SAA continues to stretch the national purse
Though the national carrier can’t match its rivals’ fares in Africa and elsewhere and is a huge financial drain, government will not entertain thoughts of privatisation, saying job losses would be too severe
While the aviation industry is reaching new heights elsewhere in Africa, making travel even more accessible and affordable, SAA is failing to take off as a successful state-owned entity and continues to stretch the national purse.
Yet government looks set to hold on to it.
SAA has failed to make a profit since 2011. The airline came frighteningly close to defaulting in 2017, revealing a R5.6bn loss for the year to March 2018 with revenue dipping about R1bn below its forecasts for the period.
With sky-high prices for flights, and the growing pressure on the fiscus, calls to privatise the airline have increased.
The DA says full privatisation would prevent any further negative impact on SA’s constrained fiscus.
But for former finance minister Malusi Gigaba, the reason government continues to support the airline is abundantly clear.
"SAA has about 10,500 employees and for government to lose SAA would be a huge blow to the economy and to the employees, who would lose their jobs and have their families affected," he told the Financial Mail.
"SAA is a beacon and shining spotlight for SA and selling it would have a trigger effect on other lenders and people who borrow money from SA. Selling SAA would create a very bad impression for our economy."
Even with the dramatic political shift that resulted in Nhlanhla Nene’s return as finance minister earlier this year, government seems to be sticking to its guns on SAA — despite the glaring evidence that the national carrier is a problem.
Added to its dire financial state, SAA also experienced a decline in passenger numbers in the period under review and dropped fares in response to increased competition. At the same time, running costs rose, largely because of steeper fuel costs.
The ANC’s economic transformation subcommittee chair, Enoch Godongwana, says the position on privatisation or nationalisation has not changed.
"We are not approaching those issues.
"Ultimately it’s a decision made by government," he tells the Financial Mail.
Despite arguing that the ANC’s policies are guided by "a balance of evidence", he did not respond to SAA’s cons outweighing the pros.
Nene says cutting debt at the airline will be difficult and involve tough decisions, but the new SAA board is aggressively pursuing implementation of its turnaround strategy.
Though the airline forecasts further losses in 2018/2019, there are plans to return to profitability in 2021. SAA CEO Vuyani Jarana says that by then, its turnaround strategy will start to bear fruit. The three-year recovery plan includes cutting routes, flights and planes.
In February the company halved the number of flights from Johannesburg to London’s Heathrow, and in 2017 reduced the frequency of flights to some African capitals.
Public enterprises minister Pravin Gordhan’s office has indicated to the Financial Mail that a merger between SAA and SA Express is on the cards as part of the broader attempts to restructure the airline and that it will be disclosed soon — after legal, governance and cabinet processes.
It’s clear that moves to privatise are not under way.
SA Express, however, has also proven to be a loss-making entity. The airline requested a postponement of the publication of its March 2017 results.
Auditor-general Kimi Makwetu’s report on SA Express in the 2016 year spelt out concerns around governance, leadership, accounting problems and legal matters.
Absa senior economist Peter Worthington says government hasn’t taken into account that the aviation industry has changed, with the emergence of big players in Africa.
"SAA as a travel hub into Africa doesn’t work any more."
African players including EgyptAir, Ethiopian Airlines and Kenya Airways are taking market share on the continent while international players including Qatar Airways, Etihad and Emirates pose an even bigger threat.
With SAA lacking a competitive edge against the other players, South Africans are even less likely to use the national carrier.
For a one-way trip to London, for example, you’d pay around R4,000 on EgyptAir, Emirates or Etihad; R8,000 on Virgin Atlantic or Swiss Airlines; and R11,000-plus on SAA.
Travelling on the continent will stretch your wallet even further. A one-way trip to Lagos comes to around R3,000 on Rwanda Air or Ethiopian Airlines.
It is upwards of R14,000 on SAA.