SAA predicts R853m loss

But airline’s own corporate plan indicates lower figure is optimistic

SAA is projecting a net loss of R853-million in 2017-18‚ a significant improvement on the projected loss of R4.5-billion for 2016-17. However‚ its projections for the coming year might be optimistic.

The airline itself admits in its corporate plan tabled in parliament yesterday that it has failed to meet its budgeted revenue for the past three years, falling short by 12% in 2014-15‚ 4% in 2015-16 and a projected 9% in 2016-17.

According to the corporate plan‚ revenue of R34.4-billion is forecast but operating costs of R29.7-billion‚ aircraft lease costs of R2.9-billion‚ finance costs of R1.7-billion‚ and depreciation and amortisation of R692-million translate into a forecast bottom-line loss of R853million.

DA deputy finance spokesman Alf Lees said while the loss of R853-million might seem like a significant improvement on the 2016-17 projected loss of R4.5-billion‚ it was not good enough.

“The airline should at least be working towards break-even for the coming year‚” he said.

He believed the R853-million loss could be an “optimistic scenario” given SAA’s past failures to meet its profit forecasts.

Among the causes of the ongoing losses is the airline’s weak balance sheet‚ which means SAA has to rely on borrowings to fund its working capital needs.

It is entirely debt-funded.

The Treasury has committed itself to an equity injection this financial year and consultancy group Seabury is re-evaluating the airline’s long-term turnaround strategy.

The corporate plan says radical steps are required to achieve financial sustainability for SAA.

This would be achieved through aggressive revenue-generating programmes as well as cost containment.

Urgent action needs to be taken on loss-making routes and to optimise the utilisation of the SAA fleet.

SAA also plans to “optimise” the coordination of SAA and its Mango subsidiary over the next few months.

SAA’s cost structure is much higher than that of its rival regional airlines.

Rising oil prices are expected to drive up jet fuel prices from $52.10 per barrel last year to $64.90 per barrel this year.

Jet fuel prices are expected to account for 18.7% of the airline industry’s cost structure during this year.

The corporate plan notes that SAA is facing intense competition from nonAfrican airlines and low-cost carriers.

Its share of the international long-haul routes declined from 25% to 19% between 2011 and last year, while more than half of domestic capacity is now generated by low-cost carriers.

SAA’s low growth relative to its major African and non-African competitors has placed pressure on its revenues and yield. Having lost scale‚ it cannot compete or grow the business aggressively.

“Ultimately this means SAA’s market share will contract and it will lose its relevance‚” the corporate plan says.