Nationwide hits broke SAA with damages suit

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SAA's growing financial burden

Nationwide, now in liquidation, brought the action after the Competition Tribunal found in 2010 that SAA had abused its dominant position in the market to divert customers from competitors. The claim is the first that has gone to court - previous ones were settled - but is not expected to be the last. Comair, which owns Kulula, has launched a claim for R1bn, which is set to go to trial in May.

SAA is broke and is relying on government guarantees to help shore up its financial position. The claim adds to its financial burden. Nationwide's claim is for R171.7m in damages, plus interest calculated from 2010, which totals about R325m.

SAA's prohibited practice bad for healthy competition

Yesterday, counsel for Nationwide, Anthony Gotz, said in his opening address to the High Court in Johannesburg that much of what needed to be proved for a successful claim had already been accomplished before the Competition Tribunal, whose decision was confirmed by a three-member bench of the Competition Appeal Court. All that was left for Judge Caroline Nicholls to decide was how much SAA needed to pay up, Gotz said.

He said SAA dominated at least 45% of the market. During the period June 2001 to March 2005, SAA - by paying commissions to travel agents - had succeeded in getting them to divert customers from competitors, a "prohibited practice" in terms of the Competition Act. The Competition Appeal Court found that this had the effect of "foreclosing" the market, preventing access to competitors, said Gotz.

The inducement took the form of "override incentive agreements" under which travel agents were given a percentage commission of the sale price. When sales reached a certain target set by SAA, an additional incentive was paid. There were also "trust agreements", to reward travel agent loyalty. The tribunal found that these incentive scheme payments were sometimes what kept travel agents in profit, said Gotz.

Nationwide's first witness, former chief operating officer Rodger Whittle, told the court how SAA had poached 22 of its flight crew "overnight", putting Nationwide's flight schedule at risk. He said SAA had also been behind a decision by the government to prohibit BAC1-11 planes from flying above 2,500 feet - meaning all of Nationwide's BAC1-11 planes had to be replaced.

SAA to dispute claims

SAA will respond once all of Nationwide's witnesses have testified, but according to court papers, it will argue that Nationwide had not proven any damages. Damages should, therefore, be assessed at R0, it said in the papers.

SAA will also dispute the claim that prohibited practice was the cause of Nationwide's loss, saying there were other reasons, including an old fleet, SAA's Voyager programme, and government business.

Source: Business Day