had previously failed to operate profitably from Lanseria.

"In the end the commission agreed with us that we had to be compensated for the risk we took," Novick said.

- Fin24.com


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