A case of alleged abuse of dominance recently came before the Competition Tribunal. South African Airways (SAA) stood accused of abusing its dominant position in one market (the market for air tickets sold through travel agents for domestic scheduled airline flights) to exclude competitors from a second market (the market of scheduled domestic airline flights).
Historically, SAA and other domestic airlines remunerated travel agents for their ticket distribution services by paying a straight commission on the Rand value of the ticket sold. Over time, the system became more sophisticated and travel agents were rewarded with higher rates of commission on revenue generated, if they achieved certain sales targets. These increased rewards resulted in the agent concerned receiving a higher overall rate of commission on all sales generated in that year to date, once target was achieved, or being awarded a substantially higher rate of commission on sales over target. Both forms of increased incentive were collectively considered and referred to as incremental commission.
Evidence led in this matter showed that from late 1999, SAA took steps to make the attainment of incremental commission a far more difficult exercise for travel agents, by dramatically raising the level at which override commission could be achieved. At the same time, SAA increased the rate of override commission so that while travel agents had to sell more SAA tickets to reach the applicable threshold, the resultant reward was exponentially greater than before. SAA then later introduced the ‘Explorer’ incentive scheme, aimed at the employees of travel agent firms. Employees reaching certain targets of SAA ticket sales were individually rewarded with free international flights with SAA.
SAA's competitors complained that the override incentive scheme, along with the Explorer programme, served to induce travel agents not to deal with SAA's competitors and alleged further that this was an abuse of SAA's dominance. Evidence led showed that in the relevant period, SAA's ticket sales soared, while those of the complainants faltered dramatically.
The Tribunal held that on the face of it, SAA had committed an exclusionary act in the form of inducing suppliers (travel agents as suppliers of ticket distribution services) not to deal with its competitors. The Tribunal next enquired as to whether the exclusionary act had an anticompetitive effect, and in so doing held that the anticompetitive effect could take the form of either harm to consumer welfare or market foreclosure.
It was found that SAA's override commission had the effect of inducing travel agents not to deal with SAA's competitors. Compelling evidence also showed that it was well within the power of travel agents to shift ticket sales to or from one airline, and in this way SAA had foreclosed the market of scheduled domestic airline flights to its competitors. Being satisfied that the exclusionary act complained of had an anticompetitive effect, the Tribunal found that SAA had in fact abused its dominance.
SAA was fined R45 million, 2.25% of its affected turnover in the relevant period. The Tribunal is empowered to impose fines of up to 10% of a firm's turnover.
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