HANNA BARRY: Comair, which operates British Airways and Kulula in southern Africa, had its case against SAA thrown out by a Pretoria High Court judge yesterday. Comair argued that government is acting contrary to its own policy of treating airlines equally by funding bailouts for cash-strapped SAA.
Erik Venter is the CEO if Comair and joins us now. Erik, thanks for your time today. What was the reason the judge gave for dismissing this application, and do you think it was fair?
ERIK VENTER: Well, I think we may have to go back to the actual complaint raised by Comair first. We’ve repeatedly emphasised that our case was not to stop the state funding of SAA, but to have parliament fulfil its duty to oversee the use of taxpayer funds and to have government take into consideration its own domestic air transport policy when making these funding decisions.
What’s come out of the ruling is that firstly the Minister of Finance has sole and unlimited power to bypass the parliamentary control over taxpayer funds, even when such a decision is no longer based on financial considerations. And furthermore there is no obligation to record his rationale for this decision. So that was a bit of a shocker to us and I certainly don’t believe that that is the actual intention of either the Public Finances Management Act or the Constitution.
The second issue that came out was that the ruling clarifies that government policy does not need to be taken into consideration by the government itself, and cannot be deemed to create any legitimate expectations from the public. Now, again, this brings into question: what’s the point of government policy, then?
So it really did come as bit of blow out of the blue. Both of these aspects of the ruling – it didn’t really cross our minds that that would be the decision taken on the matter. So, in summary, I guess we are going to be dealing with the same old SAA that we’ve dealt with for the past 20 years, and it’s pretty much business as usual.
We are going to have to decide whether we take the matter on appeal or not. That will depend on some further discussion with our legal counsel. But ja, I think the ruling as a whole and the kind of powers that have effectively been confirmed to rest with the Minister of Finance are a bit of a surprise.
HANNA BARRY: Absolutely, and I think certainly an interesting precedent – and perhaps a concerning precedent – has been set. As I understand it, though, Comair as you say was not trying to stop the funding of SAA, or shut the airline down, but would like government to consult it when it does provide funding to SAA. Is that correct?
ERIK VENTER: That’s correct. And I think one of the things to keep in mind here is that, compared to many other countries where the competition legislation actually deals with state funding of state-owned enterprises, and the anti-competitive effect thereof, in South Africa the competition law doesn’t contain any aspects in that regard. And therefore we couldn’t deal with this through the competition courts; we had to deal with it on the basis of the legality of the guarantees issued by government. And so, while the effect of it is its anti-competitive effect, the ruling we were looking at was really regarding the fact that these guarantees ultimately involve the use of taxpayer funds and therefore should be going through parliament, at least. If we can’t have control through the competition court, at least we should have parliament having a say in the matter.
HANNA BARRY: Comair has said before that it would like to level the playing field. Now my question is, if SAA’s mandate is not purely commercial – that was sort of the view held by the judge – so it may operate unprofitable routes, for instance, for the strategic interest of the country, how does that change the playing field, as it were?
ERIK VENTER: Well, I think the fact is that we’ve actually been dealing with the same sentiment regarding SAA for the last 20 years, and the fact that it has operated on a non-commercial basis for the past 20 years and it continues to be bailed out in some form or another. So it really doesn’t make any change to the way we’ve been dealing with it for the last 20 years.
What we’ve been trying to achieve is a better environment for private airlines to operate in. So basically it’s kind of status quo, unfortunately. I guess we are used to dealing with the kind of situation anyway, but we would have liked to have seen a more conducive environment for competition.
HANNA BARRY: We have seen the launch, though of three low-cost independent carriers quite recently – Skywise, Fastjet and Fly Safair. What do you make of that?
ERIK VENTER: Well, we do see these cycles quite regularly. A while back we saw the launch of Mango and 1Time around the same time, and then we saw the launch of Velvet Sky and prior to that we had the SunAir and the Nationwide and everybody else. So it doesn’t stop people from trying to get into the market, but unfortunately it does make it incredibly difficult for them to stay in business.
I think Comair fortunately over the years has built up enough momentum and enough sort of underlying structure to be able to weather the storms, but for new entrants into the market it’s going to be very tough.
HANNA BARRY: Is it true, Erik, that SAA and Mango drop their ticket prices to unsustainable levels and then get bailed out by government when this practice lands them in financial trouble?
ERIK VENTER: Well, fundamentally they are in financial trouble because the ticket prices are lower than their costs. So it’s a pretty basic equation as to why they end up with a loss. And that is basically what these guarantees are for – simply to fund losses. It’s not for any other purpose at this stage, and it was made quite apparent in court that the funding of SAA is simply to cover its losses. And so, yes, they are obviously selling tickets at well below their own operating costs. …
HANNA BARRY: That was Erik Venter, the CEO of Comair on its recent legal battle with SAA. Erik provides some input on skills in the airline industry and how he predicts there could be trouble when some of the former Air Force pilots, which of course no longer really exist, and go into commercial airlines. He predicts that when they begin to retire they could struggle with skills shortages.