SAA’s revenue is below budget
All its sales have declined
SOUTH African Airways’ (SAA’s) year-to-date revenue is R2.04 billion below budget, while the airline’s costs are R400 million above budget, according to a quarterly report to Parliament.
The report, to the standing committee on finance, showed that the airline’s international sales have declined by 11 percent. Regional and domestic sales were down 6 percent and 21 percent, respectively.
On the other hand, SAA’s costs were above budget. These included maintenance costs (26 percent above budget), energy expenses (2 percent) and labour costs (3 percent).
In the report, SAA said the 2018 financial year budget and the long-term turnaround strategy were premised on certain key assumptions and initiatives. Some of these, the airline said, did not materialise. For instance, the airline is yet to exit wide body aircraft from its fleet. It has also not received all of the R13bn recapitalisation over three years. The capital injection is part of its long-term turnaround strategy.
The airline said there were also a handful of “negative market dynamics” it had not anticipated. These included heightened competition and growth of low-cost carriers.
SAA said the profit and loss impact of initiatives not implemented in the 2018 financial year was estimated at R1.6bn.
The airline said it had taken steps to counter immediate losses. These included shifting four narrow-body aircraft to Mango Airlines in order to reduce the impact of low-cost carriers’ market share gain. Other measures related to a review of unprofitable routes and reducing staff costs.
SAA said the Oversight Forum, a body set up in conjunction with the National Treasury to address the airline’s liquidity and capital problems, had a sixmonths work plan. The Oversight Forum, operational until September, would determine mechanisms to implement the optimal capital structure and funding model for SAA.
Meanwhile, the standing committee on finance postponed its meeting to review the airline’s fourth-quarter results, because of a disagreement on whether the session should be held in committee or in public.
“This emanates from the application made by the chairperson of the standing committee on finance to have some of the presentations by SAA held in private in order to protect the confidentiality of some of SAA’s strategies. Unlike many state-owned enterprises which operate as sole providers of services, SAA is a commercial enterprise which operates in a highly competitive environment. The duty to account to parliament must be balanced with the degree of protection of the confidentiality of SAA’s commercial strategies,” the National Treasury said.
The department said it decided to make SAA’s fourth-quarter presentation public after taking into account the need to protect SAA’s commercially sensitive strategies while staying within the governance prescripts. “The need to protect SAA’s commercial strategies cannot be overemphasised. We are encouraged by the committee’s intention to conduct some of the reviews of reports in private. Holding some of the reviews in committee will allow members of Parliament to have an in-depth engagement with SAA’s leadership while protecting SAA’s commercial strategies,” the Treasury said.