Barriers to Entry for Low Cost Carriers in the South African Airline Industry: Competitive Dynamics and the Entry, Expansion and Exit of 1time Airline

53 Pages Posted: 17 Mar 2017 Last revised: 20 Mar 2017

Anthea Paelo

Centre for Competition, Regulation & Economic Development (CCRED)

Thando Vilakazi

Centre for Competition, Regulation & Economic Development (CCRED)

Date Written: September 1, 2016

Abstract

This paper examines the barriers to entry and expansion of competitor airlines in South Africa. The exit of 1Time from the market as well as the experience of FlySafair, a recent entrant, are used to draw lessons about competitive conditions and constraints that new airlines face in the market. The assessment shows that while the exogenous barriers to entry are not prohibitively high in South Africa (partly evidenced by the number of entrants), a history of repeated anti-competitive conduct by the national carrier, South Africa Airways, has contributed to these challenges. The analysis of price data covering 2014 and 2015 and information drawn from detailed firm-level interviews demonstrates the positive effects of entry in the South African market, including through reducing prices and increasing frequencies to smaller routes which has benefits for local economies. There is preliminary evidence that the entry of LCCs has also contributed to increased passenger volumes, although there are limitations in the data which is available to assess this further.

Keywords: Barriers to entry, Competition, Airlines, Predation, State aid

JEL Classification: L1, L4, O1

Suggested Citation

Paelo, Anthea and Vilakazi, Thando, Barriers to Entry for Low Cost Carriers in the South African Airline Industry: Competitive Dynamics and the Entry, Expansion and Exit of 1time Airline (September 1, 2016). CCRED Working Paper No. 2016/8. Available at SSRN: https://ssrn.com/abstract=2926806 or http://dx.doi.org/10.2139/ssrn.2926806

Anthea Paelo (Contact Author)

Centre for Competition, Regulation & Economic Development (CCRED) ( email )

5 Sturdee Ave
Johannesburg, GP, 2196
South Africa

Thando Vilakazi

Centre for Competition, Regulation & Economic Development (CCRED) ( email )

5 Sturdee Ave
Johannesburg, GP, 2196
South Africa

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