Ockie
Resident Lead Bender
SAA has hinted that it may drop all local and short-haul, “full-service” flights, making way for its low-cost carrier, Mango, to fill the gap.
Nico Bezuidenhout, the acting SAA CEO, dropped the bombshell this week during an extensive presentation to the media.
Bezuidenhout said SAA’s average break-even fare for domestic and short-haul flights was R1 700, while Mango’s was below R900. It was a “no-brainer” what a consumer would choose, he said.
In the past financial year, SAA made R790-million in operating profit for domestic routes, against R760-million for regional flights.
However, 60% of capacity was being dedicated to domestic flights and just 30% to regional. “It is clear there are higher margins for the African operations,” he said.
Optimising the network is a fundamental part of Bezuidenhout’s 90-day action plan and SAA’s long-term turnaround strategy. In January, Bezuidenhout noted that SAA’s domestic routes were loss-making, while the regional routes were profitable.
The trend worldwide has been for the bigger airlines to hand over short routes to their low-cost subsidiaries — or exit the market. He said a study done in 2005 in North America showed that once low-cost carriers had entered the market, “the bigger airlines have 70% of fare levels they had 10 years [before]”.
Bezuidenhout is desperately trying to breathe life into the flailing national carrier, which is battling a crippling financial overhang.
He took over last October from CEO Monwabisi Kalawe, who was mysteriously suspended, resulting in a power struggle between Public Enterprises Minister Lynne Brown and SAA chairwoman Dudu Miyeni. Brown insisted on Kalawe’s reinstatement, and Miyeni refused.
Kalawe is now being investigated by Edward Nathan Sonnenberg. Kalawe could not be contacted.
Kalawe was tasked with implementing the airline’s ninth long-term turnaround plan in 13 years to help stem the cash haemorrhage that has savaged the bottom line.
At a long-delayed annual general meeting in January, SAA admitted it had almost doubled its losses to January to R2.6-billion.
Technically insolvent SAA was able to hold the meeting only because taxpayers were forced to provide a R6.5-billion guarantee.
Bezuidenhout has been aggressively implementing an emergency 90-day action plan to try to “compress” costs and increase revenue.
Some measures have been pushed through at an unprecedented pace, likely because of the mandate given to the National Treasury to get the bankrupt state-owned enterprises back on their feet.
The flights to India and China, which accounted for R1.6-billion in losses in 2013-14, were dumped.
The Beijing route lost about R300-million a year, but was kept on because of the “dual mandate” given to parastatals to create jobs and stimulate markets for South Africa as well as generate profits.
Last month, Miyeni twice repeated the benefits of these routes, saying they had contributed directly to millions of rands worth of business for the nation.
But this week Bezuidenhout said the request to cut the unprofitable routes had been sent to the Treasury on a Friday afternoon and SAA was given the go-ahead on the Monday morning.
These flights will stop on April 1, while flights to Abu Dhabi will be introduced to take advantage of the Middle East trade.
Other cost-cutting measures have included a moratorium on hiring and the phasing in of new airline leases saving about R290-million. A new lease contract is being arranged for half the fleet.
The Free Market Foundation has, however, raised concern about what SAA stands to lose on deposits for these planes.
http://www.bdlive.co.za/businesstimes/2015/02/22/saa-may-abandon-local-flights
