SAA steals from the poor, frustrates job creation efforts

There can be little doubt that South Africa benefits from South African Airlines’ (SAA) existence. But, the costs far exceed the benefits. The airline continually runs at a loss and repeatedly needs to tap into taxpayers’ pockets.

Aviation, in general, creates thousands of jobs. It enables trade, encourages business and promotes tourism. It allows people to travel to see friends, family and new sights. But all this happens regardless of who owns the airline.

In other words, the benefits SAA creates would still be there regardless of who the owner may be. The problem today is the airline destroys more wealth than it produces. Any business that is losing money, regardless of ownership, is destroying wealth. It is not contributing to GDP but taking away from it.

SAA faces a R4.8-billion loss for 2016/17 (and a cumulative loss since 2012 of R15.8-billion). Where could that money come from? It comes from taxpayers, both consumers and producers. For consumers, the extra taxes government raises to fund SAA leaves them with less to spend on other products.

So, people who would rather buy more mielie-meal, or perhaps a new taxi, through the extra taxes they have to pay, instead, subsidise the air travel of people generally better off than they are. In this case, the ANC redistributes wealth from the poorer to the wealthier. It sends wealth up the ladder.

If each rand going to SAA were left in the productive sector, it would create a rand’s worth of employment. The average South African salary is R18 687 per month. If you divide the R4.8-billion loss by that amount, the subsidy to SAA is costing the economy about 256 856 jobs for one year. Of course, reality is more complex than that, but it helps to think about it in simple terms to start with.

As for the jobs SAA creates, what makes the supporters of SAA assume those jobs will disappear? If SAA disappeared overnight there would be a period of adjustment but other airlines would step in and fill the gap – they would profit in doing so.

That sort of collapse, however, becomes more and more likely the greater the debt SAA incurs. The more that debt damages the financial rating of the country, the more the collapse of SAA will bring down along with that of just one airline.

If SAA were to be sold to a private competitor, it is unlikely we would see much decline at all and many of the consequences of collapse could be avoided.

With SAA out of the market, we are more likely to see more robust competition and lower air fares, which would benefit passengers directly and increase trade and tourism by lowering prices.

It is a myth that the government can create jobs by subsidising losing enterprises.

Every rand’s worth of employment created on one side of the ledger comes with a rand’s worth of taxes. Worse yet, the jobs governments tend to create are high paying in comparison to the jobs destroyed, resulting in an increase in gross unemployment.

Redistributing wealth does not create new wealth, just as distributing jobs does not create more jobs.