SAA in financial turbulence, under pressure to take off from R1,3 billion loss!

SAA will not be privatised, said Malusi Gigaba, Minister of Public Enterprises, at the SAA AGM yesterday, reports Southern African Tourism Update.  In a hard-hitting speech, the Minister threw a number of challenges to the new Board of the airline, to address its R1,3 billion loss in the past financial year, and to address financial irregularities. Privatisation of the airline was rejected outright, the Minister stating that attempts by SWISS, Air New Zealand, and Japan Airlines to privatise had proven to be unsuccessful.

Interesting is that the Minister identified that the Johannesburg – Beijing route is unprofitable, one of the airline’s focus routes, and ironic, given that the Department of Tourism announced yesterday that 60000 Chinese tourists had travelled to our country in the first half of this year, a 68% increase compared to the first half of 2011. China now is our 4th largest source market, and has overtaken France.  Tourism Minister Marthinus van Schalkwyk referred to the good Chinese tourism performance: ‘The launch of SAA’s direct flight between Beijing and Johannesburg in January this year has contributed to growth from this market, helping to meet some of the obvious demand for Destination South Africa in China’. The Beijing route would require more investment and capital, said the Minister.

Other reasons for the financial failure was unprofitable long-haul routes, competition from Middle East airlines, high fuel costs, and challenging ‘global aviation trading conditions’, SAA performing worse than its airline peers! The airline’s CFO Wolf Meyer said that the fuel cost increases (up by 36%) alone had made SAA unprofitable.  Maintenance costs had increased by 32%.  ‘Irregular expenditure’ of R128 million, and R 4 million ‘wasteful expenditure‘ were also recorded in the financial statements, the latter figure containing R3 million for baggage claims.  Good news is that Board members will not receive increases in the current financial year!

The new Board was instructed by Minister Gigaba to appoint a new CEO in the next three months, and to present a turnaround strategy by 15 December. Systems are to be streamlined, and red tape removed, ‘to make important decisions and take action without delay’.

SAA appears to be having a capacity problem on its Johannesburg – Cape Town route, Whale Cottage Portfolio guests regularly feeding back that they cannot book flights to Cape Town on Fridays due to seat unavailability, or excessive supply and demand pricing of R6000 for a SAA economy class ticket. Desperate travellers have to buy a Business Class ticket just to get to Cape Town, making Cape Town inaccessible to the Gauteng market, contrary to SA Tourism’s strategy to increase Domestic Tourism to make up for the shortfall in international visitors!

POSTSCRIPT 20/10:  Ironic is that SAA has just announced that it has strengthened its sales team for the UK and Ireland!

Chris von Ulmenstein, Whale Cottage Portfolio: www.whalecottage.com Twitter: WhaleCottage

2 replies on “SAA in financial turbulence, under pressure to take off from R1,3 billion loss!”

  1. Nick Jones says:

    As a state owned company there is absolutely no incentive for either the board or the employees to turn SAA into a profitable organisation. Without privatisation the product will go from bad to worse; I understand that might be difficult!!

  2. I agree Nick.

    I am surprised that the previous high calibre Board did not have a finger on the pulse, to know what was happening. Did they ‘eject’ before fingers were pointed at them, fiduciary duty and all?

    Chris

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