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Aviation Industry
Tuesday, July 1, 2008
Who’s at fault?

The traveller’s worst nightmare – airline ticket in hand, ready to check-in, luggage packed and alas to be told that the flight will not take place due to a cancellation of the service by the airline. This comes as a complete surprise without any pre-warning that there are potential problems. Alternative arrangements need to be made often at great expense and inconvenience. No certainty prevails as to any refund that possibly may be made at a later point in respect of airfares paid. Frustration, disappointment, anger is beyond measure.
How is this possible in an industry which is so tightly regulated? Why is the consumer yet again left in the lurch? In a rather nonchalant manner the airline advises with regret, that due to high fuel prices and weak ticket sales, it is obliged to suspend its service forthwith. It affects thousands of passengers having planned and paid for both domestic as well as international journeys. Should anyone else, other than the airline, be responsible for such a deplorable state of affairs?
An airline wishing to do business in South Africa falls squarely within the parameters of the Air Services Licensing Act, 1990. The Act read with its regulations prescribes the manner in which an air carrier is licensed and the criteria to be applied in allowing such carrier to perform a public air service. One of the purposes of the Act is “to provide … for the licensing and control of domestic air services …” The Act establishes an Air Services Licensing Council charged with the obligation to oversee, as the umbrella body, the affairs of domestic air carriers.
Before an air carrier is licensed to perform a service to the public at large, it needs to be in possession of a licence and operating certificate. This entails an inquiry into the financial affairs of the operator. The airline is obliged to demonstrate that the proposed air service will be operated in a safe and reliable manner. As part of the inquiry by the Air Services Council, the financial affairs of the operator require scrutiny. The Council has the authority to subpoena any person to produce documents including balance sheets, profit and loss accounts, and financial statements. These are all aimed at providing “… proof that the applicant is financially capable of operating an air service”.
For a scheduled public service such as that operated by Nationwide, the Council also requires projections of income; cash flow; forecast revenue; forecast yields; passenger numbers and cargo volumes; trading costs; debtor, creditor and stock assumptions; financing costs and taxation; securities for finance; and finance raised and repaid. It is further mandatory that the financial accounting system of the airline is at all times available to the Council for inspection. Moreover, the operator must provide regular statistical information primarily aimed at monitoring the business efficacy of the airline. With few exceptions, this information is to be supplied on an annual basis.
In the absence of compliance by the airline with the strict requirements as laid down, the Council has a variety of powers. These include a direction to the airline to comply with any provision breached; suspension of the licence on conditions determined by the Council; or cancellation of the licence. Once the suspicion of the Council had been raised, it should notify the airline of its concerns and a formal proper investigation and hearing should be held to enquire into the affairs of the airline. This is all aimed at ensuring that the airline continues to provide a safe, reliable and adequate service in terms of the licence initially granted to it. This in turn is aimed at ensuring that the travelling public’s interests remain fully protected.
It is suggested that the Licensing Council or Regulator has the inherent authority and obligation to monitor an airline’s performance as measured against the strict statutory requirements in question.
If Nationwide was running into financial difficulty (which clearly seems to have been the case) so much so that it could not continue its services, it was obliged to advise the Council accordingly in advance of the position. Had that transpired, it would have put the Council on guard and immediate steps should have been taken to minimise the impact of the adversely affected service to the public. In this manner only certain flights, for example to certain destinations, may have been cancelled or frequencies may have been reduced but at least some kind of service on a reduced scale may have continued be it on a temporary basis.
Advance warning to the public at that point would also have minimised the inevitable overall detrimental consequent effects. Lack of adequate communication or lack of suitable response seems to have been a major problem and resulted in extreme hardship to the traveller. The question may fairly be asked ,“Did Nationwide and the Regulator consider the best interests of the travelling public?” By Pierre Naude, director Deneys Reitz Inc.

Copyright © Insurance Times and Investments® Vol:21.6 1st July, 2008
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