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An SA Airlink aircraft.
Economic experts for the Competition Commission and SA Airlink have disagreed on some aspects related to the calculation of the cost a new competitor would face when entering the market.
The Competition Tribunal in Pretoria is hearing evidence of allegations of excessive and predatory pricing by the airline.
The six-day sitting follows a 2018 investigation by the commission that found the airline had allegedly overcharged its customers.
An economic expert for Airlink explained a key part of how competition is assessed.
Anthony Felet told the tribunal that their approach focuses on what it would actually cost a new airline to enter the market, rather than just looking at the incumbent airline’s expenses.
“And that’s essentially what I’ve sought to do in my capital cost calculations, where I seek rather to take the historical cost of each of the fixed assets. I’d rather start with the current value of those assets, but not new for old. I don’t assume new for old, but rather the condition it has purchased. And that’s, I think, an important distinction.”
Felet argued that any new airline would have to absorb upfront losses when establishing a route; and those losses must be included in the economic cost calculation.
He warned that ignoring them creates an unrealistic picture of how competitive the market really is.
“And I think what Mr. Oprosky, I’m trying to understand his rationale of why he dismisses that value. His thought experiment with regards to the long-run competitive equilibrium is to assume zero barrier entries. Okay, so he says that this is an entry barrier in a perfectly competitive market. Airlines would not incur this upfront expenditure. I think that’s the point he’s trying to make. And I don’t believe that’s a legitimate way of looking at what a notion of competitive price would be.”
The hearings will resume on Thursday.
Competition Tribunal hearing into alleged excessive pricing against SA Airlink:
