JOHANNESBURG - South African Airways (SAA) faces the troubled reality of having no market place in South Africa, according to Terry Markman of FMF.
South African Airways newly appointed Chief Executive Officer, Vuyani Jarana will need more than good luck as he faces SAA's ongoing debacle.
According to non-profit organisation (NPO), Free Market Foundation (FMF), Jarana's experience at Vodacom does not serve as saving grace, given that the main objective was to make profit.
FMF is certain that Jarana will fail and explains how.
SAA’s renowned days were in the last century when it flourished on a domestic monopoly, limited global services into Africa and apartheid boycotts.
However, these conditions do not exist today.
This makes SAA virtually irrelevant in the 21st century.
The domestic market was highly regulated prior to 1992.
SAA enjoyed a monopoly of the primary routes as private airlines were limited to operating on secondary routes.
Following deregulation in 1992, SAA exhausted every means to eliminate competition on its domestic routes.
They purchased and shut down new entrants (Flitestar and Sun Air).
This attempt however failed.
SAA’s domestic market share has declined from 98% to about 23% in 2017.
Mango has about 13%.
Despite its legacy advantage, gross mismanagement and incompetence demolishes any hope that the airways can compete with the more efficient private sector in the domestic market.
Among SAA's highlights is its monopoly position in connecting sub-Sahara Africa to the world in the 20th century.
Prior to this, majority of Southern African travel moved through Johannesburg before flying north to Europe or America.
SAA thus benefited immensely from grandfather bilateral rights between its Johannesburg hub and many African destinations such as Luanda, Maputo, Nairobi, Lusaka, Harare, Kinshasa, etc.
SAA made most of its profits from this rights until recently.
Emirates started its big global expansion in the mid-90’s, and today serves 20 destinations in Africa and connects onwards to another 121 destinations via Dubai.
Turkish Airlines has been even more inventive since its growth drive in 2004.
It serves 44 African destinations that connect onwards to a further 183 global destinations via Istanbul.
The introduction of a costly South African transit visa for anyone travelling through Johannesburg as an African hub has only aggravated the situation and SAA’s popular routes into Africa have consequently faded away.
FMF further believes that the apartheid era gave SAA an unnatural commercial advantage in connecting Southern Africa to the world, particularly during the period of boycotts when few international carriers operated to South Africa.
Post 1994, many of the legacy international carriers returned to South Africa.
However, pressure was exerted by the entry of the globally dominant middle-East carriers.
Their scale achieves a lower cost per seat than what a relatively smaller SAA achives.
In addition to their huge global network from their hubs, they also enter all three key points in South Africa (Johannesburg, Cape Town and Durban).
Thus, taking SAA's historic domestic feed traffic between these points and Johannesburg.
Currently, SAA carries a small percentage of the global traffic in South Africa.
Yet, it is being forced to compete on price with airlines that have economies of scale that SAA could not match, even if it operated efficiently and with the latest aircraft.
The global airlines also enjoy international brand presence that allows them to sell the majority of their tickets on the South African routes at a premium in hard currency, while SAA still sells the majority of its tickets in rands and at the lower fares that are affordable to the South African consumer.
An efficient SAA would not be capable of undoing any of the above factors given the globalisation of the aviation industry.
SAA is located at a unfavourable location for a geographic hub – at the southern tip of Africa.
The latest generation of long-haul aircraft have eliminated any feasibility of South Africa as a hub for east-west traffic.
If SAA did not yet exist, there would be no business case for establishing an SAA today.
No amount of turnaround plans will change that, declares the FMF.
However, Jarana could succeed by making for happier tax payers if he manages to close down SAA altogether.
Terry Markman is a transport consultant and was on the Airline Deregulation Committee.