South African Airways (SAA) admitted on Saturday that it has been subsidizing its low cost subsidiary Mango Airlines by sub-leasing planes at a significantly discounted cost.
The revelation opens up Mango to displinary action by the competition authorities as low-cost competitors who have long suspected unfair competition are likely to file a complaint, BDlive reported.
The ability to sub-lease planes at a discount would give Mango an advantage over new entrants to the market, Erik Venter, CEO of British Airways franchisee Comair Ltd., told BDlive.
“The admission that Mango has been subsidised, unfortunately, means that all three state-owned airlines operate at a loss and with state support. The implication is that new entrants into the airline industry will continue to face a significant barrier in the form of a competitor that can sustainably price its tickets at below operating cost,” Venter said.
The state-owned airline made the announcement in a statement announcing the resignation of Mango’s chief executive, Nico Bezuidenhout, who said on Friday he was leaving the low cost airline to become the head of Africa-focused carrier FastJet Plc from Aug. 1.
Shares in the London-listed airline Fastjet jumped as much as 66 percent after Thursday’s announcement that they had appointed Bezuidenhout as their next CEO, MoneyWeb reported.
An attempt by SAA to prove that Bezuidenhout was not responsible for Mango’s success, but was rather due to its support for by subsidizing the low cost airline, has now backfired and could cause trouble for its subsidiary.
“An initial investment to subsidize the start-up of Mango Airlines, SAA subleased 10 aircraft, at a significantly discounted cost to Mango Airlines, while continuing to pay the market related premium to the lessor,” SAA said in a statement.
“The aircraft are still in use and comprise the whole of Mango’s fleet. SAA understands and accepts that this is a necessary investment and a demonstration of shareholder support towards an entity it has exclusive shareholding over.”
Mango, which launched in 2006, has always said that its success in the South African market was all due to its “no frills” approach, as well as the operation of fuel-efficient aircraft that would save on ticket prices.
According to a Bloomberg report, as well as the operation of fuel-efficient aircraft that would save on ticket prices.
