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Economy

IATA sues watchdog on anti-competition claim

An aeroplane takes off. The International Air Transport Authority has sued the Competition Authority over a directive against the lobby group. AFP PHOTO
An aeroplane takes off. The International Air Transport Authority has sued the Competition Authority over a directive against the lobby group. AFP PHOTO 

The International Air Transport Authority (IATA) has sued the Competition Authority after the markets regulator ruled that the ticketing lobby was liable for restrictive trade practice by forcing local travel agents to use a single insurance firm.

The Competition Authority ruled in August that IATA was in breach of the law by compelling local travel agents to get guarantees from one firm-— Saham Insurance Ltd — for ticket stocks they receive from world’s airlines.

This has prompted the court action where IATA wants the High Court to quash the directive and to compel National Treasury cabinet secretary Henry Rotich to appoint a chairperson to the Competitions Tribunal.

The tribunal is expected to hear an appeal against CAK’s order — which stopped IATA from dealing with Saham pending the conclusion of investigations on restrictive trade practices.

IATA has been contracting Saham for the services, but allegations of foul play in the procurement of the insurance company were raised by Kenya Association of Travel Agents (KATA) after bids from ICEA-Lion and Xplico Insurance reportedly failed earlier this year.

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The regulator is investigating claims of restrictive trade practices, which could have locked out other parties from offering the services to IATA.

Raphael Kuuchi, IATA Africa region vice president has denied the allegations, arguing that it is evaluating the bids from ICEA-Lion and Xplico Insurance.

“The applicants have not yet fully supplied the required documents and information to IATA. As soon as the applications have been completed, IATA will undertake the requisite evaluation at its head office in Montreal, Canada,” said Mr Kuuchi.

In order to operate as a local travel agent, a firm is required to produce a bank guarantee of about $1.5 million (Sh133.2 million).

This is what enables firms to obtain ticket stocks from the world’s airlines and access the billing and settlement programme for ticket sales.

Most travel agents could not afford the financial security, which promoted IATA and KATA to come up with an alternative where travel agents would buy credit insurance instead of the Sh133 million bank guarantees.

This arrangement is known as the default payment programme and IATA through a London-based insurance company restricted the local contract Saham Insurance Ltd.

In the past five years, KATA has been agitating for the opening up of the default payment programme market, arguing that this would lead to better and more competitive prices for the consumer. This is what triggered the restrictive trade inquiry.

IATA reckons it was not given a chance to respond to the accusations before the directive to sever ties with Saham was issued to it.

While IATA has already filed an appeal against the decision, the matter cannot be heard as Mr Rotich is yet to appoint a chair to the tribunal.
The quorum for a sitting is the chairperson and two other members.

“IATA cannot therefore properly exercise the right of appeal or seek any measures of protection, and faces a real threat if having the airline business in Kenya halted as a result of the actions of the CAK,” IATA said.

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