Why is SAA still charging extortionate prices during the World Cup?
A Democratic Alliance (DA) study has revealed that the prices being charged by state-owned airliner South African Airways (SAA), ahead of the 2010 FIFA World Cup quarter final, semi final and final matches, are still between two and three times higher than any other airline in the country.
The study shows that SAA's prices are far off the market equilibrium rate, being charged by commercial airliners in this country. The implication is two-fold: Firstly, consumers will be driven away from South African Airways, and the state owned airliner will lose revenue during this period. Secondly, they will scare away potential tourists.
No wonder SAA's senior management failed to appear for their scheduled appearance before the portfolio committee on public enterprises this week, to answer questions about their ticket pricing. Our study shows that the cost of flights being charged by SAA the day before major World Cup matches far exceeds the ticket prices of their competitors, hinting that SAA may wait until flights on other airliners are booked up, and then use the resulting monopoly to charge extortionate prices.
It is perfectly reasonable to expect that when demand for a particular product increases in a market, prices will increase too. The problem is that that it is also evident from our research, exactly what market effect the increase in demand would look like. The increase in ticket prices for three of the other four airliners (British Airways maintain a fixed price throughout) follow similar trends across the four flight dates examined in our survey. These, we can deduce, reflect more or less a market-based change in price. In this context, SAA's prices are shown up as massively inflated.
The question is thus quite simply: How is it that SAA manages to stay more or less competitive with other airlines before, but not during, the 2010 FIFA World Cup?
We believe this research speaks volumes about how parastatals operate in the ANC's warped version of the developmental state. Whereas state owned enterprises are supposed to provide quality and affordable services, our research shows that the market is providing flights between two and three times cheaper than the state's airliner. It is the state that is trying to rip off consumers, while the market is offering services at respectable rates.
SAA say their vision is to deliver a "world-class service to our customers internally and externally". To do this, it should be offering fares at rates that are fair to South African consumers, that are in line with market rates, that are not built around securing monopoly profits once other airliners have been booked out, and that do not scare away tourists.
It was initially anticipated that the 2010 FIFA World Cup would attract around 475,000 visitors to our shores. However, this estimate has now been generally reduced to between 300,000 to 350,000 visitors, a reduction of around 175,000 potential tourists. This represents a loss of around 20,000 jobs when the international benchmark of one job for every eight tourists is factored in. While SAA's exorbitant prices are not the only reason for this very disappointing reduction in anticipated 2010 FIFA World Cup tourists, the above evidence makes it difficult to believe it has not played at least some role in deterring tourists from making bookings. Indeed, we believe SAA's prices may have been one of the significant factors involved in precipitating this unwelcome decline.
As my colleagues on the public enterprises portfolio committee have pointed out, South Africans are entitled to answers. Siza Mzimela, the new CEO of SAA, needs to:
- Explain her failure to appear before Parliament this week.
- Come to Parliament and explain the reasons for SAA's massively inflated flight prices.
- Explain how it is that SAA's booking system is so poor that it resulted in one of its own Operational Managers being thrown off one of its flights.
Methodology of our survey: For flights associated with the quarter final, semi final and final of the World Cup, we searched for flights the day prior to the match, from Cape Town to Johannesburg, or Johannesburg to Cape Town (as applicable), and listed the least expensive flights on offer for each airline. We used a set of flight two months from today's date, and two months prior to the final, as a control date to assess flight prices prior to the tournament. For this set of flights, we used an aggregate of the Cape Town to Johannesburg and Johannesburg to Cape Town prices, where these two flights were not already equal in price. Prices were obtained from each airline's website.
Data sets:
[Control data:]
Route: Cape Town to Johannesburg and Johannesburg to Cape Town (aggregate of both)
Flight date: 11 May
SAA: R730
One Time: R757.50
Mango: R777
Kulula: R519
British Airways: R881
[Quarter Final:]
Route: Cape Town to Johannesburg
Flight date: 1 July 2010
Date of quarter final: 2 July
SAA: R3630
One Time: R1199
Mango: R878
Kulula: R919
British Airways: R881
[Semi Final:]
Route: Johannesburg to Cape Town
Flight date: 5 July
Date of semi final: 6 July
SAA: R3630
One Time: R1499
Mango: R1058
Kulula: R1019
British Airways: R881
[Final:]
Route: Cape Town to Johannesburg
Flight date: 10 July
Date of final: 11 July
SAA: R3640
One Time: R1499
Mango: R1087
Kulula: R1819
British Airways: R881
Statement issued by Greg Krumbock, MP, Democratic Alliance shadow minister of tourism, March 11 2010
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