It is difficult to resist the
temptation to comment on the current turbulence relating to FlySafair. The
turbulence relates to 2 issues, both of which have politico-legal substance.The
primary issue relates to the FlySafair "ownership" issue, and the
second relates to FlySafair overbooking practices.
As far as the ownership is concerned, both the domestic and international
licencing councils have declared FlySafair to be in contravention of South
African aviation policy regarding foreign ownership. We currently are waiting
for these bodies to announce the sanctions to be proposed. Note that both of
these councils consist of government appointees.
There are three areas for discussion of the ownership debate. The first is the
overall merit of the requirement for a limit on foreign airline ownership, the
second is the legalise surrounding the definitions of ownership, and the third
is the impact of the council findings, and who gains and who loses.
For discussion on the overbooking debate we should look at the concept of
consumer rights, as opposed to the industry practices, and their impact on
airfares.
Ownership Issues
1. The principle of foreign ownership
Although we are in an era of airline
deregulation and open skies, many countries do still insist on some portion of
local ownership of airlines. This portion varies generally from 25% to 75%. Why
is this?
Air transport is a major contributor
to any country's economy. The connectivity which the industry provides, leverages
major economic activity. Nations are therefore keen to ensure that maximum
benefit accrues to local interests in the home country.
Airline profits are wafer-thin, and
thus the earnings portion of economic benefit is small compared to the other
benefits, such as tourism income, job creation and travel industry earnings.
Conversely, for a country with a small economy, the availability of foreign
capital can unlock more benefit, than the actual airline earnings portion. This
motivates the recent Qatar investment in Airlink.
2. Legalities and sanctions
The licencing councils are
constituted as impartial arbitrators, whose role is to enable industry
participants whilst ensuring that the air regualtions are complied with.
The fact that it has taken a few
years to constitute the air services licencing councils, has led to a long
waiting period to address the issues at hand with respect to FlySafair. This
should not influence the judgment on this issue, but is most unfortunate.
There is some disagreement on whether
owners have to be "natural persons". Most South African airlines have
portions of ownership not belonging to natural persons. There is a reasonable
argument which proposes that few natural persons have the financial resources
to own part, or all, of an airline. This would suggest that the licencing
councils, the interpretation, or the air regulations, are off the mark with the
rulings under discussion.
There is a suggestion that the
licencing councils are being patriotic and chauvinist, rather than pragmatic
and understanding of the industry contributions. It is also reported that the
councils are imposing conditions on their findings which are not specified in
the regulations.
The sanctions available to the
licencing councils include fines and suspension of a licence. It seems hardly
practical to summarily suspend the FlySafair operating licences. This would
have dramatic impact on the travelling public, and the industry in general. A
fine seems unlikely, since if we conclude that FlySafair is breach, then it
would be argued that is the failure of the licencing councils that FlySafair
have been allowed to operate for such a long period.
Winners and losers
Should FlySafair be forced to
terminate services, the winners would be the competitor airlines, indeed they
are the main instigators. This would include the government owned SAA. The
losers, if FlySafair are forced to suspend operations, will be the entire
travel industry, including customers, as well as current employees. In the
longer term, we would expect airfares to move upwards, thanks to reduced
capacity supply, and the disappearance of a benchmark low-cost operator.
Overbooking Issues
4. Industry practice
Globally, airlines do overbook
flights since on every flight there are likely to be no-shows. The International
Air Transport Association fully supports the practice. Each individual airline
will adopt a detail policy based on its market and refund policies. In South
Africa, some airlines have commented that they do not overbook, but prefer to
refuse refunds to no-show passengers.
5. Consumer interest
It is tough to judge which is the
worst of 2 evils: overbooking or no refund for the consumer. No-show passengers
can have very valid reasons for failing to arrive for a flight. In both cases
we believe that the crux of the matter is the manner in which the airline manages
and recovers the situation. For example, we would hope that overbooking level
is reduced where there are no alternative flights to a destination on the day
of the occurrence.
There is no specific provision for
airline overbooking in South African consumer legislation. Globally there are
specific compensation regulations.
