South Africa’s competition commission has blocked Johannesburg-based regional carrier Airlink’s plans to acquire Cape Town-based Safair, parent of LCC FlySafair.

In November, the two airlines announced they were seeking permission to merge under the Airlink umbrella, to create economies of scale, optimize asset use and remove systems duplication.

The companies planned to retain their own branding, products, fleets and management, with no job losses expected.

However, on Feb. 22, Airlink released an update saying the acquisition had failed to secure regulatory approval.

“We respectfully disagree with the decision and the points the commission has raised to justify its decision. With this in mind, we will approach the competition tribunal for an opportunity to address and allay the competition commission’s concerns (most of which relate to airline operational technical matters) and for the tribunal to reconsider our application. We will not elaborate on these now as we do not wish to prejudice our case before the tribunal,” Airlink said in a statement.

Airlink said the deal would be beneficial for the companies, their customers, employees and suppliers, as well as for wider connectivity and economic growth.

However, the Competition Commission of South Africa said the merger “is likely to result in a substantial prevention of competition.” It observed that Safair is lower-priced than Airlink, which is positive for competition, should they go head-to-head on routes. Conversely, the merger could create “likelihood of significant price increases.”

Furthermore, South African Airways (SAA) has a stake in Airlink, so this could mean commercially sensitive SAA information could be passed to Safair. According to the regulator, Airlink might also attempt to extend its SAA partnership to include Safair, weakening competition between the three airlines—and indirectly with government-owned SA Express too.

“In this regard, the commission found that the merger would likely result in the enhancement and facilitation of coordinated conduct. The commission found that no remedies could sufficiently address the competition concerns identified,” the Competition Commission said.

Together, Airlink and Safair would have had a network of 37 destinations in nine southern African & Indian Ocean countries and St. Helena.

Airlink is the largest regional airline in southern Africa, operating nearly 60 aircraft, while FlySafair operates a fleet of 12 Boeing 737s (including two backup aircraft).

Separately, on Feb. 14, the Competition Commission called for Airlink to be fined up to 10% of its annual turnover for abuse of dominant market position on the Johannesburg-Mthatha route between 2015 and 2017. The predatory pricing complaint was lodged by rival carrier Fly Blue Crane, which claimed prices were excessive before it entered the route, dropping to below cost once it started competing.

“This conduct has had a negative effect on the route, even contributing to the exit of a new competitor that had entered the market in late 2016. Our estimates further show that air travelers in that area overpaid more than ZAR100 million ($864 million) for the five years over which the conduct took place. The Commission is concerned about SA Airlink’s conduct and will seek the maximum administrative penalty before the tribunal,” deputy commissioner Hardin Ratshisusu said.

Airlink acknowledged the decision to refer the complaint to the South African Competition Tribunal.

“Airlink has, and will continue to, cooperate fully and openly with South Africa’s competition authorities. We deny the allegations and welcome the opportunity to put our case before the competition tribunal so that the matter can be put to rest. We are confident our conduct has been and remains, in full compliance with competition rules and the law,” Airlink CEO and MD Rodger Foster said.

Victoria Moores