COMPETITION COMMISSION MEDIA RELEASE NO 17 24 MAY 2006 SAA SIGNS THREE CONSENT AGREEMENTS WITH THE COMMISSION The Competition Commission (“the Commission”) has concluded consent agreements with SAA in three matters concerning: The complaint initiated by the Commission relating to alleged pricefixing by SAA and Lufthansa occurring as a consequence of various bilateral agreements between the two airlines. The complaint initiated by the Commission relating to the alleged fixing of fuel levy charges through an agreement by domestic airlines. The abuse of dominance complaint by Comair regarding override commission and trust payment agreements between SAA and travel agents.
In terms of the consent agreements SAA will: Pay administrative penalties collectively amounting to R 55 000 000,00 (FIFTY FIVE MILLION RAND). Implement a compliance programme to ensure that their business operations comply with the Competition Act (“the Act”). Refrain from price collusion with any of its competitors and stop the practice of inducing suppliers not to deal with competitors.
The Commission has referred the consent agreements to the Competition Tribunal (“Tribunal”) requesting that they be made consent orders. The Consent Agreements: 1. The consent agreement in respect of bilateral agreements between SAA and Lufthansa and their related conduct The Commission initiated an investigation into various bilateral agreements between SAA and Lufthansa that deal with their relationship in respect of code share flights, which they both operate between Cape Town/ Johannesburg and Frankfurt. The different agreements provide for inter alia the co-ordination of flights, revenue sharing and sales incentives.
1
The Commission found that the bilateral agreements created a platform for SAA and Lufthansa to collude and that the airlines had used the opportunity to fix the selling price of air tickets on their flights between Cape Town/Johannesburg and Frankfurt. This happened through meetings and communications where price changes and the harmonisation of fares were discussed. In terms of the consent agreement SAA has agreed to: Not fix the selling price of air tickets or any other products or services with Lufthansa or any other competitor. Implement a compliance programme designed to ensure that its employees and directors are informed of and comply with their obligations under competition law and the provisions of the Act. Pay an administrative penalty in the amount of R 20 000 000.00 (TWENTY MILLION RAND) by no later than 31 May 2007.
The Commission is currently engaged in negotiations with Lufthansa regarding the terms of an appropriate consent agreement. 2. The consent agreement regarding the agreed simultaneous implementation of identical fuel surcharge levies by domestic airlines On 19 May 2004, the Commission initiated a complaint against the Airlines Association of Southern Africa (“AASA”) and certain of its members (SAA, SA Express, Comair and SA Airlink) in respect of an alleged prohibited practice relating to the simultaneous introduction of an agreed identical fuel surcharge on tickets for domestic and international flights. Following the initiation of the investigation, Comair admitted its involvement in the collusion and agreed to assist the Commission with its investigation. Comair further successfully applied for immunity from prosecution in terms of the Commission’s Corporate Leniency Policy. This was the first successful application in terms of this policy and demonstrates the benefit it has in exposing collusive behaviour. The Commission’s investigation and the information obtained from Comair, confirmed that the four members of AASA had agreed to implement a fuel surcharge levy amounting to the fixing of a price or price related trading condition. This agreement was concluded with SAA and SA Express.
2
In terms of the consent agreement SAA and SA Express agreed that they will: Not agree with any of their competitors on the introduction or increase of any levy or charge in future. Implement a compliance programme designed to ensure that their employees and directors are informed of and comply with their obligations under competition law and the provisions of the Act. Jointly pay an administrative penalty of R20 000 000.00 (TWENTY MILLION RAND) by no later than 31 May 2007.
The Commission is currently engaged in negotiations with SA Airlink regarding the terms of an appropriate consent agreement. 3. The Consent Agreement regarding the Comair complaint on the override commission and trust payment agreements between SAA and its travel agents. Comair filed a complaint with the Commission concerning override commission and trust payment agreements SAA had concluded with travel agents. It was alleged that SAA had abused its dominant position in the domestic market in that the agreements encouraged the agents to increase their sales of SAA tickets at the expense of other airlines. The conduct concerned in this complaint is substantially similar to that considered by the Tribunal in the complaint by Nationwide in relation to an earlier period where the Tribunal imposed an administrative penalty of R 45 000 000,00 (FORTY FIVE MILLION RAND) on SAA. SAA has confirmed that this penalty will be paid to the Commission on or before 31 May 2006. The Commission found that the agreements constituted inducements to suppliers (being the travel agents) to not deal with a competitor (such as Comair) and were anti-competitive in that they: Entrenched and increased SAA’s dominance in the market for domestic airline travel and impeded SAA’s competitors from expanding and competing fairly in the market. Resulted in consumers facing reduced choice because of the incentive for travel agents to maximize their sales of SAA tickets at the expense of other airlines (such as Comair).
3
In terms of the consent agreement SAA has agreed to: Refrain from entering into any agreements with travel agents on terms which would induce them not to deal with competing airlines. Implement a compliance programme designed to ensure that its employees and directors are informed of and comply with their obligations under competition law and the provisions of the Act. Pay an administrative penalty in the amount of R 15 000 000.00 (FIFTEEN MILLION RAND) by no later than 31 May 2007.
The Commission believes that the competition concerns raised by the anticompetitive conduct of SAA will be adequately addressed by SAA’s commitment not to engage in the anti-competitive conduct in the future and to implement a compliance program.
ISSUED BY THE COMPETITION COMMISSION OF SOUTH AFRICA More information may be obtained from: Ms. Liziwe Konyana HOD: Communication Tel: (012) 394 3183 Cell: 082 377 1470 Fax: (012) 394 4183 E-mail: liziwek@compcom.co.za
4