Plans for “new SAA” could put airline industry back 30 years

The government’s plan to form a new state-owned airline spells danger for the commercial air travel industry in South Africa.

This is according to experts who spoke to Rapport on the future of air travel in the country following the COVID-19 crisis.

The inability to operate under lockdown has heavily impacted the viability of airlines across the world.

In South Africa nearly all international, regional, and domestic flights have been grounded, with the exception of those used to repatriate citizens.

These restrictions appeared to be the final nail in the coffin for SAA, which was already placed in business rescue before the pandemic hit and flights were grounded.

Business rescue practitioners Les Matuson and Sizwe Dongwana have proposed a plan to liquidate SAA and retrench of 4,700 of its employees, after the government said it will not provide further funding to help turn the airline around.

Minister of Public Enterprises Pravin Gordhan has opposed the plan and suggested a new airline with a combination of public and private ownership.

On Wednesday, Gordhan told a parliamentary committee he would be tabling a plan for the new airline to the business rescue practitioners within 48 hours.

The plan was created in collaboration with relevant unions and air travel consultant Seabury.

A presentation to the committee includes the sale of SAA’s assets and consolidation of the industry, with private airline company Comair mentioned.

Government must subsidise private airliners

The business model of an airline requires that it carries as many passengers and freight on as many flights per day as possible.

It is highly unlikely that airlines will be allowed to operate at full capacity when travel restrictions are lifted, however.

Travel economist Joachim Vermooten said that it would be unaffordable for airlines to service only a few flights and passenger per day.

Expert on public transport Jack van der Merwe explained the government would therefore have to subsidise private airliners until the demand for air travel recovers.

Independent air travel expert Rennie van Zyl warned that if private airlines went under because of a lack of government support, this would pave the way for the new SAA to gain a local monopoly.

The airline industry could return to a policy reminiscent of the years before 1990, where SAA was protected from competition.

“Without competition, service to the consumer will disappear and the old culture of SAA will persist and return to a bottomless pit for the taxpayer,” Van Zyl said.

Another possibility is that government would add terms to its financial assistance to private airlines that would benefit the new SAA.

Comair in business rescue

Comair – which operates Kulula and British Airways in South Africa – this week announced it would enter business rescue due to the effects of the COVID-19 travel restrictions.

CEO Wrenelle Stander said the company faced an unprecedented situation.

“These extraordinary circumstances have completely eroded our revenue base while we are still obliged to meet fixed overhead costs,” Stander said.

“This is a necessary process to ensure a focussed restructuring of the company takes place as quickly as possible so we can take to the skies again as a sustainable business.”

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Plans for “new SAA” could put airline industry back 30 years