Airlines warned price gouging will not be tolerated

The Competition Commission has preemptively warned that it will monitor airline ticket prices and investigate promptly if they drift into suspicious ranges.

The warning comes after Comair grounded its British Airways and Kulula flights with immediate effect about a week ago, because the carrier does not have enough money to keep flying. Soon after Comair’s announcement, the commission held meetings with Lyft, FlySafair, Airlink and SAA to discuss possible price gouging emanating from the reduction in flights caused by the Comair flight suspension. 

Spokesperson Siyabulela Makunga said the commission called the meeting because the last time Comair was suspended, there had been reports of sharp increases in the price of tickets, raising the suspicion of gouging. 

Price gouging among airlines entails them taking advantage of a market situation such as supply constraints by either adding a higher-priced fare category to the booking system so the top price is even higher, or reallocating the majority of seats to the high fare category to make the majority pay the high price.

Collusion is a real possibility, given that Comair accounts for roughly 40% of South Africa’s domestic seat capacity. 

Makunga said: “We had called for meetings at [the first suspension] but the quick return to operation meant that the meetings and formal investigations did not take place. For this reason, we felt it was important to meet early in this latest suspension, particularly as it is uncertain how long it may last.” 

The Competition Commission is one of three independent statutory bodies — the others being the Competition Tribunal and the Competition Appeal Court — which regulate competition between firms in the market to ensure consumers have product choices. 

When Comair flights were suspended by the South African Civil Aviation Authority in March, the commission said it had heard reports of large increases in the price of tickets by the remaining airlines, some even quoting R5 000 for a single ticket from Johannesburg to Cape Town. 

Ordinarily a peak season ticket from Johannesburg to Cape Town costs R1 264 and the cheapest flight for the same route starts from R898, according to Trip.com, an international online travel agency. 

FlySafair was one of the airlines accused of price gouging and its counter-argument was that it used “demand-based-pricing”. The airline explained this to mean that the first seats on a flight sell at the very lowest price, usually at a loss to the airline, and as the seats start to sell out, they become incrementally more expensive. 

Makunga said that with the immediate drop in capacity, the commission does expect some of the last seats on flights to go for the higher fare bucket but “not the majority”. 

The commission said in a statement after the meetings that the airlines had committed not to change their pricing to exploit the situation. “All parties further acknowledged the challenges posed by the rising fuel prices which will further put pressure on the cost of air travel.”

Makunga said the meeting with the airlines was also to “create certainty for them as to where the line is [in terms of collusion] and we expect them to follow that given the severe penalties and reputational damage of an adverse finding”.

“We have an open channel of communication and if pricing starts to get into ranges that are suspicious then we will engage and investigate,” he added.

Makunga said some airlines had already brought in additional flights, and had an incentive to do so given the need to link passengers to international flights that they operate or are in partnership with. 

Comair announced on Tuesday that British Airways customers affected by the temporary suspension of services have the option to rebook with Airlink at no additional cost. It has also arranged for its international customers who had booked regional or domestic connecting flights with Comair to be re-accommodated on SAA.

John Lamola, SAA’s interim chairperson and chief executive, said in a statement: “Having emerged from business rescue ourselves, we empathise with Comair and understand the difficulties caused by Covid-19 and high fuel prices.” 

He added that SAA was in the process of adjusting its flying programme to add more seats between Johannesburg, Cape Town and Durban. 

SAA has recently trimmed its fleet and reduced its workforce to 1 000 employees since it became the first state-owned entity to be placed under business rescue, which started in December 2019. 

SAA took to the skies again in September 2021 after 18 months of being grounded. It assured its customers that its usual pricing structure remained in place and that during demand periods, lower fares are naturally taken up first.

The commission said it acknowledged the difficulties posed by the rising fuel prices which will further put pressure on the cost of air travel. According to the International Air Transport Association’s jet fuel price monitor, the price of jet fuel has increased by 121.7% in the past 12 months. 

Makunga said the telltale signs of price gouging were unusually high prices for last-minute bookings or starting prices being higher for bookings further into the future when they would usually be lower.

He said consumers using certain airlines could tell whether the rising ticket prices are because of fuel increases and not price gouging by looking at the cost details on their ticket. “For some carriers, there is a fuel price levy on the ticket, which moves with the fuel price and so it is separately reflected on the ticket cost. For these carriers, the base fare should not move.” 

Makunga said that to a large extent fuel increases had already been factored into pricing before Comair suspended flights, “so focusing on the higher prices remains the best [option] for consumers, and the commission can investigate more deeply if there are concerns.” 

Anathi Madubela is an Adamela Trust business reporter at the Mail & Guardian.

The post Airlines warned price gouging will not be tolerated appeared first on The Mail & Guardian.

Also Read

Related Articles