An evaluation of the impact of air transport deregulation in South Africa

D.Comm.Many studies on the topic of air transport deregulation have seen the light in the past two decades, and only more recently (in the early 1990s) has this trend had its impact on the South African domestic air transport industry. For a period of almost 41 years (from 1949 until 1990), domestic air services on major routes in South Africa were strictly regulated by Government through the Air Services Act, No 51 of 1949. The above is the result of air transport policy that came into being in the early days of air transport and remained in place until the late 1980s. Only after the adoption of a policy of deregulation did air transport policy adjust to allow for the entry of the private sector into the domestic air transport market as from 1990 onwards. In his study titled "Control Over Domestic Air Transportation in South Africa - A Historic Perspective"(1996), Mr J Vermooten describes the history of air transport in South Africa as follows: In the period 1929 to 1934, the following airlines were responsible for establishing scheduled domestic air services in South Africa: - Union Airways; South West African Airways (Junkers); Imperial Airways; and Rhodesian and Nyasaland Airways. All of the above airlines, except the last-mentioned, relied heavily on air mail subsidy agreements from Government enabling them to operate scheduled services in South Africa. Chapter 1 - 2 Over time, the South African Railways and Harbours Administration (SAR&H) became concerned about the threat of intermodal competition from air services and the possible diversionary effect on its first class rail passenger traffic. This eventually resulted in the protection of railway services against competition from air transport, similar - to the protection against competition from motor transportation. The provision of air transport services was fortunately not completely banned. Instead, departmental air services were introduced through the purchase of Union Airways by the South African Railways in February 1934. This was followed by the purchase of South West African Airways a year later (February 1935). At the start of the Second World War (1939/1940), aircraft employed for civil air transport were transferred to military authorities and South Africa became totally dependent on foreign airlines for the provision of domestic air transport services. These services were provided by: the British Overseas Airways Corporation (BOAC); Society Anonyme Beige d'Esploration de la Navigation Aerienne (SABENA) and Southern Rhodesia Air Services (SRAS), which succeeded the old Rhodesia and Nyasaland Airways (RANA). Domestic Air Services by foreign airlines were provided at very reasonable prices during the war, but fares were increased by between 25% and 38% when South African Airways (SAA) resumed its domestic services after the war. The economic conditions immediately after the Second World War could not support the levels of fares and tariffs introduced with the resumption of services by SAA. To rescue the situation, SAA's domestic fares, excess luggage and freight rates were restored to 1941-levels on 1 March 1946. Chapter 1 - 3 In response to the need of Municipalities to clarify their position with regard to airports and feeder services, the South African Government introduced an air transport policy that reserved the major domestic air transport services for SAA, leaving it to the private sector to participate in the provision of feeder air services. The policy also made provision for various categories of airports and degrees of financial assistance by the Government, thereby limiting the demands by Municipalities for the increased use of airports. The National Transport Commission (NTC) was established in terms of the Transport Co-ordination Act of 1948, in order to replace the Civil Aviation Council. The Council was responsible for the technical issues related to air transport, such as the competency of air personnel, airworthiness of aircraft, the provision of facilities in the interest of safety, etc. The Transport Co-ordination Act charged the NTC with the following tasks: "... (to) promote and encourage the development of transport in the Union and, where necessary, co-ordinate various phases of transport in order to achieve the maximum benefit and economy of transport services to the public." The Act also led to the protection of SAA - similar to the protection of railway services provided by the SAR&H. The Air Services Act of 1949 formally introduced the concept of economic regulation of air transport services in South Africa and in 1952 the NTC formulated a comprehensive air transport policy which ensured the establishment of a monopoly for SAA over the majority of air transport services in the domestic market until 1991. Following on what was said above, the Air Services Act (No 51 of 1949) provided for the licensing and control of airlines and air services and stipulated that, subject to certain exceptions, no one was allowed to use an aircraft for commercial purposes, unless a licence to do so has been granted by the NTC (section 2 of the Act). In terms of section 10 of the Act, the NTC was prohibited from granting a licence in competition with an existing licence, if the service provided by the existing licensee was "satisfactory and sufficient" to meet the needs of the public at a "reasonable charge". To summarise, one can say that prior to the establishment of SAA a very liberal air transport policy existed, whilst after its establishment air transport policy was protectionist in nature. The "interest of the public" in the provision of air transport services was generally regarded as the interest of the SAR&H - rather than the users directly affected by the air service. It is also remarkable that foreign airlines played such an important role in the development and maintenance of domestic air services in South Africa in the very early days of air transport in this country, as well as during the Second World War at which time the civil air services provided by SAA were terminated due to support for military needs. Since the establishment of the national carrier, SAA, by the SAR&H, air transport in South Africa was subject to the protection of the Government and as a result, SAA obtained a monopoly in the provision of domestic air transport services. The SAR&H was succeeded by the South African Transport Services (SATS) and in 1988, the South African transport industry moved a step closer towards the deregulation and privatisation of State-owned transport enterprises, with the restructuring of SATS and its predecessor, the SAR&H which has played the role of "Big Brother" in the industry since South Africa became a Union in 1910