Simple steps to get SAA flying high and proud again
Privatisation of state-owned asset is not necessarily the answer
HOPELESS. Corrupt. Incompetent. Pathetic. These are the words used by a former SAA board member to describe the stewardship of South Africa’s national carrier.
However, even though such sentiments may be shared by the taxpaying public, this does not mean privatisation of the state-owned asset is the answer, experts say.
The airline is no stranger to controversy or a high turnover in executive positions. It recently appointed Musa Zwane as its seventh CEO in four years, and last month lost its chief financial officer, Wolf Meyer.
Barry Parsons, its chief strategy officer, quit just months earlier.
SAA’s performance has fuelled negative public sentiment, but experts argue that the airline has not been properly capitalised since it was hived off from Transnet.
“It’s quite possible to keep SAA and I’d be in favour of keeping it, but not with the sometimes complete ambivalence, ignorance and interference of the shareholder. And not with the hopeless chairperson and incompetent board. With the right management, there is a good pilot corps and very good staff in most divisions,” said former board member Russell Loubser.
According to Loubser, trying to get answers on why three state-owned airlines — SAA, SA Express and Mango — were getting into trouble with competition authorities and undercutting each other, or how the three entities could be better employed strategically, proved fruitless — as did an effort to compile a holistic picture of South Africa’s aviation assets.
“I never got any kind of answer. Then, as we were depleting funds, I begged SAA to go to the shareholder to get them to go to National Treasury and get us at the minimum a guarantee because we were trading under insolvent conditions. But a guarantee just allows you to spend money you can’t afford to service. We needed a capital injection.”
Loubser said in his term the “outstanding” CEO Siza Mzimela and chairwoman Cheryl Carolus were “not prepared to be messed around”.
“We could have done something with the airline. It’s a tight industry but not a complicated one. There is no reason SAA cannot make money with the right leadership.
“In a small-margin industry you need to be properly capitalised, esbecame pecially if you want to borrow from banks.”
Proof of interference and the use of SAA to allocate “largesse” to connected persons, he said, could be found by “shining a light on the entity that has interposed itself between the suppliers of the Airbus aircraft and SAA”.
CEO Zwane said it was in everyone’s interests — not least the airline’s 11 000 employees — that SAA profitable.
“But we need stability at leadership level. It becomes difficult to implement strategy when you have leadership instability.”
After stability of leadership, Zwane said, next on the to-do list should be sustainability and profitability.
“If you look at what we’ve been doing over the last three years since our long-term turnaround strategy was approved by our shareholder, we started a sustained cost compression drive. We’ve saved in excess of R2.5billion.
“But you can’t save yourself to profitability. We need to ensure that our revenues, especially in terms of acquisition of new customers and new routes, are grown sustainably.”
Zwane said a 2012 study by Oxford Economics had shown that what SAA lacked along with a cash injection was overarching and integrated support from other government departments. Such support had boosted Ethiopian Airlines, he said.
“If you have all departments, like tourism, home affairs and trade and industry playing a role, you begin to see the airline producing returns. It’s about business facilitation. SAA is not only in the business of flying people around, but also of bringing them together so that trade happens, tourism happens.”
This view was strongly echoed by Plane Talking MD Linden Birns, who said privatisation was no guarantee of profitability.
“There is a long list of privately run airlines going to the wall and stateowned airlines being run profitably, notably Ethiopian Airlines and Singapore Airlines.”
He said Ethiopian Airlines had the largest profit margin in the world at 14%, and had been growing at a compound annual rate of 11% for five years. “It’s now the biggest airline in Africa and is shaping up to become a serious competitor to Etihad, Qatar and Emirates airlines.”
So how does SAA compete? “First, focus on the customer. Deliver a good value proposition for the money, and do it safely, reliably and professionally. And do that right up to board level. Then, look at other things, like the airline’s mandate.
“SAA needs to contribute to the country’s development agenda, providing necessary services to markets where privately run airlines may not go because they don’t see sufficient profits.”
Given Africa’s reliance on air routes for long-distance and regional travel, Birns said the economic benefits to the country outweighed the costs to the Treasury.
“But SAA has been left to feed off scraps, to hold out the begging bowl.
“This may take some pain in the short term, but it is a capital-intensive industry. Aeroplanes are not cheap, but use them wisely and they become money-printing machines.”
He agreed that developing routes should therefore be a multidepartment, choreographed affair to promote traffic on those routes. “We haven’t done that, if you look at the recent visa regulation debacle.”
Birns said SAA needed to stop giving up routes like Cape Town to London. He said giving up slots at Heathrow had been a bad mistake.
“SAA could have rented out those slots and still earned money off them while it figured out how to best attack that market. Slots at airports like Heathrow are like gold dust. We won’t get them back.”
We could have done something with the airline. It’s a tight industry but not a complicated one Aeroplanes are not cheap, but use them wisely and they become money-printing machines