SAA expects much smaller loss — but its forecast could be optimistic
SAA is projecting a net loss of R853m in 2017-18, a significant improvement on the projected loss of R4.5bn for 2016-17.
However, its projections for the coming year might be optimistic — as the airline itself admits in its corporate plan tabled in Parliament Monday that it has failed to meet its budgeted revenue for the past three years. It fell short by 12% in 2014-15, by 4% in 2015-16 and by a projected 9% in 2016-17.
According to the corporate plan, revenue of R34.4bn is forecast but operating costs of R29.7bn, aircraft lease costs of R2.9bn, finance costs of R1.7bn, and depreciation and amortisation of R692m translate into a forecast bottom-line loss of R853m.
DA deputy finance spokesman Alf Lees said that while the loss of R853m might seem like a significant improvement on the 2016-17 projected loss of R4.5bn, it was not good enough.
"The airline should at least be working towards break-even for the coming year," he said.
He also believed the R853m loss could be an "optimistic scenario" given SAA’s past failure to meet its profit forecasts.
Among the causes of the ongoing losses is the airline’s weak balance sheet, which means SAA has to rely on borrowings to fund its working capital needs.
It has no equity and is entirely debt-funded.
Treasury has committed itself to an equity injection this financial year and consultancy group Seabury is re-evaluating the airline’s long-term turnaround strategy.
The corporate plan says "radical steps are required to achieve financial sustainability" for SAA.
Financial sustainability would be achieved through aggressive revenue-generating programmes as well as cost containment. Urgent action needed to be taken on loss-making routes and to optimise the utilisation of the SAA fleet.
SAA also plans to "optimise" the co-ordination of SAA and its Mango subsidiary over the next few months.
"Passenger unit revenue is constantly declining as airlines pass cost savings to the consumer. Any airline that is unable to address its cost base will cease to be financially viable," the plan says.
SAA’s cost structure is much higher than its rival regional airlines’.
Rising oil prices are expected to drive up jet fuel prices from $52.10 per barrel in 2016 to $64.90 per barrel in 2017. Jet fuel prices are expected to account for 18.7% of the airline industry’s cost structure in 2017.
The corporate plan notes that SAA is facing intense competition from non-African airlines and low-cost carriers. Its share of the international long-haul routes declined from 25% to 19% between 2011 and 2016, while more than half of domestic capacity is now generated by low-cost carriers.
Middle Eastern carriers such as Emirates have made deep penetrations into the African and South African markets.
SAA’s low growth relative to its major African and non-African competitors has placed pressure on its revenues and yield. Having lost scale, it cannot compete or grow the business aggressively.
"Ultimately this means that SAA’s market share will contract and it will lose its relevance," the corporate plan says.
Domestically, "the chronic oversupply" of capacity continues to put pressure on average fares, with new carriers offering launch fares SAA does not believe are sustainable in the long run.
SAA has about 21% of total seat capacity on the domestic market, Mango about 19% and Comair (including subsidiary Kulula) about 15%.