A South African Airways plane prepares to land at OR Tambo International Airport near Johannesburg. File picture: Simphiwe Mbokazi
A South African Airways plane prepares to land at OR Tambo International Airport near Johannesburg. File picture: Simphiwe Mbokazi

SAA shows loss on all international routes

By Londiwe Buthelezi Time of article published Feb 20, 2014

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Johannesburg - None of SAA’s international routes is making a profit.

The route between Johannesburg and Beijing is the worst, with losses of R309 million a year. The route with the smallest loss is still a drain to the tune of R60m.

SAA’s new long-term turnaround strategy will result in the closure of two routes but on instructions from the government and with the agreement of the airline’s board the rest will be kept.

“We are flying to loss-making destinations. We are doing so in support of the country’s trade agendas,” SAA chief executive Monwabisi Kalawe told a parliamentary portfolio committee yesterday.

The route to Kigali, in Burundi, was closed in early December last year. The route to Buenos Aires in Argentina will be closed in March, saving the airline R86m a year.

To minimise losses on continuing routes like Beijing, for instance, SAA is negotiating better slots.

Despite these efforts, SAA would struggle to make a profit on international routes until it changed its long-haul fleet.

“At the moment we’ve got Airbus equipment. Most of them have four engines – these things are gas guzzlers. Most of our international routes are loss-making mainly because of these,” Kalawe said.

Fuel makes up 35 percent of SAA’s total costs.

What made matters worse was the R1 billion erosion of SAA’s earnings as a result of exchange rate volatility.

“Had the rand exchange rate remained the same, without even strengthening, we would have had a profit,” said Andile Khumalo, the chairman of the SAA board sub-committee overseeing the long-term turnaround strategy.

SAA also cited its “geographical disadvantages” as a reason for losses incurred on its international flights. Kalawe said that with most air traffic flowing between east and west, it was no wonder that SAA was in trouble while Middle Eastern airlines were successful.

“If you look in Australia, Qantas… are struggling because of their geographic location. Look at all the airlines who are… [at a] geographic disadvantage, they are struggling. That’s one challenge SAA is facing and we want to mitigate that by starting a hub in west Africa,” he said.

A feasibility study to establish the hub had been finalised. It had identified Ghana and Senegal as the best locations.

When SAA compiled its turnaround strategy, it projected that it would break or even show a small profit between the fourth and fifth year of implementation.

But chairwoman Duduzile Myeni said it should be recognised that SAA was turning its business around with a history of nothing and an empty balance sheet. She said the airline needed to close the financial gap that opened when it was unbundled from Transnet.

Kalawe said conversations with the Treasury and the Department of Public Enterprises about closing the gap had been “constructive”.

Myeni pointed out that SAA had two mandates to balance: the developmental mandate on the government side and its commercial mandate. - Business Report

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