Neels Blom Writer at large
Picture: ISTOCK
Picture: ISTOCK

Regional airlines SA Airlink and Safair have abandoned their merger bid after a protracted effort to combine their operations.

The airlines announced their intention to merge in November 2017, saying that they believed a merger would be beneficial for the two businesses, their customers, employees, suppliers, the local and regional air transport markets and  the broader SA economy.

The Competition Commission disagreed and prohibited the proposed merger on the grounds that it would result in a substantial prevention of competition. It said the merger could result in price increases because it was likely to remove a competitor to Airlink, and Safair offered competitive prices.

SA Airlink marketing and sales manager Karin Murray said on Wednesday that the decision to abandon the merger had nothing to do with the Competition Commission’s objections. “The transaction was terminated for commercial reasons between the parties,” she said.

FlySafair’s sales and distribution manager, Kirby Gordon, said the two businesses had grown and changed considerably in the year since they proposed the merger and that it no longer made sense to shareholders. “We are 140% what we were last year,” she said.

Following the prohibition of the merger by the commission in March 2018, SA Airlink and FlySafair applied to the Competition Tribunal for reconsideration, arguing that the commission had erred in its findings that a merger would remove an effective competitor and a potential competitor, and that the transaction would result in co-ordinated outcomes.

The commission said in a statement on Wednesday that the “co-ordinated effects” of a merger were likely because of a potential exchange of competitively sensitive information between SAA and FlySafair and SA Airlink.

SAA has a shareholding in SA Airlink, which operates under extensive operational agreements with SAA.

In the event of a merger, it said, SA Airlink would likely be able to adapt FlySafair’s strategy that would see it incorporated into the arrangements between SAA and SA Airlink. This, it said, would lead to the “enhancement and facilitation” of co-ordinated conduct.

With the abandonment of the appeal to the tribunal, the commission’s decision to prohibit the merger therefore stands, it said.

However, having abandoned the merger did not mean the two airlines cannot co-operate commercially, said Chris Zweigenthal, the CEO of the Airlines Association of Southern Africa. “The two airlines are doing well in their respective markets,” he said. “They don’t need to enter into an equity arrangement to grow, and they don’t need such an equity transaction to co-operate for their mutual benefit.”

Safair operates a passenger and cargo service and has a substantial share of the humanitarian relief market in Africa. It has provided specialised aviation services since its inception in 1965 and since 2013 competes with SAA-owned Mango Airlines.

Airlink is the largest independent regional airline in Southern Africa and operates a feeder network linking smaller towns and regional centres in SA in a strategic alliance with SAA. It transports about 1.4-million passengers a year.

blomn@businesslive.co.za

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