Photo: Simphiwe Mbokazi
Photo: Simphiwe Mbokazi

SAA in talks for new African hubs?

By Chris Spillane Time of article published Apr 16, 2015

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Johannesburg - South African Airways is in talks with Air China Ltd about a partnership that could see the pair set up new African hubs and even pave the way for the Asian carrier to take a stake in SAA, people familiar with the negotiations said.

The South African company, unprofitable and surviving off state credit guarantees, has held meetings with both Air China and HNA Group’s Hainan Airlines Company, said the people, who asked not to be identified because the talks are private.

SAA said last year it’s seeking an equity partner to aid a recovery plan. A Chinese deal may include establishing a hub in an area such as West Africa, helping to counter fast-growing Ethiopian Airlines Enterprise and Kenya Airways Ltd, while broadening China’s access to a continent that provides much of the natural resources that fuel its economy, one person said.

An accord with Air China would build on a December deal that’s seen SAA halt unprofitable Beijing flights in favour of selling tickets via its partner in the Star Alliance grouping.

Air China spokeswoman Rao Xinyu declined to provide details beyond those already announced, SAA representative Tlali Tlali didn’t respond to e-mails and Lin Xiaopeng at Hainan declined to comment. Hainan is the fourth-largest Chinese carrier and seeking to expand after a March 25 order for 30 Boeing 787 planes worth $7.7 billion at list price.

90-day plan

SAA’s move to end the Beijing service while continuing to tap the route via an Air China code-share could save R400 million a year, Nico Bezuidenhout, acting chief executive officer, has said. The scrapping of weaker long-haul routes was part of a 90-day rescue plan that ended on March 24.

A deeper Chinese partnership could also include cooperation on technology, one of the people said.

The outright purchase of a stake by a Chinese carrier is unlikely so long as SAA remains unprofitable, one person said. The net loss at Africa’s top airline by passenger traffic widened to R2.55 billion in the year through March 2014 and figures for the 12 months just ended are also likely to show a shortfall, according to Bezuidenhout, who has been drafted in from discount unit Mango for the second time in two years after the suspension of CEO Monwabisi Kalawe after misconduct allegations.

The December 5 accord with Air China envisaged “network reconfiguration for both airlines to provide better passenger and cargo services between South Africa and China and countries adjacent to both”, state-owned SAA said at the time.

That could be a reference to extending the code-share beyond the Beijing and Johannesburg hubs to access other cities via connecting flights, something global alliance partners commonly do. For Air China, flagship carrier for the world’s second-biggest economy with a population of 1.4 billion, that could bring access to more than 30 locations in southern Africa.

SAA, struggling to turn a profit on routes that might be viable were it able to buy newer planes, has also forged an accord with Etihad Airways PJSC, where CEO James Hogan said last month that his company wasn’t engaged in any investment talks.

* With assistance from Clement Tan in Hong Kong and Haixing Jin in Beijing

Bloomberg

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