Potential airline integration plan takes off
CAPE TOWN — The plan to get the state’s aviation enterprises to work more closely together has taken off, with an interdepartmental task team already working with South African Airways (SAA), Mango Airlines and South African Express (SAX) to rationalise their routes, MPs learnt yesterday.
Department of Public Enterprises deputy director-general for transport enterprises Kgomotso Modise said the “unhealthy competition” among the three airlines was of “great concern” to the government. An interdepartmental task team, and the Treasury — which has taken over responsibility for SAA — were overseeing the turnaround of SAA and SAX, and were looking at ways to promote integration and co-operation. The airlines needed to agree on which routes each airline would operate.
This could be a prelude to bringing all three airlines under one holding company as Public Enterprises Minister Lynne Brown has previously mooted. SAX CEO Inathi Ntshanga said in an interview after a meeting of Parliament’s public enterprises committee that the rationalisation of routes was being undertaken in a fair manner so that it did not negatively affect each airline’s profitability. The timing of flights was also being examined.
Mr Ntshanga told the committee that SAX was on the track to becoming a financially sustainable airline. A raft of cost-containment measures had been implemented as part of a turnaround strategy and this had resulted in the airline almost breaking even.
He anticipated that SAX would produce a profit of R60m in the 2015-16 financial year and reduce its bank loans by R100m by yearend. In the year to end-March 2014, SAX made a loss of R206m, a deterioration on the prior year’s R62m.
“We believe the austerity measures are working,” he said. In February, March and April the airline showed a small profit. Debt had been reduced 33.6% between September 2014 and July 2015, from R569m to R378m before the utilisation of the R1.1bn guarantees provided by the state.
Opposition party MPs, who are usually highly critical of the performance of state-owned enterprises, welcomed the improvements.
SAX, like other airlines, has battled rising costs such as fuel, labour, aircraft leases, technical and other operating costs. The dollar denomination of some of these costs had not helped given the strengthening of the currency relative to the rand. SAX’s ageing fleet had also contributed to higher costs as it required more maintenance.
In addition, the airline has had to face the emergence of several new low-cost airlines, which Mr Ntshanga said put pressure on operations and “dilutes fares, affecting profitability”. Passenger numbers had dipped in June but he could not say whether this was due to new entrants, seasonal factors or the contentious visa regulations.
He said SA would “continue to be vigilant about costs”.
Reorganisation of schedules would save about R179m a year.
Other savings would accrue from the lower fees (effective from October) charged by the Airports Company SA and Air Traffic Navigation Services for services such as parking and landing, among others. The industry is in discussion over whether the full benefit of the decrease should be phased in over time or introduced immediately, which SAX would prefer.
Mr Ntshanga stressed that there had been no retrenchments at SAX and that this would be a last resort. The airline has an annual labour bill of about R590m and is in discussion with its employees over a salary freeze, which would save about R40m. It is seeking a R90m saving in the next financial year.
Labour restructuring has involved attrition to tackle overstaffing, and the downward revision of the salary framework. Bonuses were forfeited owing to nonperformance and executives lacking salary hikes. Route networks were consolidated and contracts reviewed. Savings had accrued by changing the ground-handling service provider.