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Mango and SA's air travel oligopoly

Jun 17 2016 06:40
Tabassum Qadir and Javed Malik

It’s a bit rich for SAA to bluster about the air travel industry when it signed off on every one of the steps that created today's situation, say Tabassum Qadir and Javed Malik, co-chairs of Skywise.

LOW-cost airlines like Skywise have long been concerned that 10-year-old Mango Airlines was being subsidised covertly, giving it an unfair advantage in the low-cost domestic airline market.

The fact has been denied through public statements made by airline executive Mr Nico Bezuidenhout at the World Route Conference held in September 2015.

Now South African Airways (SAA) has revealed it subsidised the start-up of Mango Airlines by subleasing 10 aircraft, at a significantly discounted cost, while continuing to pay the market-related premium to the lessor. Finally, the tables seem to be turned, but at whose cost?

(UPDATE: Four days after SAA said it sub-leased the aircraft to Mango Airlines at a discounted cost, it made an about-turn and denied that it had done so.)

READ: SAA scraps idea that it gave Mango cheap plane leases

SAA and its chairperson are certainly a convenient political target, given the broadly unfavourable public views and the veritable smorgasbord of negative stories from the media. But that’s not the realistic outcome.

The argument for the anti-competitive market situation largely rests on executives like Mr Bezuidenhout, looking for a short-term win at the expense of shareholders' long-term goals.

The mandate to create Mango Airlines in the presence of great private airlines was a blow not only to South African Airways, but to the South African aviation industry in general.

The real dramatic irony is that the present state of competition in the South African airline industry is pretty much the fault of SAA itself. Through a mix of immunity, joint ventures, mergers and slot swaps, SAA has allowed many of the more anti-competitive situations in South Africa to develop to their own disadvantage. One of these is Airlink’s 3% shareholding, causing its 100%-owned SA Express to fail.

An air travel oligopoly

We are unquestionably living in an air travel oligopoly. But it’s a bit rich for SAA to bluster about the resultant situation today when it signed off on every one of the steps that created it.

However, the government’s various agencies have the ability to rectify this situation pretty quickly and to solve the issue of domestic competition. Why not sell 100% shares of Mango and 3% shares of Airlink, and remain focused to turn around SAA and SA Express through a merger?

The current South African airline industry may not be the best for any individual private investor, as airlines in the past have burned investors one too many times.

However, the pooling of capital to create a large consortium while spreading risk is a way that the massive, complex and risky airline networks that exist today would be able to function at their best.There is no way that airlines could continue to act in the irrational and aggressive manner they adopted in the last 10 years.

Investors who can pool large sums of capital are critical for the South African airline industry to develop new entrant activity and much-needed transformation in getting the domestic aviation industry to move forward.

Pak Africa Group is one such consortium which is 100% BEE and has been in the queue for the last three years, with the Department of Public Enterprises to acquire majority shareholding in Mango Airlines.

Consumers need to get the best deal from growing commercial aviation in future, enjoying lower but realistic fares without being cross-subsidised by tax payers or investors taking a hammering.

We’ve got to hit a more stable equilibrium. But is that something that the government can accept?

* Tabassum Qadir and Javed Malik are co-chairpersons of Skywise Airlines. Opinions expressed are their own.

mango  |  saa  |  skywise  |  aviation  |  airlines


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