SAA’s expensive altitude drop as court rules on ring fencing travel agents

The airline industry is pretty ruthless and some carriers will go to inordinate lengths to keep the competition out – as now proven by Comair in its eventually (handsomely) rewarded and dogged pursuit of justice against a nefarious practice by SAA. SAA aren’t the first to block or hack competitors in any way possible. Richard Branson’s Virgin Air famously won billions of pounds in damages 24 years ago, after British Airways travel agents hacked it’s booking sites, offering passengers better deals. The ebullient Branson promptly shared the pay out with his entire staff, linking amounts pro-rata to their salaries. He was at one time a regular visitor to the London office of the South African Morning Group of Newspapers, complaining to us about how some pivotal Heathrow Airport committee, stacked with BA executives, wouldn’t give him the overnight take-off slot for the lucrative breakfast business run to Jo’burg. Like Comair and Nationwide, he persisted, and eventually won this battle too. While happy to see monopolies cut down to size, we wonder what effect another R1 billion in costs will have on a dismally-managed State owned enterprise like SAA. If Comair’s suddenly boosted share price is anything to go by, it’s a body blow to SAA that will (again) cost taxpayers. – Chris Bateman

By Carin Smith

Cape Town – Comair advised shareholders on Wednesday that the South Gauteng High Court has ruled in its favour in a case the airline initiated against SAA 14 years ago in respect of the national carrier’s anti-competitive travel agent incentive schemes.

According to Comair [JSE:COM] the scheme was designed to keep travel agents loyal to SAA, therefore allegedly being in breach of the Competition Act. The scheme was in place from 2001 to about 2006.

“This has been a long and complex case. It has taken 14 years to get to this point and we are pleased that a judgment has now been handed down. We pursued this case because a dominant carrier had abused its position in the market to the detriment of its competitors, their shareholders and employees, and the flying public. We will need some time to study the judgment before making any detailed comment,” said Comair CEO Erik Venter.

In terms of the judgment, Comair was awarded R554m plus interest at 15.5% on this amount, which will be capped at the value of the award, plus costs, amounting to approximately R1.16bn in total.

Comair said that the judgment was subject to appeal by both parties and shareholders should be conscious of this when trading in the company’s securities.

By mid-afternoon trading Comair’s share price was already up 15.05% to R5.81. The stock closed at R5.85 (+15.84%).

Nationwide, which also sued SAA on the same issue, was awarded R171.5m plus interest in damages last year.

Legacy matter

South African Airways (SAA) spokesperson Tlali Tlali told Fin24 on Wednesday that the airline has taken note of the judgment involving SAA’s anti-competitive behaviour from 1999 to 2005.

“The airline’s counsel will study the judgment and will advise the company on how to proceed,” said Tlali.

“It is important to note that this is one of the legacy matters, dating back to the period between 1999 and 2005 and implemented by the then management team. All of those managers left the company a while back and new business management processes were since introduced to ensure compliance with all relevant prescripts.”

Tlali said the current management is focused on turning the business around to ensure that SAA is commercially viable, operationally competitive and financially self-reliant in the shortest time possible.

“A number of interventions will be implemented and others have already been initiated aimed at ensuring positive business improvements take place in a matter of months,” said Tlali.

“The airline will not debate any merits of the case in the media.”

Sterling results

Comair announced on Tuesday that its unaudited interim results for the six months ended December 31 2016 saw revenue growth of 6% as a result of a recovery in yields, but without any increase in volumes.

Profit after taxation for the period was R199m compared to R84m during the prior period. Earnings per share and headline earning per share were 42.8 cents (18c during the prior period).

Following on the strong cash earnings for the interim period a gross interim cash dividend of 7c per share (compared to 5c during the previous period) was approved for ordinary shareholders. The dividend was declared out of income reserves.

Growth in the contribution from Comair’s non-airline segment was strong.

* In the meantime Stuart Cochrane, executive manager: business processes at ‎Comair, told Fin24 that he can confirm that Comair has received a request from the government of Botswana to consider submitting an expression of interest to take over Air Botswana.

“We are currently reviewing the details of the potential opportunity before we make a decision,” said Cochrane. – Fin24


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