19 February 2010

South Africa: SAA Faces Big Claims as Watchdog Faults it for Banned Practices

Johannesburg — SOUTH African Airways (SAA) faces more than R1bn in civil claims from airline group Comair and the liquidators of the now defunct Nationwide after the Competition Tribunal found yesterday that SAA's use of prohibited practices harmed rivals.

The tribunal found SAA guilty of providing override incentive and trust agreements to travel agents, which denied competitors access to that market, contravening section 8 (d) (i) of the Competition Act.

The tribunal said that travel agents distributed about 70% of total domestic airline tickets, amounting to about R3,3bn.

Comair joint-CEO Gidon Novick said yesterday that the group was finalising its civil case, and would move ahead as soon as possible. He said Comair had yet to settle on the exact figure it would claim from SAA, but it would be substantial. Last year, before the tribunal hearings, the group said its claim would exceed R1bn if it won the case.

Lucinda Verster, who is acting on behalf of Nationwide's liquidators, said they too would bring a civil case against SAA. Verster, a senior associate with law group Bowman Gilfillan, said that the legal team was still quantifying its claim.

However, the claim is believed to be in the region of R100m, most of which will be used to settle claims from Nationwide's creditors.

SAA spokesman Vimla Maistry said the airline was weighing up its options. It had not decided whether to appeal against the decision.

This case is a follow-up to a 2005 complaint bought by Nationwide in which the tribunal found SAA's agreements with travel agents in the marketplace from 1999 to May 31 2001 were illegal. It imposed an administrative penalty of R45m.

Yesterday's ruling was the result of a complaint brought jointly by Comair and Nationwide and referred to the tribunal by the commission.

This included a Comair complaint, which followed a settlement agreement between the Competition Commission and SAA in terms of which SAA paid a penalty of R15m.

In that settlement, SAA had not admitted to any contravention of the act, and so Comair could not pursue a civil case. In this case, Comair sought a finding of anticompetitive behaviour so it could proceed with its high court bid for damages.

The second complaint was referred by Nationwide directly to the tribunal, and dealt with SAA's agreements from June 2001 onwards -- the period after the first Nationwide decision.

Nationwide was of the view that the commission had not referred, and the tribunal had not adjudicated, all aspects of its complaint in the first decision.

In its ruling, the tribunal said it had "examined this scheme in light of market developments during the period June 1 2001 until March 31 2005, and ... concluded that not only was this scheme in contravention of section 8 (d) (i) but resulted in ongoing foreclosure effects in the domestic airline travel market".

"SAA sought to 'lock in' the gains it had made in the earlier period with this scheme."

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