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SAA this week argued that there were no grounds for it to pay now-defunct Nationwide Airlines any damages because Nationwide had no audited financial statements that could be used to quantify any losses.
This argument was put forward by SAA counsel Gerrit Pretorius at the South Gauteng High Court in Johannesburg this week, where Nationwide’s lawsuit, worth R325 million, was being heard.
The trial, which continues tomorrow, comes after the Competition Tribunal ruled in 2010 that SAA abused its dominance by paying commissions to travel agents to divert customers away from Nationwide and travel with SAA instead.
During the cross-examination of Vernon Bricknell, the founder and former CEO of Nationwide, Pretorius said another reason the court should ignore Nationwide’s damages claim was because the airline was a lossmaking company that only posted a profit twice between 1995 and 2008.
Pretorius said that even after SAA stopped paying commissions to travel agents, Nationwide continued making a loss, despite a spike in passenger numbers in 2005.
Nationwide is suing for the period 2001 to 2005, when SAA was paying millions of rands in commission to travel agents.
SAA previously settled out of court when Nationwide sued SAA for the same practice for the years between 1999 and 2001.
Nationwide rejected SAA’s offer to settle out of court this time because the offer was far below what Nationwide was demanding – R171.7 million with 15.5% interest since 2010, resulting in a total of R325 million.
When Pretorius asked Bricknell why he continued to fund Nationwide despite making massive losses, Bricknell said: “We were hoping to turn it around.”
Pretorius said: “In 2005, your liabilities were more than all your assets put together. For Nationwide to be a going concern, you had to subordinate loans, which meant that other [creditors] got paid first before others.”
Pretorius said the airline’s liquidation was its own doing and not as a result of anti-competitive behaviour by SAA.
“In February 2006, you competed with SAA with no override commission. You competed on equal footing, but you made a loss of R30 million,” said Pretorius.
Bricknell (71) had earlier told the court that the loss
of Nationwide had left him “disillusioned”, and he blamed SAA for paying hefty commissions to travel agents, including giving away cars to the best-performing agents if they sold more tickets for flights on SAA routes.
“Travel agents went all out to hit the [SAA] targets and, instead of getting basic commission, they got big cheques. They were not out to sell cheaper tickets,” said Bricknell.
Counsel for Nationwide Anthony Gotz said that travel agents, 90% of whom SAA had in its pockets, were paramount to Nationwide’s survival and that SAA’s actions were tantamount to taking passengers from his client.
Despite dominating 45% of the airline market in South Africa, there were no vast differences between the local routes offered by SAA and those offered by Nationwide, said Gotz.
Although Nationwide’s tickets were cheaper, SAA always got more passengers.
“As a consequence of SAA’s abuse of its dominant position, travel agents who would otherwise have booked passengers on domestic Nationwide flights were required or induced to book such passengers on domestic SAA flights, causing Nationwide to suffer a loss of profits in respect of tickets that would otherwise have been sold on domestic Nationwide flights to such passengers, a prohibited practice under the Competition Act,” said Gotz.
SAA is facing a similar claim for R1 billion from Comair, which owns kulula.com, and the case is set to begin in May.
Cash-strapped SAA could post losses on its international routes for a fifth year in a row when it announces its financial results this year after it cancelled the unprofitable route between Johannesburg and Abu Dhabi.
The suspension of the Abu Dhabi route came only 11 months after SAA introduced it, and follows the airline’s R1.6 billion loss incurred on its international routes in 2014.
SAA spokesperson Tlali Tlali would not speculate on how the financials would look, but indicated that there was no other international route that the airline wanted to close.
The state-owned airline made the section 54 application to National Treasury, which approved the cancellation of the Abu Dhabi route.
However, Tlali said that SAA constantly assessed all routes to ensure profitability.
“SAA is profitable on the domestic and regional segments of our global route network. It is only the international routes that are proving to be a challenge to us. We are looking at a number of options to cure the situation.
“Some of the interventions we have in mind are of a sensitive nature and, if we were to disclose them prematurely, they could easily give our competitors an edge over us,” said Tlali.
Last year, SAA canned its nonstop services to Beijing and Mumbai due to heavy losses.
The Beijing route made a loss of R1 billion from when it was introduced in 2012 until it was cancelled last year, and accounted for 21% of the losses arising from international operations.
From 2011 to 2014, SAA made an accumulated loss of R4.4 billion.
