I’m sure many people can recall when a return flight from Johannesburg to Cape Town cost more than $600.
South African Airways was really your only option when it came to domestic flights in South Africa. Travelling by bus or train was usually the cheaper, albeit slower, option.
That all changed when low-cost airline Kulula entered the market – one of the first true low cost airlines on South Africa. Kulula in addition to Nationwide Airlines offered travellers more choice when it came to domestic flights. Just when travellers thought it couldn’t get any better, another low cost carrier entered the market – 1Time.
The competition hotted up and flights between Johannesburg and Cape Town could be had for less than $100.
Moving forward to 2006, South African Airways (SAA) launched a low cost alternative, Mango.
Many people criticized SAA and accused it of unfair trading as it is a public governmental company, and therefore funded by the taxpayer. It is therefore in a position to subsidise Mango with discounted aircraft leases.
In March 2008, Nationwide Airlines was declared bankrupt and was subsequently liquidated. The reasons attributed to this were various factors such as fuel increases and decreased passenger load – which many people believe was due to the extra competition presented by Mango.
This type of competitive behaviour presented by Mango appears to fit the classic definition of predatory pricing.
Clockwise from top left: The defunct Nationwide, Kulula, 1time and Mango
Predatory pricing is a temporary price reduction which aims at pushing one or several competitors out of a market. When the predator (in this case Mango) sets their prices low enough, their victims will make financial losses and finally leave the market. The predator can usually afford to sustain these losses, as they usually have greater resources than that of their victims. (In this case Mango has SAA)
Was Nationwide the first victim?
TRSC 