Founder: Turnaround Talk
In 2022, I booked a flight for my mom to come and spend the Easter weekend with me and my family. The price almost doubled when I booked the same ticket in December (8 months later). Airlines were seemingly taking advantage of a demand driven market
There was plenty of disruption in the airline space following the liquidation of Comair. With a limited number of low-budget airlines and plenty of demand, there was a situation where there were suspicions that airlines were milking the situation for all its worth from a price perspective.
However, a recent ruling by the Competition Commission rubbished this theory.
Zero proof
The News24 article points out that following complaints about a spike in airline ticket prices last year, the Competition Commission found no proof of price gouging by domestic airlines.
Ticket prices rose sharply in the second half of last year amid a fuel price spike due to the impact of Russia’s invasion of Ukraine. The removal of Comair’s kulula.com and domestic British Airways flights due to provisional liquidation also left a gap in the domestic airline market in the middle of last year.
The article adds that Comair had about a 40% market share when it went into provisional liquidation in June last year and suspended flights. At that stage, domestic seat supply in SA was up to about 75% of pre-pandemic capacity in 2019. Comair’s removal reduced seat capacity to an estimated 45% of 2019 numbers.
Furthermore, the last available seats sold are usually full fares and not discounted.
Image By: Andrew Harvard via Pexels
Airlines welcomed feedback
The article points out that SAA’s low-cost subsidiary Mango stopped flying in 2021 when it went into business rescue, and regional state-owned airline SA Express bowed out the year before.
After months of investigating, the commission found no reason to refer the matter to the Competition Tribunal for prosecution.
The article adds that, according to spokesperson Siya Makunga, the commission received about seven complaints between June and December 2022, alleging airline price gouging.
“The period of analysis of the data and evidence the commission gathered covers ten months – March to December 2022. This is pre- and post-exit of Comair,” said Makunga. “Based on its investigation, the Commission decided not to refer the complaints to the Competition Tribunal for prosecution.”
According to Kirby Gordon, spokesperson of FlySafair, they welcome the feedback from the commission.
“We believe it’s imperative that [the commission] exist to protect our, and other, industries, and were we glad to submit to investigation alongside our competitors,” he commented.
“Flight ticket prices are sold on an open market and fluctuate based on demand cycles. Additional pressures on the cost inputs to aviation during and since Covid-19 have also been marked, and we all feel the squeeze as consumers.”
The article points out theat there are still times of low demand where players in the industry will operate at a loss, which is an accepted thing in aviation, according to Gordon.
Image By: Comair
“As long as those periods can be offset in high periods such that we can recover those losses and present reasonable value to our shareholders, rendering our businesses sustainable in the long run,” he explained.
Miles van der Molen, CEO of CemAir, says they, too, never shared the view that airlines indulged in price gouging.
Different dynamics
There are a number of dynamics that are driving the price of local airline tickets.
Chief among these is the fact that virtual meeting platforms have decreased the need for business travel. This means that there is no cross-subsidisation for leisure travellers.
There is also the cost of fuel which was one of the main reasons behind the Comair liquidation. This will only increase as the economic environment becomes more volatile.
Will the situation in the airline industry normalise, or is this the new normal?
