SA Express makes a play to hold on to a life of its own
Interim CEO says feeder airline has a place in the market
The interim CEO of state-owned airline SA Express, Siza Mzimela, says that the company will break even by April and will not require further state support.
In an interview, Mzimela made the case for the continued existence of the troubled airline, the future of which is in doubt as cabinet mulls a plan to restructure the state-owned airline business.
Among the issues that need to be decided on is whether SA Express should become a subsidiary of SAA, whether it should be collapsed into SAA or whether it should be shut down entirely. The company has delivered large losses over the past few years and was grounded by the SA Civil Aviation Authority (CAA) in May.
Mzimela, who was appointed in August, said that a R600m loss was projected for 2018-19 year but that the financial position would improve markedly after that.
“In order for us to break even we need to fly more aircraft, more often and sweat our assets. Come April we will be breaking even as we will be flying more routes,” she said.
Key to the success of SA Express as a stand-alone enterprise is whether the national treasury, which gave it a R1.24bn bailout in the adjustment budget in October, will be flexible on the conditions of the bailout. The treasury has specified that the bailout be used to repay historical debt, but SA Express would like to use some of its guarantee room to raise new facilities.
Since coming on board Mzimela has returned eight of SA Express’s 22 aircraft to service with another two expected to begin flying this week. Two short-lease aircraft have been returned to the lessor and work is under way to get an additional eight relicensed by the CAA and into the air. This will leave two aircraft grounded.
The costs of standing aircraft are heavily punitive for SA Express which leases all its aircraft. A news report last month in City Press claimed that SA Express was losing R1m a day due to grounded aircraft. Grounded aircraft cannot be easily returned to the lessor as they must be in working order. Penalties are levied for leases that terminated prematurely.
Mzimela says the figure is wildly inaccurate as several charter services had been terminated and some discounts on leases had been negotiated. Staff costs had also decreased as some staff left the company during the grounding. However, she would not disclose the extent of daily or monthly losses.
Mzimela argues that the business case for SA Express is solid because as a feeder airline, operating less popular routes with smaller planes it plays a role that SA Airways does not.
“SA Express is critical. It is a feeder airline and so has a very important role to play. We are waiting to see what shape and form the future alignment takes. Normally feeder airlines are a lot more profitable than mainline carriers,” she said.
But industry sources and many in government are deeply sceptical that SA Express will achieve such a quick turnaround or a turnaround at all. The market is crowded with several competitors from the private sector acting as feeders, including SA Airlink, in which government owns 5%, Cemair and Safair.
In comparison to these, SA Express has a high cost base and needs to make an even larger return per route in order to break-even.
During the grounding, other operators quickly stepped into the gap, absorbing SA Express’s market share. In the fight to reclaim it, competitors claim that SA Express is offering fares at below cost, unfairly supported by the state.