LETTER: SAA faces a competitive airline industry
Management has been criticised, but a few airline providers dominate a very tough sector
Much criticism has been directed towards the management of SAA recently, given its dire financial situation. It is, however, important to understand the challenges of the external environment SAA operates in.
It is not the first airline to come under the cosh. In April 2019 Jet Airways announced a temporary suspension of flight operations because it simply could not operate any longer. The airline could not pay for fuel and other critical services to keep the operations going. Sounds like SAA.
Why are some airline companies struggling to keep their planes in the sky when millions of people are flying daily? Simply put, the airline industry has high fixed costs and low yields. The industry is also highly competitive. A few airline providers dominate the industry and are constantly fighting for customers. Customers are also not loyal. Given today’s technology, where flight prices for different airlines can be viewed on a website, the customer will invariably go for the cheapest flight available at the most convenient time.
SAA has branded itself a premium provider with fancy perks, but this is not enough to be profitable. It is also interesting to consider the effect technology has had on the revenues of airline providers. With technology such as video conferencing, businesses are cutting their travel spend.
How does SAA increase its revenue without increasing fixed costs? A downward integration in its value chain could be beneficial; while thousands of people need to be transported from the airport to their homes or hotels, would it be viable for SAA to own its own Uber-like metered taxi business?
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