Time to run SAA like a business
New directors need space and support to do the job
IT seems the only time we hear about our national carrier is when it has lost billions of rands or needs billions of rands. Any patriotic South African would love to see SAA stop bleeding, start paying dividends to its shareholder and serve the developmental agenda of its citizens.
The SAA situation needs deep introspection and workable suggestions for a rescue plan, rather than being used to settle political scores.
Over the years, there have been seismic shifts in aviation. “Liberation of the skies” became a popular policy, especially in the West. Low-cost carriers have resulted in downward pressure on operating costs and a rise in passenger volumes as bus passengers became airline passengers over the past decade.
By far the biggest game changer in international aviation has been the Gulf-based carriers, which introduced improved product offerings and more competitive pricing.
While SAA was pussyfooting with its African strategy, we have seen improved product offerings from emerging African airlines.
Finally, there is the demise of the concept of state-owned airlines, with SAA one of the few remaining majors apart from the Gulf carriers.
Away from the politics overshadowing SAA, the truth is the airline must A) survive, and B) eventually thrive, by reconciling its business model with a changing operational environment.
The business of any commercial airline is to move people and goods from point A to point B at a profit.
As such, one of the key and basic indicators airlines use to measure their profitability is load factor, which indicates how efficiently they are utilising their aircraft. It is a simple measure of how many seats are occupied on every flight and therefore of revenue generated.
This principle is as true for the 102year-old commercial aviation industry as it is for 82-year-old SAA. Yet we never read a media article on SAA’s load factor and how to improve it.
Instead, we obsess about its chairwoman and board.
It is an open secret that SAA is in quite a precarious position. One could say that some of this was of its own making and perhaps due to other structural reasons, partly influenced by the seismic shifts alluded to earlier. In an increasingly competitive environment, with passengers demanding lower fares, better business acumen in running this complex operation is long overdue.
New board members who have been appointed seem to have the required skills. But the government and the new board members must be cautious. Having a good board is no magic wand. It must be given the space and support to do the job, especially by its chair. The board must also appoint a CEO to drive the turnaround. He or she must be given the room to do the job, especially by the chair.
Is SAA a flight of fancy or a necessary evil? Thankfully, it is neither.
It is simply a business and should be run as such. Yes, it is owned by the government, and so also serves an important developmental agenda. But it is primarily a business in an extremely competitive space with lean margins and little room for error.
Strategically, the domestic and regional operations still present good opportunity, but the international operations require more scrutiny. This is largely due to the geographic disadvantage that bedevils South Africa. So what is to be done? First, SAA is a business and needs to strictly adhere to business principles. Load factors and other financial indicators need to be measured and honoured. Board meeting agendas must be about the business.
Second, the tools of the trade, which in this case are aircraft, need to be modern and fuel competitive.
On this point, the suspicions around meddling in the procurement of aircraft is troubling, to say the least. There is no debate that SAA needs a new fleet. Just get on with it.
Third, unprofitable routes with no chance of rehabilitation need to be struck off. Cut them and form alliances and code shares instead.
Last, we cannot keep funding SAA losses. Lessons need to be drawn from Telkom and consideration given to introducing equity partners to share the funding burden.
In addition to a cash injection, a strategic equity partner will compel the right corporate governance to support a turnaround. Good luck to the new board. Khumalo is chief investment officer of MSG Afrika Group, and presents “Power Business” on Power 98.7 at 5pm, Monday to Thursday. He is a former board member of SAA