Concern over possible climb in airline prices
JOHANNESBURG - The Competition Commission has raised concerns about the possibility of a 50 percent hike in airline prices after the consolidation of the aviation industry.
The commission told Parliament’s portfolio committee on trade and industry yesterday that it was monitoring challenges and prioritising merger regulations.
Commissioner Thembinkosi Bonakele said the commission would restrict competition to avoid the exploitation of consumers through higher prices where it approved mergers.
“Already we are hearing talk of consolidation in the airline industry, and an airline expert has already predicted that airline prices will be 50 percent higher when the airlines ultimately resume. We have to make sure that we are constantly vigilant. It is going to be a very difficult economic recovery, but it must be a fair recovery,” Bonakele said.
The coronavirus pandemic has pushed the country's aviation industry into turbulence after SAA and Comair, which operates British Airways in South Africa as well as the low-cost airline kulula.com, filed for business rescue.
SA Express, which is part of the SAA group, has also been placed on provisional liquidation.
Public Enterprises Minister Pravin Gordhan has openly said that the government planned to transform SAA into a viable airline.
Comair management said it had implemented a turnaround strategy that included cutting costs through retrenchments and selling non-performing assets.
Yesterday, Comair business rescue practitioners Shaun Collyer and Richard Ferguson said the airline, which reported a R564million loss in the first quarter, had reasonable prospects of being saved, as its assets exceeded liabilities.
Collyer said: “Comair was not factually insolvent. It has R7.42 billion in assets on its balance sheet compared to liabilities of R5.48 billion. Rather it was financially distressed, because there was insufficient cash to pay ongoing costs and obligations, and with its flights grounded for an uncertain period, no opportunity to generate revenue.”
The commission’s chief economist, James Hodge, told the committee that the agency was reviewing its merger control procedures, and the assessment of distressed mergers to come up with better ways to respond to the Covid-19 pandemic.
He said the pandemic could result in the devastation of the industry with fewer airlines.
“We have a team working on it,” Hodge said. “We want to ensure that reopening happens and there is no barrier to that.”
Meanwhile, the commission announced that it had prioritised block exemptions for the healthcare sector relating to co-ordinating a supply response for essential health services and products during the pandemic.
It said that block exemptions applied to the banking sector in terms of debt relief measures, the retail property industry in terms of rental relief measures, and the hotel industry in terms of co-ordinating on the supply of space for potential quarantine premises
Hodge said the commission was also monitoring food market pricing to understand retail level inflation for maize, wheat and rice.
He said the depreciation of the rand had resulted in price increases for imported wheat and rice, which was feeding through to higher flour, bread, and rice prices among supplier retailers.
“As the lockdown evolves, we are seeing changes in the pricing. We saw a spike initially with panic buying that has gone away, and we are seeing a drop in demand, and we are now seeing price reductions,” said Hodge.