SAA to take urgent measures to turn things around

Unprofitable long-haul routes, increased competition by Middle Eastern carriers, and high fuel costs are some of the biggest contributors to SAA’s reported R1, 3bn loss for the past financial year.

Minister of Public Enterprises, Malusi Gigaba, said drastic measures needed to be taken to counteract crippling operational costs and see SAA on a path to recovery. “We do not have the luxury of failing. It is pivotal that the airline be immediately stabilised,” he said.

Gigaba added that, while it was understood that global aviation trading conditions were challenging, SAA had performed worse than its peers.

SAA’s CFO, Wolf Meyer, said operating costs were up 17%. Fuel costs were up 36%; maintenance 32%; navigation, landing and parking 18%; employee expenses 7%; aircraft leases 7%; and other operating costs 4%. He added that, if one was to take out the costs of the increase in fuel prices for the airline, it would have meant the airline would have reported a net profit.

The airline reported R128 million in irregular expenditure, a concerning factor Gigaba said and one that reflected weak internal controls. SAA also reported R4 million in losses due to wasteful expenditure, which included R3 million in baggage claims.

Loss making routes, such as SAA’s recently launched Beijing service, would need more investment and capital, Gigaba said. He said systems needed to be streamlined and red tape procedures removed, in order for the airline to be able to make important decisions and take action without delay.

The new board of directors have been tasked with drawing up a turnaround strategy and a new task team, including newly-appointed SAA chairman, Vuyisile Kona, and the CEO’s of SA Express and Mango, have been given stringent time frames in which they need to report back to the Minister regarding critical success factors needed to turn the airline around. This, Gigaba said, needed to be done by December 15. He also said a new CEO had to be appointed within the next three months. The turnaround strategy is conditional to the R5bn guarantee loan government has committed to assisting the national carrier.

Gigaba also confirmed that there were no plans to privatise the airline, which would result in massive job losses. “Privatisation is definitely not on the cards. SWISS, Japan Airlines, Air New Zealand – these airlines took this route and failed. There’s nothing inherently insufficient with a state owned company,” he said.

The Minister also noted that executive and non-executive board members would not be receiving an increase for the year 2012/2013.