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Commission claims Airlink, Safair deal would prevent competition

Feb 23 2018 15:37
Carin Smith

Cape Town - The Competition Commission has prohibited the proposed acquisition of Safair by SA Airlink because, in its view, this would likely result in "a substantial prevention of competition", it said on Friday.

The commission is of the view that the merger is likely to result in the removal of an effective competitor to SA Airlink on the routes it currently operates on. It said Safair offers competitive prices and has been growing in the market both in terms of its existing routes as well as new routes it recently entered.

In the view of the commission, Safair is also a potential competitor of SA Airlink in those routes which it has not yet entered and is likely to pose a competitive constraint on SA Airlink, bearing in mind its currently competitive pricing on competing and non-competing routes.

The commission found there are significant price differences between Safair and SA Airlink and that if the merger were to be approved, there is a likelihood of significant price increases.

The commission further found that the merger is "likely to result in coordinated effects" through the exchange of competitively sensitive information between South African Airways (SAA) and Safair - and SA Airlink - since SAA has a shareholding in SA Airlink.

SA Airlink currently operates under agreements with SAA. The commission is of the view that should the merger be approved, SA Airlink would have the ability to adapt the business strategy of Safair in such a way that Safair is incorporated into the agreements between SAA and SA Airlink.

The commission further found that even if Safair were not to be incorporated into these agreements, post-merger SAA's indirect economic interest in Safair would dampen competition between Safair and SAA - and presumably by extension to SA Express as well.

In this regard, the commission found that the merger would likely result in the enhancement and facilitation of "coordinated conduct". It found that no remedies could sufficiently address the competition concerns identified.

Earlier on Friday Airlink and Safair said they were disappointed that the commission had not approved the proposed Airlink acquisition of Safair.

The two independent SA aviation groups approached the commission in November last year for approval to unite under the common umbrella of the Airlink group of companies.

The proposal submitted to the commission was that the Airlink and low-cost FlySafair airlines as well as Safair’s other businesses would continue to operate separately under their unique brands. No job losses were foreseen because of the proposed consolidation.

The airlines indicated on Friday that they did not agree with the decision and would approach the Competition Tribunal to consider its application.

Airlink CEO Rodger Foster previously explained that the acquisition would bring opportunities to reduce combined costs and position the businesses for growth. At the same time, connectivity would be increased. In his view the deal would make air travel accessible and affordable across southern Africa.

In the view of Airlink and Safair, the commission's concerns mostly relate to airline operational technical matters. The airlines indicated that they will not elaborate more at this stage in order not to prejudice their case before the tribunal.

Safair CEO Elmar Conradie had previously stated that coming under a single umbrella would create economies of scale by enabling both airlines to share costs, optimise assets and remove systems duplication. This would position the new Airlink Group for future growth, in his view.

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