The future of a competitive domestic air transport market in South Africa lay in establishing a balance between the market shares of public and private players, as the risk of a State-subsidised monopoly was emerging, aviation consultant Dr Joachim Vermooten said on Thursday.

“Government’s role in the industry seems to increase; there are now three loss-making government airlines [SAA, SA Express and Mango], while at deregulation [in 1994], there was only one,” he noted at the monthly Transport Forum hosted by the University of Johannesburg.

Vermooten stated that a balance could be reached through restoring the long-term viability of the local aviation sector by implementing compensatory measures to prevent distortion of competition in the market.

He suggested that such measures should involve the divestment of assets, reductions in capacity or market presence, as well as reducing barriers to enter the market.

Vermooten said competitive neutrality, which referred to maintaining a level playing field between public and private entities operating in mixed markets such as South Africa’s aviation market, was neccessary to avoid market distortion.

He noted that State-owned entities (SOEs) had advantages, owing to their ownership, that could create competitive distortions.

“Governments may create an uneven playing field, as they have a vested interest in ensuring that State-owned firms succeed.

“Despite its role as regulator, the government may, in fact, restrict competition through granting SOEs various benefits not offered to private firms.”

Vermooten warned that not putting competitive neutrality arrangements in place would hold negative economic consequences for South Africa.

“Prices charged by SOEs do not fully reflect resource costs, which distort decisions on production and consumption, investment and other decisions by private sector competitors, as well as the competitive process.

“This reduces efficiency in the economy and service levels in the industry,” he put forward.

Further, Vermooten stated that there was apparent corporate governance failure at beleaguered national carrier South African Airways (SAA) and that it was not strictly being kept to the Domestic Air Transport Policy, which stipulated that the airline must operate on a commercial basis.

“SAA is not operating on a commercial basis. It incurs large levels of accumulated losses, which impose losses on the whole industry,” he said, adding that the airline’s current revenue was not sufficient to cover its costs.

He warned that SAA’s steep funding requirements could put the funding of other government programmes at risk.

“There needs to be a national debate on the scope of government's involvement in aviation and funding requirements. The White Paper on National Transport Policy 1996 already raised relevant issues,” Vermooten said.

As per the policy, SAA is also prohibited from enjoying any privileges in terms of any legislation or any other practice as a result of it being a government enterprise. However, Vermooten said the firm was allowed to expand despite incurring losses, while its board and management was protected from the Companies Act requirements through bail-outs.

Meanwhile, University of Johannesburg Department of Transport and Supply Chain Management head Professor Jackie Walters stated that the concern of private sector airlines at the beginning of the opening up of the market, that the State would, contrary to its aviation policy, continue to support SAA financially, had materialised.

“SAA has reportedly accumulated losses in the order of R12-billion following deregulation of airlines [until 2010] and has received some form or another of financial assistance from its shareholder [government] to the amount of about R18-billion, before the recent R5-billion State guarantee,” he indicated.

Walters added that the recent granting of yet another form of financial aid to SAA should be reason to re-examine the role of government in the domestic aviation industry.

“This review could take the form of a policy review process or debate,” he reiterated.